UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
AMENDMENT NO. 1
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number: 0-26415
EVOLVE ONE, INC.
----------------
(Exact name of small business issuer as specified in its charter)
Delaware 13-3876100
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1000 Clint Moore Road, Suite 101, Boca Raton, FL 33487
------------------------------------------------------
(Address of principal executive offices)
(561) 988-0819
--------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 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 [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act. Yes [] No [X].
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
stock as of the latest practicable date: 29,182,432 shares of common stock as of
May 31, 2005.
EVOLVE ONE, INC.
Form 10-QSB/A for the period ended March 31, 2005
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this quarterly report on Form 10-QSB/A contain or
may contain forward-looking statements that are subject to known and unknown
risks, uncertainties and other factors which may cause actual results,
performance or achievements to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. These forward-looking statements were based on various factors and
were derived utilizing numerous assumptions and other factors that could cause
our actual results to differ materially from those in the forward-looking
statements. These factors include, but are not limited to, economic, political
and market conditions and fluctuations, government and industry regulation,
interest rate risk, U.S. and global competition, and other factors. Most of
these factors are difficult to predict accurately and are generally beyond our
control. You should consider the areas of risk described in connection with any
forward-looking statements that may be made herein. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date of this report. Readers should carefully review this quarterly report
in its entirety, including but not limited to our financial statements and the
notes thereto. Except for our ongoing obligations to disclose material
information under the Federal securities laws, we undertake no obligation to
release publicly any revisions to any forward-looking statements, to report
events or to report the occurrence of unanticipated events. For any
forward-looking statements contained in any document, we claim the protection of
the safe harbor for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995.
When used in this quarterly report, the terms "Evolve One," " we,"
"our," and "us" refers to Evolve One, Inc. a Delaware corporation, and our
subsidiaries.
i
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet at March 31, 2005 (restated) (unaudited)..1
Condensed Consolidated Statements of Operations for the Three Months
ended March 31, 2005 and 2004 (unaudited)......................................2
Condensed Consolidated Statements of Cash Flows for the
Three Months ended March 31, 2005 and 2004 (unaudited).........................3
Notes to Condensed Consolidated Financial Statements (unaudited) ...........4-10
Item 2. Management's Discussion and Analysis or Plan of Operation.........11-16
Item 3. Controls and Procedures .............................................16
Part II OTHER INFORMATION
Item 1. Legal Proceedings....................................................17
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds..........17
Item 3. Defaults Upon Senior Securities......................................17
Item 4. Submission of Matters to a Vote of Security Holders..................17
Item 5. Other Information....................................................17
Item 6. Exhibits.............................................................17
EXPLANATORY NOTE REGARDING AMENDMENT NO. 1
We are amending this Form 10-QSB for the three months ended March 31, 2005 to
restate our unaudited balance sheet for the three months ended March 31, 2005
related to unrealized gain from marketable securities. We determined that the
marketable securities were permanently impaired as of December 31, 2002 and we
have previously restated our audited financial statements for the year ended
December 31, 2004. Please see Note 3 Restatement contained in the Notes to
Condensed Consolidated Financial Statements (unaudited) appearing later in this
Form 10-QSB/A which further describes the effect of this restatement.
The Items of this Form 10-QSB/A for the three months ended March 31, 2005 which
are amended and restated are as follows: Part I Financial Information, Item 1
Financial Statements, Condensed Consolidated Balance Sheet as of March 31, 2005
(unaudited) and Notes to Condensed Consolidated Financial Statements as of March
31, 2005 (unaudited; Item 2 Management's Discussion and Analysis or Results of
Operations; and Item 3 Controls and Procedures. Further, Part II Other
Information, Item 6 Exhibits of this 10-QSB/A includes currently dated
certificates from the Company's President, Principal Executive Officer, and
Principal Accounting and Financial Officer in Exhibits 31.1, 31.2 and 32.1.
The remaining Items contained in this Form 10-QSB/A consist of all other Items
originally contained in our Form 10-QSB for the three months ended March 31,
2005 as filed on June 7, 2005. This Form 10-QSB/A does not reflect events
occurring after the filing of the original Form 10-QSB, nor modify or update
those disclosures in any way other than as required to reflect the effects of
the restatement.
