SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 29, 2004
Commission File Number 33-96638-A
eCom eCom.com, Inc.
- -----------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Florida 65-0538051
- ------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8125 Monetary Dr., Suite H5
Riviera Beach, Florida 33404
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(Address of principal executive offices)
(561) 622-4395
- -----------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes [ X ] No [ ]
As of February 29, 2004 the issuer had 49,955,112 shares of common stock,
$.0001 Par Value, outstanding.
Transitional Small Business Disclosure format: Yes [ ] No [ X ]
eCom eCom.com, Inc. Form 10-QSB February 29, 2004
INDEX
PAGE NO.
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
Independent Accountant's Report 3
Consolidated Balance Sheets:
February 29, 2004 and May 31, 2003 (Unaudited) 4
Consolidated Statements of Operations:
Nine Months Ended February 29, 2004 and
February 28, 2003 (Unaudited) 5
Consolidated Statements of Operations:
Three Months Ended February 29, 2004 and
February 28, 2003 (Unaudited) 6
Consolidated Statements of Shareholders' Deficit:
Years Ended May 31, 2003 and 2002 and the
Nine Months Ended February 29, 2004 (Unaudited) 7
Consolidated Statements of Cash Flows:
Nine Months Ended February 29, 2004 and
2003 (Unaudited) 8
Notes to Consolidated Financial Statements 10
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 21
ITEM 3 CONTROLS AND PROCEDURES 29
PART II OTHER INFORMATION
ITEMS 1-6 30
SIGNATURES AND CERTIFICATIONS 33
Exhibit 31.1 Certification required under Section 302 of 33
the Sarbanes-Oxley Act of 2002 by the CE0
Exhibit 31.2 Certification required under Section 302 of 34
the Sarbanes-Oxley Act of 2002 by the CFO
Exhibit 32 Certification of CEO and CFO Pursuant to 36
Section 906 of the Sarbanes-Oxley Act
2
Wieseneck, Andres & Company, P.A.
Certified Public Accountants
772 U. S. Highway 1, Suite 100
North Palm Beach, Florida 33408
(561) 626-0400
Thomas B. Andres, C.P.A.*, C.V.A. FAX (561) 626-3453
Paul M. Wieseneck, C.P.A.
*Regulated by the State of Florida
Independent Accountant's Report
To the Board of Directors and Stockholders eCom eCom.com, Inc.
We have reviewed the accompanying Balance Sheets of eCom eCom.com, Inc. as of
February 29, 2004 and May 31, 2003, and the related consolidated statements
of operations, for the three-month periods and the nine-month periods ended
February 29, 2004 and February 28, 2003, the consolidated statement of
stockholders' deficit from May 31, 2002 through February 29, 2004, and the
consolidated statement of cash flows for the nine-month periods ended February
29, 2004 and February 28, 2003. These financial statements are the
responsibility of the company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with U.S. generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements for them to be in
conformity with U.S. generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in the notes to the
financial statements, the Company's current liabilities exceed the current
assets by $510,739 and the Company has incurred net operating losses since
inception. These conditions raise substantial doubt about its ability to
continue as a going concern. Management's plans regarding those matters are
described in the notes. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Wieseneck, Andres & Company, P.A.
April 14, 2004
3
eCOM eCOM.COM, INC
CONSOLIDATED BALANCE SHEETS
(Unaudited)
February 29, 2004 May 31, 2003
----------------- ------------
ASSETS
Current Assets
Cash and cash equivalents $ 1,819 $ 111
Accounts receivable other 92 347
Inventories 189,834 147,389
Prepaid expenses 104,044 3,624
------------ ------------
Total Current Assets 295,789 151,471
------------ ------------
Property and Equipment, net 25,572 47,292
------------ ------------
Other Assets
Intangible assets, net 63,974 74,978
Other assets 8,757 9,383
------------ ------------
Total Other Assets 72,731 84,361
------------ ------------
Total Assets $ 394,092 $ 283,124
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 295,899 $ 270,585
Accrued expenses 45,500 2,694
Other Current Liabilities 457 1,402
Current portion of long-term debt 451,278 600,888
Interest accrued on current portion 13,394 -
------------ ------------
Total Current Liabilities 806,528 875,569
Notes Payable, Net of Current Portion - -
------------ ------------
Total Liabilities 806,528 875,569
------------ ------------
Stockholders' Equity
Common stock, $.0001 par value, 50 million
shares authorized, 49,955,112 and
36,393,112 shares issued and outstanding 4,995 3,639
Paid-in capital 6,579,537 6,048,622
Accumulated deficit (6,996,968) (6,644,706)
Treasury stock - -
------------ ------------
Total Stockholders' Deficit (412,436) (592,445)
------------ ------------
Total Liabilities and Stockholders' Equity $ 394,092 $ 283,124
============ ============
See accompanying summary of accounting policies, notes to financial
statements and independent accountants' review report.
4
ECOM ECOM.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Nine Months Ended
February 29, 2004 February 28, 2003
______________ _______________
Revenues
Net Sales $ 47,806 $ 113,329
Cost of Sales (47,799) (90,466)
______________ _______________
Gross Profit 7 22,863
______________ _______________
Other Operating Expenses
Sales and marketing 3,126 23,148
Product development 14,625 14,900
General and administrative 332,337 405,455
Amortization 16,352 15,192
______________ _______________
Total Operating Expenses 366,440 458,695
______________ _______________
Loss from Operations (366,433) (435,832)
Other Income (Expense)
Interest income 4 -
Interest expense (30,170) (9,605)
Gain on disposal of asset 44,337 (254,480)
______________ _______________
Net Other Expenses (14,171) (264,085)
______________ _______________
Net Loss $ (352,262) (699,917)
============== ===============
Net Loss Per Common Share $ (.008) (.023)
============== ===============
Weighted Average Shares Outstanding 42,532,642 30,706,907
============== ===============
See accompanying summary of accounting policies, notes to financial
statements and independent accountants' review report.
5
ECOM ECOM.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended
February 29, 2004 February 28, 2003
_________________ __________________
Revenues
Net Sales $ 13,497 $ 42,089
Cost of Sales (14,238) (30,414)
______________ _____________
Gross Profit (741) 11,675
______________ _____________
Operating Expenses
General and administrative 100,711 285,953
Sales and marketing 278 4,262
Product development 4,875 7,578
Amortization 5,560 560
______________ _____________
Total Operating Expenses 111,424 298,353
______________ _____________
Loss from Operations (112,165) (286,678)
Other Income (Expense)
Interest income 4 2
Interest expense (12,171) (1,865)
Gain/(Loss) on disposal of asset 43,927 0
______________ _____________
Net Other Expenses (31,760) (1,863)
______________ _____________
Net Loss $ (80,405) (288,541)
============== =============
Net Loss Per Common Share $ (.002) (.011)
============== =============
Weighted Average Shares Outstanding 49,955,112 33,609,445
============== =============
See accompanying summary of accounting policies, notes to financial
statements and independent accountants' review report.
6
ECOM ECOM.COM, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT FOR THE YEARS ENDED MAY 31,
2003 AND 2002 AND THE NINE MONTHS ENDED FEBRUARY 29, 2004
(Unaudited)
Number At Add'l Total
of Par Paid In Accum'd Treasury Stockholder
Shares Value Capital Deficit Stock Deficit
---------- ------ ---------- ----------- -------- -----------
Balance,
May 31, 2001 19,010,836 $1,901 $4,127,083 $(4,391,382)$ - $ (262,398)
Issuance of
Common Stock 7,728,686 773 1,628,684 - - 1,629,457
Net Loss - - - (1,482,533) - (1,482,533)
---------- ------ ---------- ----------- -------- -----------
Balance,
May 31, 2002 26,739,512 $2,674 $5,755,767 $(5,873,915)$ - $ (115,474)
Issuance of
Common Stock 9,653,600 965 292,855 - - 293,820
Net Loss - - - (770,791) - (770,791)
---------- ------ ---------- ----------- -------- -----------
Balance,
May 31, 2003 36,393,112 $3,639 $6,048,622 $(6,644,706)$ - $ (592,445)
Issuance of
Common Stock 13,562,000 1,356 530,915 - - 532,271
Net Loss - - - (271,856) - (352,262)
---------- ------ ---------- ----------- -------- -----------
Balance,
Feb 29, 2004 49,955,112 $4,995 $6,579,537 $(6,996,968)$ - $ (412,436)
========== ====== ========== =========== ======== ===========
See accompanying summary of accounting policies, notes to financial
statements and independent accountants' review report.