ii
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EVOLVE ONE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2005
(RESTATED)
(UNAUDITED)
ASSETS
CURRENT ASSETS
CASH AND CASH EQUIVALENTS ..................................... $ 74,965
MARKETABLE EQUITY SECURITIES, NET ............................. 1,500
INVENTORY ..................................................... 71,363
OTHER CURRENT ASSETS .......................................... 5,630
-----------
TOTAL CURRENT ASSETS ...................................... 153,458
PROPERTY AND EQUIPMENT, NET ..................................... 103,641
OTHER ASSETS
NOTE RECEIVABLE ............................................... 10,000
OTHER ASSETS .................................................. 17,666
-----------
TOTAL OTHER ASSETS ........................................ 27,666
-----------
TOTAL ASSETS .................................................... $ 284,765
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
ACCOUNTS PAYABLE .............................................. $ 22,620
LOAN PAYABLE .................................................. 100,000
-----------
Total Current Liabilities ................................. 122,620
-----------
COMMITMENTS AND CONTINGENCIES ................................... -
STOCKHOLDERS' EQUITY
Cumulative convertible preferred stock, $0.0001 par value,
10,000,000 shares authorized, none issued and outstanding .... -
Common stock, $0.00001 par value, 1,000,000,000 shares
authorized, 29,182,432 shares issued and outstanding ......... 292
Additional paid in capital .................................... 7,636,455
Deferred stock compensation ................................... (345,583)
Accumulated other Comprehensive loss .......................... (4,950)
Accumulated deficit ........................................... (7,124,069)
-----------
Total Stockholders' Equity ................................ 162,145
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ...................... $ 284,765
===========
See accompanying notes to condensed consolidated financial statements.
1
EVOLVE ONE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(UNAUDITED
2005 2004
------------ -------------
SALES AND REVENUE ................................ $ 92,317 $ 241,799
COST OF SALES .................................... 65,107 130,950
------------ ------------
GROSS PROFIT ..................................... 27,210 110,849
------------ ------------
OPERATING EXPENSES
Stock compensation expense ...................... 31,417 -
Selling, general and administrative expenses .... 293,799 385,301
------------ ------------
Total Operating Expenses ................... 325,216 385,301
------------ ------------
LOSS FROM OPERATIONS ............................. (298,006) (274,452)
------------ ------------
OTHER INCOME (EXPENSE)
Loss from sale of marketable equity securities .. - (49,050)
Investment income ............................... - 8,392
Unrealized gain (loss) on marketable securities . - 1,652
------------ ------------
Total Other Income (Expense) ............... - (39,006)
------------ ------------
NET LOSS FROM CONTINUING OPERATIONS .............. (298,006) (313,458)
DISCONTINUED OPERATIONS
Loss from discontinued operations ............... - (4,358)
------------ ------------
NET LOSS ......................................... $ (298,006) $ (318,816)
============ ============
LOSS PER COMMON SHARE - BASIC AND DILUTED
Loss from continuing operations ................. (0.01) (0.01)
Loss from discontinued operations ............... - -
------------ ------------
Net loss per share - basic and diluted .......... $ (0.01) $ (0.01)
============ ============
Weighted average number of shares outstanding
during the period - basic and diluted ........... 26,734,076 24,770,432
============ ============
See accompanying notes to condensed consolidated financial statements.
2
EVOLVE ONE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(UNAUDITED)
2005 2004
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................ $(298,006) $(318,816)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization ..................... 22,655 24,496
Loss on marketable equity securities .............. - 49,050
Unrealized loss on marketable equity securities ... - (1,652)
Provision for uncollectible accounts receivable ... 940 -
Loss on impairment of property and equipment ...... 46,256 -
Stock issued for services ......................... 31,417 -
Changes in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable .............................. - 5,950
Inventory ........................................ 15,346 98,580
Other assets ..................................... 845 1,691
Increase (decrease) in:
Accounts payable ................................. (42,112) 22,648
Other accrued liabilities ........................ - (1,824)
Accrued salaries ................................. - 58,949
--------- ---------
Net Cash Used In Operating Activities ......... (222,659) (60,928)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ................................ - (2,026)
Loan receivable - Onspan Networking, Inc., Net ...... - (6,000)
Interest receivable - Onspan Networking, Inc. ....... - (8,391)
Proceeds from sale of marketable equity securities .. - 950
--------- ---------
Net Cash Used In Investing Activities ......... - (15,467)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
EXERCISE OF STOCK OPTIONS .......................... 20,700 -
Proceeds from loan payable ......................... 100,000 -
--------- ---------
Net Cash Provided By Financing Activities ..... 120,700 -
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS ............ (101,959) (76,395)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ..... 176,924 118,912
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........... $ 74,965 $ 42,517
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes ........................... $ - $ -
========= =========
Cash paid for interest expense ....................... $ - $ -
========= =========
See accompanying notes to condensed consolidated financial statements.
3
EVOLVE ONE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2005
(UNAUDITED)
NOTE 1 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) ORGANIZATION
Evolve One, Inc. (the "Company" or "EONE") is a diversified holding company that
develops and operates Internet and direct retail marketing companies. The EONE
Group includes wholly owned subsidiaries, StogiesOnline.com, Inc. ("Stogies")
(www.CigarCigar.com), A1Discount Perfume, Inc. (www.A1DiscountProducts.com),
Auctionstore.com Inc. ("Auctionstore") (www.Auctionstore.com), and International
Internet Venture I, LLC ("Ventures"). EONE, through its Ventures division, owns
an equity interest in several companies, some of which are classified as trading
securities and some of which are classified as available-for-sale securities.
EONE was incorporated in Delaware on June 21, 1994.
Stogies became an online distributor and retailer of brand name premium cigars
within the United States on November 18, 1998. Stogies' products consist of
premium cigars, factory brand name seconds and mass market cigars, which are
distributed online to retail and wholesale customers.
On September 28, 2001, the Company created a new Subsidiary named
A1DiscountPerfume Inc. and in October 2001, launched a new e-commerce site
specializing in men's and women's fragrances. The site named
A1DiscountProducts.com is located at http://www.A1DiscountProducts.com. The site
is a competitor of other discount as well as full price online retailers of
Perfume and Cologne. As of December 31, 2004, the Company decided to discontinue
the operations of A1DiscountProducts.com and has classified these operations as
discontinued operations.
On July 22, 2004 the Company created a new wholly owned subsidiary,
Auctionstore.com a Florida Corporation. The Company is in the preliminary stages
of finalizing a business plan relating to Internet sales.
The financial statements included in this report have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission for interim reporting and include all adjustments (consisting only of
normal recurring adjustments) that are, in the opinion of management, necessary
for a fair presentation. These financial statements have not been audited.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations for
interim reporting. The Company believes that the disclosures contained herein
are adequate to make the information presented not misleading. However, these
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company's Annual Report for the year ended
December 31, 2004, which is included in the Company's Form 10-KSB for the year
ended December 31, 2004. The financial data for the interim periods presented
may not necessarily reflect the results to be anticipated for the complete year.
Certain reclassifications of the amounts presented for the comparative period
have been made to conform to the current presentation.
(B) ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain 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 reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
4
EVOLVE ONE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2005
(UNAUDITED)
(C) NET EARNINGS (LOSS) PER SHARE
Basic net earnings (loss) per share is computed by dividing net earnings (loss)
by the weighted-average number of shares outstanding. Diluted net earnings
(loss) per share includes the dilutive effect of stock options. The calculation
of diluted weighted average shares outstanding for the quarters ending March 31,
2005 and 2004 excludes 72,896,000 and 24,000 common shares respectively,
issuable pursuant to outstanding options. These shares were excluded because
their effect was anti-dilutive.
(D) STOCK-BASED COMPENSATION
The Company granted stock options to directors and employees that are more fully
described in Note 5. The Company accounts for its stock options using the
intrinsic value method under Accounting Principles Board Opinion ("APB") No. 25,
"ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES."
NOTE 2 MARKETABLE EQUITY SECURITIES
SFAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities,"
requires that all applicable investments be classified as trading securities,
available-for-sale securities or held-to-maturity securities. The Company has
classified certain of its investments as trading securities which are reported
at fair value, which is defined to be the last closing price for the listed
securities. The unrealized gains and losses which the Company recognizes from
its trading securities are included in earnings. The Company also has
investments classified as available-for-sale, which are also required to be
reported at fair value, with unrealized gains and losses excluded from earnings
and reported as a separate component of stockholders' equity (net of the effect
of income taxes). Fair value is also defined to be the last closing price for
the listed security. Due to the size of certain of the Company's investments and
their limited trading volume, there can be no assurance that the Company will
realize the value which is required to be used by SFAS No. 115. The amortized
cost of equity securities as shown in the accompanying balance sheet and their
estimated market value at March 31, 2005 are as follows:
Available-for-sale securities:
Cost ............................................ 6,450
Unrealized loss ................................. -(4,950)
--------
Marketable equity securities classified as current 1,500
========
Losses from trading securities that were included in earnings for the
three months ended March 31, 2005 and 2004 were as follows:
2005 2004
---- ---------
Realized loss .......................... $ - $ (49,050)
==== =========
Unrealized loss ........................ $ - $ 1,652
==== =========
The change in unrealized gains (losses) from available-for-sale securities
included as a component of equity for the three months ended March 31, 2005 and
2004 were as follows:
5
EVOLVE ONE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2005
(UNAUDITED)
2005 2004
---- ---------
Net unrealized gain .................... $ - $ 267,595
Decrease in deferred tax asset ......... - 100,700
Allowance deferred taxes ............... - (100,700)
---- ---------
Unrealized gain ........................ $ - $ 267,595
==== =========
On June 19, 2003, Onspan Networking, Inc. granted 67,500 stock options to Evolve
One, Inc. under a revolving note agreement. The options have an exercise price
of $.10 per share. Onspan Networking, Inc. also granted on June 19, 2003,
607,500 stock options to Evolve One, Inc. in the same note agreement. These
options have an exercise price of $.30 per share. The Company currently has
excluded these "options" on common stock from the assets of the Company, as the
underlying stock, due to market conditions, are not readily convertible to cash.