7
eCOM eCOM.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2003
(Unaudited)
February 29, 2004 February 28, 2003
_______________ _______________
Cash Flows From Operating Activities
Cash received from customers 47,805 113,329
Interest income 4 0
Cash paid to suppliers and employee (80,977) (269,499)
Interest paid (24,773) (9,187)
_______________ _______________
Net Cash Flows Used in
Operating Activities (57,941) (165,357)
_______________ _______________
Cash Flows From Investing Activities
Cancellation of security deposits (2,676) 0
Purchase of equipment (1,360) 0
Purchase of intangible assets (3,076) 0
Proceeds received from sale of equipment 500 0
_______________ _______________
Net Cash Flows Provided By
(Used In) Investing Activities (6,613) 0
_______________ _______________
Cash Flows From Financing Activities
Proceeds from note receivable 0 37,590
Proceeds of loans from stockholders 154,165 182,653
Repayment of loans to stockholders (87,903) (66,520)
_______________ _______________
Net Cash Flows Provided By
Financing Activities 66,262 153,723
_______________ _______________
Net Decrease in Cash 1,709 (11,634)
Cash and Cash Equivalents at
Beginning of Period 111 12,803
_______________ _______________
Cash and Cash Equivalents at
End of Period 1,819 1,169
=============== ===============
Supplemental Disclosures
- ------------------------
Non-Cash transactions
Stock issued for payment of services 215,975 235,985
Stock issued for purchase of intangibles 0 90,000
Stock issued for purchase of prepaid assets 149,898 0
Stock issued for payment of debt 35,214 24,510
See accompanying summary of accounting policies, notes to financial statements
and independent accountants' review report.
8
eCOM eCOM.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED FEBRUARY 29, 2003 AND FEBRUARY 28, 2003
(Unaudited)
Reconciliation of Net Loss to Net Cash Flows Used in Operating Activities:
February 29, 2004 February 28, 2003
_______________ _______________
Net Loss (352,262) (699,917)
Add items not requiring outlay of cash:
Depreciation and amortization 39,432 48,978
Expenses paid by issuing stock 215,975 165,173
Gain on sale of assets 535 0
Cash was increased by:
Decrease in accounts receivable 255 0
Decrease in inventory 0 15,413
Decrease in prepaid expenses 0 150,586
Decrease in other current asset 0 187,000
Increase in accrued interest payable 13,394 0
Increase in accounts payable 25,314 0
Increase in accrued expenses 42,806 0
Cash was decreased by:
Increase in accounts receivable 0 (327)
Increase in inventory (42,445) 0
Decrease in accrued expenses 0 (1,961)
Decrease in other current liabilities (945) 0
_______________ _______________
Net Cash Flows Used In
Operating Activities (57,941) (165,357)
=============== ===============
See accompanying summary of accounting policies, notes to financial
statements and independent accountants' review report.
9
ECOM ECOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2003
NOTE A - NATURE OF OPERATIONS
eCom eCom.com, Inc. ("eCom" or "the Company") was incorporated in the State of
Florida on June 14, 1994. eCom changed its direction to focus on separating its
business segments. The goal is to identify at least one target company for
each of the Company's ten subsidiaries. The Company will eventually identify
an acquisition for itself. This will then bring the total to eleven
independently operating companies.
This plan was undertaken for the purposes of allowing the management and
employees the opportunity to operate each segment independently. Also, to have
the ability for each segment, to raise its own funding for growth and
expansion.
The Company is in the process of finalizing spin off's for USA SportsNet
Company and MyZipSoft, Inc. At the time this report was being prepared neither
transaction was completed. For more information please refer to "Subsequent
Events" within this report. eCom's subsidiaries are listed below indicating
either if agreements have been made or pending, along with the prospective
target company.
1. USA Performance Products, Inc.
2. eSecureSoft Corp.
3. USA SportsNet Company* American Capital Holding, Inc.
4. MyZipSoft, Inc. * Freedom 4 Wireless, Inc.
5. USAS Digital, Inc.** Smart Pill Diagnostics, Inc.
6. Pro Card Corp. ** Cornerstone Energy Partners
7. AAB National Company ** 21st Century Exploration Corp.
8. A Classified Ad, Inc.
9. Swap and Shop Corp
10. A Super Deal, Inc.
* Agreement
** Pending
It is the Company's intention to eventually make available for partnership or
spin off all of its ten subsidiaries for the purposes of attracting management
and operational staff. The mission is to make each company profitable and to
grow on their own, thus returning value to all shareholders.
The business segments listed below are in the process of completing the spin-
off procedure and indicating the target company that they plan to acquire.
1. USA SportsNet Company, Palm Beach Gardens, Florida
Product Line: e-Commerce business.
Target Company: American Capital Holdings, Inc.
2. MyZipSoft, Inc., Palm Beach Gardens, Florida
Product Line: Development and distribution of software.
Target Company: Freedom4Wireless, Inc.
See accompanying independent accountants' review report.
10
ECOM ECOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2003
NOTE A - NATURE OF OPERATIONS (CONTINUED)
On April 9, 2002 we announced that we had signed a new agreement for use of
high power compression encoding technology developed by MeVis Technology of
Germany. The first product released using the new technology is MyPhotoZip
(tm). MyPhotoZip(tm) provides a better quality image than JPEG and other
compression products now on the market. We are moving ahead as quickly as
possible to develop and market an array of compression products using this new
technology while it is still the state of the art. Software Development Kits
(SDK's) are also available. This will be assigned to our eSecureSoft division.
The company continues to renegotiate a teaming agreement that was
entered into on June 18, 2002 with World Data Group LLC, of Boca Raton,
Florida. The original agreement provided revenue sharing in the amount of 10%
of all World Data Group's income derived from MeVis Technology integrations. In
addition, any of the integrated products to be offered for commercial sale will
be made available to eCom eCom to resell.
On July 1, 2002, the Company acquired the licensing rights to Pandora and
Virtual Protect from Internet Security Solutions, for a total cost of $56,250.
This asset is being amortized over five years. Accumulated amortization
related to this asset is $16,875 as of November 30, 2003.
On July 1, 2002, the Company paid Peter Tamayo, Jr. to work with MeVis
Technologies to complete the development of MyPhotoZip, for a total cost of
$33,750. This asset is being amortized over five years. Accumulated
amortization related to this asset is $10,125 as of November 30, 2003.
On July 15, 2002 we announced the availability of MyPhotoZip(tm) for download
from our new website, www.myphotozip.com. In addition, we provided details of
the primary marketing strategy for all of our company's compression products
which is based on an agreement signed with Plugin Technologies of the United
Kingdom. Using Plugin's network of thousands of sales affiliates, ECOM's
product lines was promoted globally to a variety of market segments. While
broadening the target audience to international markets, this approach takes
advantage of the Internet without incurring the heavy cost of traditional
Internet-based advertising programs. This will be assigned to our eSecureSoft
division.
On September 18, 2002, the Company issued 25,000 shares of stock as payment
towards the purchase of FotoCrazy software. This deposit was recorded as
$1,125.
On December 12, 2002 we signed a contract to purchase the software rights to
FotoCrazy from Interveloce.net. FotoCrazy is an on-line subscription based
photo-album system, which will allow users to post and organize digital images
on their own web pages. This product will be assigned to eSecureSoft in the
near future. This will be assigned to our eSecureSoft division.
See accompanying independent accountants' review report.
11
ECOM ECOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2003
NOTE A - NATURE OF OPERATIONS (CONTINUED)
In February 2003, the company signed a Master Distributor Agreement with Artera
Group, Inc., of Westport CT, a subsidiary of NCT Group, Inc. (OTCBB:NTCI). The
agreement covers the distribution of Artera Turbo Web Accelerator for Internet
access. The company will market the product as MyNetZip for a monthly
subscription fee. MyNetZip will have the MyPhotoZip technology imbedded to
provide DSL speed over dial-up internet connections. MyNetZip can be used with
all Internet connections and especially Internet access which is normally
enhanced to the DSL level of service.
On November 30, 2003, the Company acquired the Internet URL, PhotoZip.com, for
a total cost of $3,076. This asset will be amortized over five years.
Amortization related to this assets will begin December 1, 2003.
Please refer to "Other Events" for additional information.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation, Use of Estimates
The Company maintains its accounts on the accrual basis of accounting. The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Consolidation
The consolidated financial statements of the Company include the accounts of
USA Performance Products, Inc. The Company formed USA Performance Products,
Inc. as a separate wholly owned subsidiary on January 20, 1998 and
transferred all assets related to the manufacture and sale of the Viper M1
paintball marker and accessories to this new corporation. We expanded the
activities of USA Performance Products in 1999 by selling other paintball
products through use of the 800-PAINTBALL toll-free telephone number and
related website acquired by USASC.
Revenue Recognition
Revenue from the sale of paintball markers and accessories is recognized at
the time title is transferred which is normally on shipment of the goods.
Revenue from the sale of compression products is also recognized at the
time the products are shipped or downloaded. Revenue received from contracts
for web site development services is recorded as unearned revenue until
development of the related web site is complete and accepted by the client.
See accompanying independent accountants' review report.
12
ECOM ECOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2003
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash
Cash consists of deposits in banks and other financial institutions having
original maturities of less than ninety days.
Allowance for Doubtful Accounts
It is the policy of management to review the outstanding accounts receivable
at year end, as well as the bad debt write-offs experienced in the past, and
establish an allowance for doubtful accounts for uncollectible amounts.
Depreciation
Property and equipment is recorded at cost and is depreciated over the
estimated useful lives of the related assets. Depreciation is computed using
the straight-line method.
Amortization
Intangible assets consisting of rights to technology and associated
trademarks are amortized using the straight-line method over five years.
Inventories
Inventories are stated at the lower of cost or market using the first in
first out method.
NOTE C - INVENTORIES
Inventories consist principally of paintball markers and paintball
accessories and sports-related memorabilia. Inventories are carried at cost,
which is considered to be less than market value.
On February 29, 2004, inventory consisted of the following:
Finished goods $ 36,883
Work in process 152,951
Raw materials 0
----------
Total inventory $ 189,834
==========
NOTE D - PREPAID EXPENSES
Prepaid expenses consist principally of amounts paid for rent, subscriptions
and domain name registrations.
See accompanying independent accountants' review report.
13
ECOM ECOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2003
NOTE E - PROPERTY AND EQUIPMENT
The following is a summary of property and equipment recorded in the
financial statements at cost less depreciation as of February 29, 2004 and May
31, 2003:
February 29, 2004 May 31, 2003
----------------- ------------
Computer hardware $ 151,471 $ 150,111
Computer software 56,308 56,308
Furniture, fixtures and equipment 47,760 47,760
Tools, dies and fixtures 57,401 57,401
---------------- ------------
Total Cost 312,940 311,580
Accumulated Depreciation 287,369 264,288
------------ ------------
Total Net Property and Equipment $ 25,571 $ 47,292
============ ============
Depreciation expense included in the cost
of sales for the periods ended are: $ 23,081 $ 45,053
The useful lives assigned to property and equipment to compute depreciation
are:
Computer Hardware 5 years
Computer Software 5 years
Furniture, fixtures and equipment 7 years
Tools, dies and fixtures 5 years
NOTE F - INTANGIBLE ASSETS
In February 1999, the Company acquired two Internet websites, AclassifiedAd
and Swapandshop, for a total cost of $11,200. These assets are amortized over
five years. Accumulated amortization related to these assets was $11,110 and
$9,430 as of February 29, 2004 and May 31, 2003, respectively.
On July 1, 2002, the Company acquired the licensing rights to Pandora and
Virtual Protect from Internet Security Solutions, for a total cost of $56,250.
This asset is being amortized over five years. Accumulated amortization
related to this asset is $19,688 as of February 29, 2004.
On July 1, 2002, the Company paid Peter Tamayo, Jr. to work with MeVis
Technologies to complete the development of MyPhotoZip, for a total cost of
$33,750. This asset is being amortized over five years. Accumulated
amortization related to this asset is $11,812 as of February 29, 2004.
On September 18, 2002, the Company issued 25,000 shares of stock as payment
towards the purchase of FotoCrazy software. This deposit was recorded as
$1,125.
See accompanying independent accountants' review report.
14
ECOM ECOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2003
NOTE F - INTANGIBLE ASSETS (CONTINUED)
On August 1, 2003, the Company agreed to pay Digital River $2,000 to develop a
distribution system for the MyPhotoZip compression software. Accumulated
amortization related to this asset is $1,167 as of February 29, 2004.
On November 30, 2003, the Company acquired the Internet URL PhotoZip.com for a
total cost of $3,706.04.
Intangible assets with a finite usefull life aquired after June 30, 2001 are
amortized over their useful lives to the company. Intangible assets acquired
after June 30, 2001 having a infinite useful life are recovered at their fair
value and are not amortized. Management reviews all intangible assets for
impairment annually.
NOTE G - OTHER ASSETS
Other assets consist primarily of security deposits on the lease of office
facilities, an employee advance and utility deposits.
NOTE H - LONG-TERM DEBT
Long-term debt as of February 29, 2004 and May 31, 2003 consisted of:
February 29, 2004 May 31, 2003
--------------- ------------
A non-interest bearing, non-collateralized loan
from an offshore corporation that is due on
demand. A settlement was reached with this
corporation and the note was converted to
paid-in-capital on January 24, 2004. 0 184,220
Three non-interest bearing, non-collateralized
loans from stockholders. The loans are due on
demand. 449,153 416,668
---------- ----------
Total Long-Term Debt 449,153 600,888
Less Current Portion (449,153) (600,888)
---------- ----------
Net Long-term Debt $ 0 $ 0
========== ==========
The long-term loans payable mature as follows:
May 31, 2004 449,153 600,888
---------- ----------
$ 449,153 $ 600,888
========== ==========
See accompanying independent accountants' review report.
15
ECOM ECOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2003
NOTE I - COST OF SALES
Included in the cost of sales are the following:
February 29, 2004 May 31, 2003
------------ ------------
Shipping and handling costs $ 815 $ 0
Packaging costs 124 460
------------ ------------
Total $ 939 $ 460
============ ============
Shipping income $ 2,405 $ 8,946
============ ============
NOTE J - COMMITMENTS AND CONTINGENCIES
The Company leases office facilities under an operating lease one which
expires on March 31, 2004. The Company leases its manufacturing facility under
an operating lease which expires June 30, 2004. Future minimum lease payments
including sales tax as of February 29, 2004 are:
Fiscal Years ending:
May 31, 2004 $ 5,565
May 31, 2005 1,855
May 31, 2005 0
-------
Total Minimum Lease Payments $ 7,420
Rent expense for the nine-month periods ending February 29, 2004 and February
28 2003 are $42,668 and $57,612 respectively.
We are party to lawsuits in the normal course of our business. Litigation can
be expensive and disruptive to normal business operations; the results of legal
proceedings are difficult to predict.
Our dispute with four companies had similar suits of non-payment against either
eCom eCom.com or it's subsidiary USA Performance Products. Each of these suits
were initially settled during the fiscal year ending May 31, 2002. However two
matters resurfaced. The first matter concerning National Paintball which had
notified us through their attorney that the issuance of stock agreed upon in
the settlement was insufficient to cover the settlement. The company is
currently trying to determine the circumstances which led to the shortfall.
This matter is being negotiated. The second matter is the attorney for Renick
Enterprises Inc. had notified us of his contention that the company failed to
complete its agreement by the appropriate date. Management felt that the claim
was unfounded and that the company met its obligation timely.
See accompanying independent accountants' review report.
16
ECOM ECOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2003
NOTE J - COMMITMENTS AND CONTINGENCIES (CONTINUED)
The court has ruled in favor of the Company. Please refer to Subsequent Events
for more information on this matter.
National Paintball Supply, Inc. filed a complaint against USA Performance
Products and eCom eCom.com, Inc. in the State of South Carolina, Greenville
County Court of Common Pleas on May 14, 2001. The complaint alleged that an
amount of $85,743 is owed to the complainant. The Company disputes this
claim. National Paintball Supply handled paintball fulfillment requests for
USA Performance products. USA Performance Products contended that many
requests for fulfillment were not completed while some requests were shipped
twice. USA Performance Products has recorded a balance due of $69,373 as of
May 31, 2001. As part of the SB-2 dated August 8, 2002, stock was registered
to pay-off this debt. As of February 28, 2003 all stock that had previously
been held in an Attorney escrow account, had been sold and transferred to
National Paintball. The balance reportedly owed National Paintball as of
February 29, 2004 is $59,476.
NOTE K - RELATED PARTY TRANSACTIONS
On January 10, 1998, the Company's Board of Directors approved an agreement
with Axis Enterprises, Ltd., a Bahamian corporation of Nassau, Bahamas, to
retain Axis for a period of three years to provide certain financing,
marketing and management services in support of the Company's subsidiary,
USA Performance Products, Inc. In exchange for performance of these services,
Axis was granted 1,500,000 shares of common stock. The final marketing and
management agreement was executed on April 8, 1998. Derek D. Panaia, son of
David J. Panaia, CEO of the Company, was retained as a consultant to provide
management oversight of USAPP in connection with this agreement. In 1999,
Axis loaned the Company $296,000, and this indebtedness was reduced by
$111,780 through the issuance of 150,000 shares of the Company's common stock.
The Company settled the balance of this debt to Axis for $184,220.
The Company has received cash advances from David J. Panaia, Chairman and CEO
of the Company, in varying amounts and at various times subsequent to the
inception of the Company. These shareholder loans were non-interest bearing,
non-collateralized and due on demand.
On May 10, 2001, 1,286,359 shares of restricted stock were issued to Mr.
Panaia in return for cancellation of $437,362 ($.34 per share) of the debt
owed to him. The balance owed to Mr. Panaia at November 30, 2003 was $330,791.
The Company has received cash advances from Bonnie Crum, daughter of David J.
Panaia, CEO of the Company, in varying amounts and at various times subsequent
to May 31, 2001. These related party loans were non-interest bearing, non-
collateralized and due on demand. The balance owed to Ms. Crum as of February
29, 2004 is $40,000.
See accompanying independent accountants' review report.
17
ECOM ECOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2003
NOTE L - BUSINESS SEGMENTS
Prior to the Board of Directors decision to spin of its ten subsidiaries the
Company's reportable segments were business units that offer different products
and services. The Company had two reportable segments: electronic commerce and
software. The electronic commerce segment has provided an e-commerce
infrastructure to enable small businesses to expand to the Internet. The e-
commerce segment focuses on classifieds, auctions and its paintball gun
company. The software segment focuses on the design and resale of secure
software applications for compression and transmission of large data files.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. There have been no
intersegment sales or transfers. Revenues from sales of the Company's
paintball products over the Internet are reported within the paintball
segment.
The following is a summary of segment activity:
Electronic
Paintball Commerce Totals
Nine Months Ended: ---------- ---------- ----------
February 29, 2004
- ------------------
Revenues $ 45,521 $ 2,285 47,806
Interest expense 496 29,675 30,171
Depreciation 11,531 11,550 23,081
Amortization - 16,352 16,352
Segment loss (43,538) (308,725) (352,262)
Segment assets 181,045 213,047 394,092
Electronic
Paintball Commerce Totals
Nine Months Ended: ---------- -------- -----------
February 28, 2003
- ------------------
Revenues $ 103,335 $ 9,994 113,329
Interest expense 270 9,335 9,605
Depreciation 17,359 16,431 33,790
Amortization - 15,192 15,190
Segment loss (200,449) (499,469) (699,917)
Segment assets 195,762 117,130 312,892
NOTE M - RECOVERABILITY OF ASSETS AND GOING CONCERN
These financial statements are presented on the basis that the Company is a
going concern. Going concern contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business over a
reasonable length of time. The accompanying financial statements show that
See accompanying independent accountants' review report.
18
ECOM ECOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2003
current liabilities exceed current assets by $510,739 at February 29, 2004 and
$724,098 at May 31, 2003 and that the Company has incurred net operating losses
since inception.
eCom has been funding operations and software development through product by
sales, asset sales, shareholder loans and private sales of company stock. eCom
contracted with Digital River Inc to market and distribute MyPhotoZip. USA
Performance Products completed its approval with the United States General
Services Administration. The Viper M-1 paintball gun can now be purchased
through GSA Advantage, the Federal Government's online purchasing system. eCom
is continuing to look for partners or buyers for the USA Performance Products
division.
In accordance with the May 2001 agreement to sell the 1-800-PAINTBALL
number, the Company agreed not to sell paintball accessories for a period of
three years which will end in May 2004. The company continues to manufacture
and sell the Viper paintball gun. The Company is currently focusing its
efforts on locating a business partner for its USA Performance Products, Inc.
to engage in the manufacturing, sales and distribution of a complete line of
paintball products.
NOTE N - INCOME TAXES
Deferred income taxes are provided for temporary differences between the
financial reporting and income tax basis of the Company's assets and
liabilities. Temporary differences, net operating loss carry forwards
and valuation allowances comprising the net deferred taxes on the balance
sheets is as follows:
February 29, 2004
--------------
Loss carry forward for tax purposes $ 6,986,224
==============
Deferred tax asset (34%) 2,375,316
Valuation allowance (2,375,316)
--------------
Net deferred tax asset -
==============
No provision for federal and state income taxes has been recorded because the
Company has incurred net operating losses since inception. The Company's net
operating loss carry-forward as of November 30, 2003 was approximately
$6,906,000. These carry-forwards, which will be available to offset future
taxable income, will expire through the year 2023.
The Company does not believe that the realization of the related net deferred
tax asset meets the criteria required by generally accepted accounting
principles and, accordingly, the deferred income tax asset arising from such
loss carry forward has been fully reserved.
See accompanying independent accountants' review report.
19
ECOM ECOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2003
NOTE O - EFFECTS OF INFLATION
To date, inflation has not had a material impact on the Company's
consolidated financial results.
NOTE P - RECENT ACCOUNTING PRONOUNCEMENTS
The FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations with
an effective date for financial statements issued for fiscal years beginning
after June 15, 2002. The statement addresses financial accounting and
reporting for obligations related with the retirement of tangible long-lived
assets and the costs associated with asset retirement. The statement requires
the recognition of retirement obligations which will, therefore, generally
increase liabilities; retirement costs will be added to the carrying value of
long-lived assets, therefore, assets will be increased; and depreciation and
accretion expense will be higher in the later years of an assets life than in
earlier years. The Company adopted SFAS No. 143 at January 1, 2002. The
adoption of SFAS No. 143 had no impact on the Company's operating results or
financial positions.
The FASB also issued SFAS No. 144, Accounting for the Impairment or Disposal
of Long-Lived Assets and is effective for financial statements issued for
fiscal years beginning January 1, 2002. This statement addresses financial
accounting and reporting for the impairment or the disposal of long-lived
asset. An impairment loss is recognized if the carrying amount of a long-
lived group exceeds the sum of the undiscounted cash flow expected to result
from the use and eventual disposition of the asset group. Long-lived assets
should be tested at least annually or whenever changes in circumstances
indicate that its carrying amount may not be recoverable. This statement
does not apply to goodwill and intangible assets that are not amortized.
The Company adapted SFAS No. 144 in the first quarter of 2002. The adoption
of SFAS No. 144 had no impact on the Company's operating results or
financial position.
In April 2002, the FASB issued SFAS No. 145, "Rescission of the FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections"("SFAS No. 145"). SFAS No. 145 eliminates the requirement to
classify gains and losses from the extinguishment of indebtedness as
extraordinary, requires certain lease modifications to be treated the same as a
sale-leaseback transaction, and makes other non-substantive technical
corrections to existing pronouncements. SFAS No. 145 is effective for fiscal
years beginning after May 15, 2002. SFAS No. 145 was adopted on June 1, 2003
and did not have a material effect on the Company's financial position or
results of operations.
Goodwill and intangible assets acquired prior to July 1, 2001 will continue to
be amortized and tested for impairment in accordance with pre- SFAS No. 142
requirements until adoption of SFAS No. 142. Under the provision of SFAS
See accompanying independent accountants' review report.
20
ECOM ECOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2003
NOTE P - RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
No.142, intangible assets with definite useful lives will be amortized to their
estimated residual values over those estimated useful lives in proportion to
the economic benefits consumed. Such intangible assets remain subject to the
impairment provisions of SFAS No. 121. Intangible assets with indefinite useful
lives will be tested for impairment annually in lieu of being amortized. The
Company's current yearly amortization of intangible assets is approximately
$21,911. The impact of adopting SFAS Nos. 141 and 142 will not cause a material
change in the Company's consolidated financial statements as of the date of
this report.
ECOM ECOM.COM, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with the accompanying
consolidated financial statements for the nine-month periods ended February 29,
2004 and February 28, 2003 and the Form 10-KSB for the fiscal year ended May
31, 2003.
Special Note Regarding Forward-Looking Statements
Certain statements in this report and elsewhere (such as in other filings by
the Company with the Securities and Exchange Commission ("SEC"), press
releases, presentations by the Company or its management and oral statements)
may constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Words such as "expects,"
"anticipates," "intends," "plans," "believes," "seeks," "estimates," and
"should," and variations of these words and similar expressions, are intended
to identify these forward-looking statements. The Company's actual results
could differ materially from those anticipated in these forward-looking
statements. Factors that might cause or contribute to such differences
include, among others, competitive pressures, the growth rate of the
paintball industry and electronic commerce, constantly changing technology
and market acceptance of the Company's products and services. The Company
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements, which may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
Overview
The results of its operations during the nine months ended February 29, 2004
were a reflection of the continued evolution of its new business model.
Management has also developed a debt reduction plan which has reduced debt by
69,041 during this period.
See accompanying independent accountants' review report.
21
ECOM ECOM.COM, INC.
eCom recently changed its direction to focus on locating target companies to
partner, merge with or acquire for its ten business segments. USA SportsNet,
Inc. and MyZipSoft, Inc. have signed Asset Purchase Agreements and are in the
process of acquiring new names as a result. USA SportsNet will be known as
American Capital Holdings, Inc. and MyZipSoft will be known as
Freedom4Wireless, Inc.
This plan was undertaken to allow management and employees the opportunity to
operate each segment independently. Also, to have the ability for each segment,
to raise its own funding for growth and expansion.
The Company previously developed an e-commerce infrastructure that provided an
affordable, user-friendly technological platform and professional resources to
facilitate web business development. It also operated an on-line business as a
test model, using Company developed e-commerce concepts to sell paintball
products. This business model will be transferred to its subsidiary
eSecureSoft.
All ten (10) business subsidiaries have been spun off into independent
operating public companies. They are described within this section.
As previously stated, the company realized that it did not have the proper
resources to develop all ten of its business segments in a timely manner. Thus
decided to look towards a spin-off or partnership so that it may obtain the
necessary outside resources. Also, there were indications that potential
business partners desired to be involved with only one of eCom's many business
segments.
The Company has identified prospective companies which will allow several
business segments to grow, expand and become profitable through an acquisition,
affiliation or partnership and become of more value to shareholders. There are
two firm and three pending prospects to report at this time. However, if and
when these spin offs are accomplished, it is the company's intention to make
them independent full trading public companies and to use a pro-rata basis to
distribute any new shares to current eCOM shareholders.
The two business segments that have firm prospects are described below.
1. USA SportsNet Company, Palm Beach Gardens, Florida, has signed an Asset
Purchase Agreement with American Capital Holdings, Inc.
2. MyZipSoft, Inc., Palm Beach Gardens, Florida, has signed an Asset Purchase
Agreement with Freedom4Wireless, Inc.
eCom eCom's subsidiaries which have been spun off are listed below indicating
agreements either completed or pending, along with the prospective target
company.
1. USA Performance Products, Inc.
2. eSecureSoft Corp.
3. USA SportsNet Company* American Capital Holding, Inc.
4. MyZipSoft, Inc. * Freedom 4 Wireless, Inc.
5. USAS Digital, Inc.** Smart Pill Diagnostics, Inc.
22
ECOM ECOM.COM, INC.
6. Pro Card Corp. ** Cornerstone Energy Partners
7. AAB Company ** 21st Century Exploration Corp.
8. A Classified Ad, Inc.
9. Swap and Shop Corp
10. A Super Deal, Inc.
* Agreement
** Pending
Shareholders who maintain their shares in ECEC will be entitled to a pro-rata
share of each spin-off as it occurs. Meaning you must own ECEC stock on the
Date of Payment. The Company wishes to stress that each spin off will have a
different Date of Payment. For clarity purposes, the Date of Record which is
set first, determines the outstanding shares eligible for the spin-off shares
by attaching a "Due Bill" to them (this will be done by the transfer agent.) If
shares are transferred or sold before the Date of Payment, the new shares
belong to the new owner. It urges all shareholders to be patient as this type
of transaction has many steps and takes time.
These spin offs will bring additional value to all ECEC shareholders when
completed. Not only will each new spin off company be an additional holding
for every shareholder but as an additional benefit the Company is applying to
the IRS for it to be treated as a tax free distribution.
The Company plans to apply for listings on the AMEX as soon as each company can
qualify which incidentally requires a minimum stock price of $3.00 per share.
As you can see there are many steps that the Company must take, so again, all
investors are asked to be patient as the spin off plan was undertaken for all
shareholder's benefit. Fractional shares, if any, will be paid for in cash to
each shareholder entitled.
Over the past several years, two realities have been made clear: 1) investor
appetite for technology stocks diminished; and 2) e-commerce spending declined.
eCom restructured its business operations to preserve the Company's future in
these difficult markets. This transformation continues today. As a result of
this focused execution, we believe we have set the stage to propel eCom's
future business. The restructuring consists of creating business segments by
seeking management and operational partners for each either through a merger or
spin-off.
About American Capital Holdings, Inc. (formerly USA SportsNet)
History. American Capital Holdings, Inc.(ACH) was incorporated in the State of
Florida on January 25,1999 as US Amateur Sports Company, a wholly owned
subsidiary of eCom eCom.com, Inc.("eCom") which trades on the OTC/Bulletin
Board under the symbol 'ECEC.' On March 24, 2003, the Company changed its name
to USA SportsNet, Inc. (USASN), and recently changed its name to American
Capital Holdings, Inc. in connection with its spin off by eCom and its
acquisition of certain assets of a company formerly known as American Capital
Holdings, Inc. (now known as ACHI, Inc.) The Company's main office is located
at 100 Village Square Crossing, Suite 202, Palm Beach Gardens, Florida 33410,
and the telephone number is (561) 622-4395.
23
ECOM ECOM.COM, INC.
On December 1, 2003, the Board of Directors of eCom approved the spin-off of
USASN. They voted to issue to the shareholders of eCom one share of the Company
for every one share of eCom owned as of the record date of January 5, 2004.
Fractional shares will be purchased by the Company. No payment was required of
the eCom shareholders.
Acquisition from American Capital Holdings. After the spin off of the Company
was completed, the Company was presented with an opportunity to acquire certain
assets of American Capital Holdings, Inc. (now known as, and referred to
hereafter as ACHI) On January 12, 2004, the Company entered into an Asset
Purchase Agreement with ACHI whereby the Company acquired certain assets of
ACHI in return for the issuance of common stock of the Company in an amount
equal to 83.3% of the total ownership of the Company. In order to accomplish
this transaction, the Company effected a 20 to 1 reverse stock split, which
reduced its outstanding stock to 2,497,756 shares, and issued to ACHI
12,457,356 shares. The Company then changed its name to American Capital
Holdings, Inc., and ACHI changed its name to ACHI, Inc. In addition, the
Company agreed to reserve 35,000,000 of its authorized, but unissued shares,
for issuance pursuant to a public offering, this includes an issue of 2,093,351
shares to Spaulding Ventures, LLC, or its shareholders, in replacement of the
shares of ACHI issued or to be issued to Spaulding in connection with a prior
acquisition of assets by ACHI from Spaulding (see "Acquisition of Spaulding").
The proceeds of the public offering are to be used to acquire additional
interests in some of the companies in which the Company currently holds an
ownership interest, to provide capital to those companies, and to acquire
interests in other businesses of interest to the Company, which have not yet
been identified.
Assets Acquired from American Capital Holdings. The assets acquired from ACHI
consist primarily of approximately $10.8 million of investment interests in ten
developing companies (described below), approximately $3.2 million of
restricted securities, approximately $233,000 of marketable securities,
approximately $100,000 in cash, and proprietary investment programs known as
Energy Tax Incentive Preferred Securities ("ETIPS")and Guaranteed Principal
Insured Convertible Securities ("GPICS") which ACHI had developed and
specifically designed to facilitate investment in oil and gas exploration in
the United States, and in developing companies.
Acquisition of Spaulding. On December 30, 2003, prior to the Company's
acquisition from ACHI, ACHI entered into a letter agreement with Spaulding
Ventures, LLC, pursuant to which ACHI agreed to acquire all of Spaulding's
assets in return for 2,093,351 shares of ACHI common stock, plus warrants to
purchase a total of 209,335 additional shares of ACHI common stock at a
purchase price of $6.00 per share. As part of its acquisition from ACHI of the
assets ACHI acquired from Spaulding, the Company has agreed to replace the
shares and warrants issued by ACHI with shares and warrants of the Company. In
order to facilitate the distribution of these securities by Spaulding to its
shareholders, the Company intends file a Registration Statement with the
Securities and Exchange Commission registering the distribution to Spaulding's
shareholders of both the acquisition shares and the shares to be issued upon
exercise of the warrants.
24
ECOM ECOM.COM, INC.
Assets Acquired from Spaulding. The assets acquired by ACHI from Spaulding,
and subsequently acquired by the Company from ACHI, consist primarily of equity
ownership positions in ten developing companies including Spaulding.
Spaulding Ventures
Overview
Spaulding Ventures LLC, a Delaware limited liability company (the "Fund"), was
a private equity fund that provides early and interim-stage financing to
entrepreneurs to launch and develop growth businesses and that provides
financing to established young companies as they grow toward maturity. The
Fund invests in enterprises with solid disciplines and characteristics that are
essential to building strong companies: top flight management; necessary and
adequate financing; critical products or services; demand-pull markets;
effective strategic planning and alliances; and excellent business, marketing
and sales plans.
The Fund provides investors with an opportunity to participate in venture
financing of a diversified portfolio of start-up and emerging companies with
potentially significant operating success and also provides investors with an
ability to capitalize on the Fund's affiliation with several existing venture
capital and investment banking entities investing in similar sectors.
Portfolio Areas of Interest
Medical
* Healthcare Related Applications and Services
Technology
* High and Low Technology Fundamental Industries
* Software and Hardware Advances
* Proprietary and Intellectual Property Content
Financial Services
* Financial Services Industry
* Application Service Providers
Fundamental Industries
* Petroleum and Energy Related Industry
* Other sound industries for investment and diversification
About Freedom4Wireless, Inc. (formerly MyZipSoft)
History. Freedom4Wireless, Inc.(F4W)was incorporated in the State of Florida
on February 23, 2003 as MyZipSoft, Inc., a wholly owned subsidiary of eCom
eCom.com, Inc.("eCom") which trades on the OTC/Bulletin Board under the symbol
'ECEC.' On December 12, 2003, the Company changed its name to Freedom4Wireless,
Inc. F4W's main office is located at 100 Village Square Crossing, Suite 202,
Palm Beach Gardens, Florida 33410, and the telephone number is (561) 622-4395.
It also has a branch office at 14 East Washington Strret, Orlando, FL.
On December 1, 2003, the Board of Directors of eCom approved the spin-off of
MZS. They voted to issue to the shareholders of eCom one share of the Company
for every one share of eCom owned as of the record date of February 23, 2004.
25
ECOM ECOM.COM, INC.
Fractional shares will be purchased by the Company. No payment was required of
the eCom shareholders.
An Asset Purchase Agreement was signed on January 22, 2004 between MyZipSoft,
Inc. hereinafter "MZS" and Freedom 4 Wireless, Inc. herein after "F4W".
Whereas, Pursuant to an Agreement between parties on 11/28/03, MZS was desirous
to purchase certain assets of Freedom 4 Wireless, Inc. in order to avail itself
of F4W's expertise, background and knowledge of, but not limited to, creative
management, spin offs, MESH wireless technology, securities, structuring of
joint ventures and acquisitions.
Business Description
Freedom 4 Wireless (F4W) is a provider of 4th Generation Mobile Broadband
Wireless Services and Products. F4W's unique 4G mobile broadband wireless
system provides data, video, audio, and voice services to subscribers on the
move, at highway speeds.
F4W generates revenue from the selling of subscriber services, vertical product
sales equipment sales and contracting to deploy turnkey wide area network
wireless solutions. F4W is building a national high speed mobile broadband
wireless network as well as building tactical networks for Homeland Security
and Law Enforcement agencies. F4W's services and products fall into three broad
categories. Freedom 4 Emergency Alert Display Services TM, Freedom 4 Mobile
Services TM and Freedom 4 Smart Equipment Services TM. F4W's focus is on the
public safety market in 2004 and 2005, by in 2006 F4W believes that the demand
for mobile broadband services from business customers will begin to generate
significant incremental revenue from the network infrastructures that
originally were deployed to provide services to the Public Safety Market.
Freedom 4 Emergency Alert Display Services TM networks are networks of
plasma and LCD displays that provide Emergency Alert System (EAS) and
Community Alert System TM (CAS) messaging to the public in times of community
crisis and distress. Such services will allow both federal and local
governmental authorities to communicate with the public about imminent and
immediate events that may require a quick response to save lives or improve
public well-being. Built into these displays are 2-way video and voice
capability so that an individuals and first responders in a crisis can
communicate with emergency organizations. Freedom 4 Mobile Services TM and
Freedom 4 Smart Equipment Services TM are offered through a unique mobile
broadband wireless network. It is the first affordable mobile broadband
wireless system, and it will offer data, voice, and media services. It will be
used to provide mobile, broadband, wireless services to the Department of
Homeland Service, local governments (police, fire/rescue, code enforcement,
permitting, and traffic management), state departments of transportation (to
meet intelligent transportation system needs), health care institutions (mobile
telemedicine), corporate enterprises, small businesses, and consumers.
The vision of Freedom 4 Wireless is to provide broadband wired and wireless
network services to enhance the safety and well-being of the public and to
enable government agencies to increase their effectiveness and efficiency. F4W
26
ECOM ECOM.COM, INC.
will do so through Freedom 4 Emergency Display Services, Mobile Services, and
Smart Equipment Services. By 2007, Freedom Zone Networks envisions its initial
local and regional service networks merging with one another to become a
national network capable of delivering nationally coordinated, but location
specific public safety information relevant to the local community and
providing government agencies with the mobile broadband wireless communications
capability that they so badly need.
In conclusion, the Company cancelled almost all of its existing partnerships
and teaming agreements. The Company's reengineering dictated that time be
directed towards implementing the new business strategy. As discussed below,
the current operating results reflect this temporary cessation of revenues.
However, we believe that the potential revenue and profit to be realized from
our focus on the spin off plan will confirm that the current lull in revenue
generation is a minor inconvenience.
Results of Operations
Comparison of the nine months ended February 29, 2004 with the nine months
ended Febuary 28, 2003.
Revenue for the nine-month period ended February 29, 2004 was $47,806
compared to $113,329 of revenue recorded during the same period of the prior
year. Current year revenues were recorded from sales of the Viper M1 paintball
marker and accessories and sales of MyPhotoZip (TM). Revenue has declined as
management increases it efforts to the successful completion of the spin-offs.
Gross profit decreased from $22,863 in the prior year period to $7 in
the current nine-month period. Gross profit has been reduced by $23,081 of
depreciation expenses in the current nine-month period. Depreciation expense
amounted to 48% of revenue in the current year and only 30% of revenue in the
prior year.
The company continues to make improvements in cutting its operating costs.
Cost reduction was achieved in all major expense categories. Sales and
marketing expense dropped from $23,148 in the nine months ended February 29,
2004 to $3,126 in the current nine-month period. Product development
expenses declined from $14,900 in the prior year period to $14,625 in the
current nine month period. General and administrative costs dropped from
$405,455 in prior year to $332,337 in the current nine month period. Most
of this cost savings was generated from a reduction in personnel and overhead.
Amortization expense increased from $15,192 to $16,352 as a result of
increases in intangible assets. During the current nine month period, the
company began amortizing the development costs associated with allowing Digital
River to distribute MyPhotoZip (TM).
The company incurred net interest expense of $30,170 in the current nine month
period compared to a net interest expense of $9,605 in the prior year nine
month period. This was primarily due to the increased need to borrow funds to
finance current operations.
27
ECOM ECOM.COM, INC.
Our operations for the nine months ended February 29, 2004 resulted in a net
loss of $352,262, a $347,655 improvement over the net loss of $699,917
recorded during the nine months ended February 28, 2003.
Liquidity and Capital Resources
As of February 29, 2004, current assets totaled $295,789 compared to $151,471
at the end of the prior fiscal year. Of the $144,318 increase in total current
assets, inventory accounted for $42,445 of the increase and prepaid assets
accounted for $100,420. The investment in prepaid assets will be used for
future consulting related to our evolving business model.
Accounts Payable increased $25,314 to $295,899 during the current nine months.
This increase in accounts payable helped fund the operating loss of the
company.
Current liabilities decreased from $875,569 at the end of the prior fiscal
year to $806,528 at the end of the current quarter, a decrease of $69,041.
Net cash used in operating activities was $57,941 during the current nine
month period compared to $165,357 during the same period of the prior year.
The principal use of cash in both periods was to fund our net loss from
operations. The issuance of stock contributed $251,189 towards our operating
deficit during the current nine-month period.
Financing activities provided net cash of $66,262 during the first nine
months of the current year, consisting primarily of loans from stockholders.
The Company continues to be reliant on the combination of revenues, loans from
stockholders and capital contributions to fund operations. The equity line
agreement that was established with Swartz Private Equity, LLC was scheduled to
end on April 28, 2003. The agreement was terminated on October 15, 2001 with a
final sale of stock to Swartz to cover the outstanding account payable due to
Swartz of $77,000.
To the extent that additional funds are required to support operations or to
expand our business, we may sell additional equity, issue debt or obtain other
credit facilities through financial institutions. Any sale of additional
equity securities will result in dilution to our shareholders.
Until the Company obtains sufficient funds necessary to capitalize the growth
of its existing operations, expenditures required to increase revenues,
including advertising and promotion of compression software and Viper M1
paintball products, will be substantially limited. Should the Company be
unable to obtain continued funding, its operations may be adversely affected.
28
ECOM ECOM.COM, INC.
ITEM 3. CONTROLS AND PROCEDURES
Evaluation of the Company's Disclosure Controls and Internal Controls:
Within the 90 days prior to the date of this Quarterly Report on Form 10-QSB,
the Company evaluated the effectiveness of the design and operation of its
'disclosure controls and procedures'("Disclosure Controls"). This 'evaluation'
("Controls Evaluation") was done under the supervision and with the
participation of management, including the Chief Executive Officer ("CEO")and
Chief Financial Officer ("CFO"). As a result of this review, the Company
adopted guidelines concerning disclosure controls and the establishment of a
disclosure control committee made up of senior management.
Limitations on the Effectiveness of Controls:
The Company's management, including the CEO and CFO, does not expect that its
Disclosure Controls or its 'internal controls and procedures for financial
reporting' ("Internal Controls")will prevent all error and all fraud. A control
system, no matter how well conceived and managed, can provide only reasonable
assurance that the objectives of the control system are met. The design of a
control system must reflect the fact that there are resource constraints, and
the benefits of controls must be considered relative to their costs. Because
of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud,
if any, within the Company have been detected. These inherent limitations
include the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally,
controls can be circumvented by the individual acts of some persons, by
collusion of two or more people, or by management override of the control. The
design of any system of controls also is based in part upon certain assumptions
about the likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all potential future
conditions; over time, control may become inadequate because of changes in
conditions, or the degree of compliance with the policies or procedures may
deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be detected.
Conclusions:
Based upon the Controls Evaluation, the CEO and CFO have concluded that,
subject to the limitations noted above, the Disclosure Controls are effective
to timely alert management to material information relating to the Company
during the period when its periodic reports are being prepared.
In accordance with SEC requirements, the CEO and CFO note that, since the date
of the Controls Evaluation to the date of this Quarterly Report, there have
been no significant changes in Internal Controls or in other factors that could
significantly affect Internal Controls, including any corrective actions with
regard to significant deficiencies and material weaknesses.
29
ECOM ECOM.COM, INC.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.
Our dispute with Renick Enterprises, Inc. has been favorably settled. The
matter concerning National Paintball in which they notified us through their
attorney that the issuance of stock agreed upon in the settlement was
insufficient to cover the settlement. This matter was brought before the courts
by Renick and the judge ruled in favor of the Company.
National Paintball Supply, Inc. filed a complaint against USA Performance
Products and eCom eCom.com, Inc. in the State of South Carolina, Greenville
County Court of Common Pleas on May 14, 2001. The complaint alleged that an
amount of $85,743.35 is owed to the complainant. National Paintball Supply
handled paintball fulfillment requests for USA Performance products. USA
Performance Products contended that many requests for fulfillment were not
completed while some requests were shipped twice. USA Performance Products
has recorded a balance due of $69,373.36 as of May 31, 2001. As part of the
SB-2 dated August 8, 2002, stock was registered to pay-off this debt. As of
February 28, 2003 all stock that had previously been held in an Attorney
escrow account, had been sold and transferred to National Paintball. The
balance owed National Paintball as of February 29, 2004 is 59,475.83. The
Company is in the process of reaching a settlement with National Paintball,
Inc.
ITEM 2. Changes in Securities.
None
ITEM 3. Defaults Upon Senior Securities.
None
ITEM 4. Submission of Matters to a Vote of Security Holders.
None
ITEM 5. Other Events. (Subsequent Events)
Board of Directors Votes
On March 25, 2004 a motion was made and passed to appoint Barney A. Richmond to
the office of President of eCom eCom.com, Inc.
On March 2, 2004 a motion was made and passed to spin off all of the remaining
subsidiaries of eCom, as individual public corporations and take whatever
action necessary to complete this process including acquisitions or mergers.
This includes; USSAP, eSecureSoft, USAS Digital, ProCard, AAB National, A
Classified Ad, A Super Deal and Swap & Shop.
On January 20, 2004 a motion was made and passed to offer Warrants for
6,000,000 shares of eCom common stock to ACH for an exercise price of fifty
cents ($.50) per share. The offer period is for one year ending January 20,
2005.
30
ECOM ECOM.COM, INC.
On January 12, 2004, the Board of Directors of USA SportsNet Company
(USASN) approved the following resolutions:
A motion was made and passed agreeing to the terms and conditions of the Asset
Agreement between USASN and American Capital Holdings, Inc. (ACH) regarding the
acquisition of certain assets of ACH.
In addition the Board of Directors agrees to change the company name to
American Capital Holdings, Inc.
A motion was made and passed agreeing to a reverse split of 20 to 1 of the
final outstanding shares of USA SportsNet, Inc. of 49,955,112. The Company
will purchase all fractional shares at market price. It also agrees that the
Date of Record for USASN shareholder ownership was January 5, 2004 for the spin
off.
A motion was made and passed to appoint Barney Richmond to the Board of
Directors and President and Richard Turner to the Board of Directors and
Treasurer. David J. Panaia is a Director and Secretary, Harry Timmons is a
Director and Matt Salmon is a Director.
On December 24, 2003 the Board of Directors of eCom eCom.com amended the
Articles of Incorporation. Article Four now was changed to increase the
authorized number of shares of the corporation from fifty million shares to two
hundred million shares.
On December 1, 2003, the Board of Directors of eCom approved the spin-off of
ACH and MZS. They voted to issue to the shareholders of eCom one share of the
Company for every one share of eCom owned as of the record date of January 5,
2004. Fractional shares will be purchased by the Company. No payment was
required of the eCom shareholders.
The Board of Directors of eCom has passed the following resolution:
Pursuant to the Advisory Board's Report of October 4, 2003, eCom will spin-off
its subsidiary MyZipSoft, Inc. The Board views this spin-off in the best
interest of its shareholders and it complies with SEC Staff Legal Bulletin No.
4. Further, it voted to issue one share of the spin-off for every share of
eCom owned as of the record date which will be announced.
On May 15, 2002 a settlement was reached with Renick Enterprises, Inc. As
part of the settlement USAPP received cash, notes receivable, inventory, and
cancellation of accounts payable. USA Performance products gave up raw
material located at Renick. At the time of this filing the court ruled in
favor of the Company. The judge hearing the case verbally ruled that the
grounds for the claim were insufficient and dismissed the action. The Company
has not received the official court paperwork. The Company is also considering
further legal action against the plaintiff to recover its legal costs to defend
this case.
The company has replaced its attorney with Attorney Gerald Gritter of Boca
Raton, Fl and Attorney James Volpi of Riviera Beach, FL.
31
ECOM ECOM.COM, INC.
The Company has decided to relocate its executive offices from 2700 PGA Blvd.,
Palm Beach Gardens, FL. The Company will use both its facility at 8125 Monetary
Drive, Riviera Beach, FL and 100 Village Square Crossing, Palm Beach Gardens,
FL.
The company was notified that its lead market maker, Equitrade Securities Inc.
of Lake Forest CA was shutting down its operations. The company is presently
looking for a replacement, however there are currently over 18 broker/dealers
making markets in our stock.
The company signed an agreement with Digital River to provide e-marketing
services for on-line sales of all of its software products. Results thus far
have been minimal. A software partner is being sought to assist in this
portion of the Company.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit 31.1 Certification required under Section 302 of
the Sarbanes-Oxley Act of 2002 by the CE0 on page 33
Exhibit 31.2 Certification required under Section 302 of
the Sarbanes-Oxley Act of 2002 by the CFO on page 34
Exhibit 32 Certification of CEO and CFO Pursuant to
Section 906 of the Sarbanes-Oxley Act on page 36
(b) Reports on Form 8-K:
Form 8-K filed on March 3, 2004 *
regarding The Board of Directors approving the
spin off of eCom eCom.com's (ECEC) remaining
subsidiary companies as separate publicly owned
entities.
Form 8-K filed on March 31, 2004 **
regarding the March 29, 2004 appointment of
Barney A. Richmond as President of
eCom eCom.com, Inc.
* Incorporated by reference to Registrant's Form 8-K filed on March 2, 2004
** Incorporated by refernece to Registrant's Form 8-K filed on March 31, 2004
32
ECOM ECOM.COM, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunder duly authorized.
eCom eCom.com, Inc.
April 14, 2004 By: /s/ David J. Panaia
David J. Panaia,
Chief Executive Officer
April 14, 2004 By: /s/ Barney A. Richmond
Barney A. Richmond
President
April 14, 2004 By: /s/ Richard C. Turner
Richard C. Turner,
Chief Financial Officer
Exhibit 31.1
CERTIFICATION REQUIRED UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, David J. Panaia, certify that:
1. I have reviewed this quarterly report on Form 10-Q of eCom eCom.com Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about theeffectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls.
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: April 14, 2004
/s/ David J. Panaia
- --------------------------
David J. Panaia
Chief Executive Officer
Exhibit 31.2
CERTIFICATION REQUIRED UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Richard C. Turner, certify that:
1. I have reviewed this quarterly report on Form 10-Q of eCom eCom.com Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about theeffectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls.
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: April 14, 2004
/s/ Richard C. Turner
- ---------------------------
Richard C. Turner
Chief Financial Officer
35
Exhibit 32
CERTIFICATIONS OF CEO AND CFO PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
In connection with the Quarterly Report of eCom eCom.com Inc., a Florida
corporation (the "Company"), on Form 10-QSB for the period ending February 29,
2004, as filed with the Securities and Exchange Commission (the "Report"),
David J. Panaia, Chief Executive Officer of the Company and Richard C. Turner,
Chief Financial Officer of the Company, respectively, do each hereby certify,
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350),
that to his knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
/s/ David J. Panaia
David J. Panaia
Chief Executive Officer
April 14, 2004
/s/ Barney A. Richmond
Barney A. Richmond
President
April 14, 2004
/s/ Richard C. Turner
Richard C. Turner
Chief Financial Officer
April 14, 2004
[A signed original of this written statement required by Section 906 has been
provided to eCom eCom.com Inc. and will be retained by eCom eCom.com Inc.
and furnished to the Securities and Exchange Commission or its staff upon
request.]
Exhibits to Form 10-QSB will be provided to shareholders of the Registrant
upon written request addressed to eCom eCom.com, Inc., Post Office Box 32044,
Palm Beach Gardens, Florida 33420. Any exhibits furnished are subject to a
reasonable photocopying charge.
The Securities and Exchange Commission has not approved or disapproved of
this Form 10-QSB and Annual Report to Shareholders nor has it passed upon its
accuracy or adequacy.
36