If conditions are satisfied and the underlying stock becomes marketable, the
"options" would be reclassified as a derivative and recorded at fair value as an
adjustment through current period results of operations.
NOTE 3 RESTATEMENT
The Company has restated its unaudited balance sheet for the three months ended
March 31, 2005 related to unrealized gain from marketable securities. The
Company determined that the marketable securities were permanently impaired as
of December 31, 2002 and has restated its audited financial statements for the
year ended December 31, 2004. The following table shows the effect of the
restatement.
As
Originally
Reported Restated Change
------------ ------------ ----------
Common stock ....................... $ 292 $ 292 $ -
Additional paid-in capital ......... 7,636,455 7,636,455 -
Deferred stock compensation ........ (345,583) (345,583) -
Accumulated other comprehensive loss (298,500) (4,950) 293,550
Retained earnings .................. (6,830,520) (7,124,069) (293,550)
------------ ------------ ----------
Total Equity ................... $ 162,145 $ 162,145 $ -
============ ============ ==========
NOTE 4 LOAN PAYABLE
On March 22, 2005 the Company entered into a subscription agreement with one of
its directors, Robert Sands for the sale of 20 units of Evolve One, Inc, for an
aggregate price of $100,000. Each unit has a cost of $5,000 and consists of
100,000 shares of Common Stock at $.05, and one option consisting of 100,000
shares of common stock exercisable at $.25 cents per share, which will expire in
3 years. Mr. Sands converted the stock into a loan payable at March 31, 2005.
The loan is unsecured, non-interest bearing and due on demand (See Note 11).
6
EVOLVE ONE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2005
(UNAUDITED)
NOTE 5 CAPITAL STOCK
On March 15, 2005, Evolve One entered into a Management Agreement with
Diversifax Inc. Irwin Horowitz, a principal shareholder and Chief Executive
officer of Evolve One, is also a principal shareholder and Chief Executive
Officer of Diversifax. Under the terms of the agreement, Diversifax will make
available to Evolve One its facilities at 39 Stringham Avenue, Valley Stream,
New York; the services on a part-time basis of 7 persons presently employed by
Diversifax for approximately 100 hours per week; equipment, hardware and
software of Diversifax; and related utilities and overhead functions at that
facility. The term of the agreement is for six months and may be terminated
prior to the conclusion of its term on ten days' prior written notice by either
party, or the agreement may be renewed for a successive six-month term.
In consideration for the management services and facilities provided by
Diversifax during the initial six-month term, Evolve One will issue to
Diversifax 2,900,000 shares of its common stock. In addition, in the event the
market price of the common stock of Evolve One on the six-month anniversary date
is below $0.15 per share, Evolve One will issue to Diversifax additional shares
of its common stock so that the common shares provided to Diversifax plus such
additional shares of common stock will be equal in value to $435,000. In
addition, Diversifax will receive 10% of the total amount of the monies received
as a result of their efforts with regard to auctions being completed for
accounts they have introduced to AuctionStore.com, Evolve One's wholly-owned
subsidiary. Payment of the percentage fee will be made in cash or stock as
determined by Diversifax. As of March 31, 2005, the Company recorded an expense
of $31,417 and deferred stock compensation of $345,853. The Company will
amortize the fair value of the stock over the term of the agreement.
NOTE 6 STOCK OPTIONS
In November 1999, the Board of Directors approved the establishment of Evolve
One, Inc. Stock Option Plan (the "Plan") to provide incentives to attract future
employees and retain existing key employees with the Company. The Company has
reserved 100,000 shares of common stock for the grant of qualified incentive
options or non-qualified options to employees and directors of the Company or
its parents or subsidiaries, and to non-employee directors, consultants and
advisors and other persons who may perform significant services for or on behalf
of the Company under the Plan. These options were granted in accordance with
employment agreements. Prices for incentive stock options must provide for an
exercise price of not less than 100% of the fair market value of the common
stock on the date the options are granted unless the eligible employee owns more
than 10% of the Company's common stock for which the exercise price must be at
least 110% of such fair market value. Non-statutory options must provide for an
exercise price of not less than 85% of the fair market value. The Plan was
approved by the shareholders at a meeting on November 11, 1999.
The Company applied Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized for the incentive stock options granted to employees under
its stock option plan in its statements of operations. During 2005, the Company
amended its stock option Plan to increase the number of shares covered by the
Plan from 8,000,000 to 100,000,000 shares of common stock.
7
EVOLVE ONE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2005
(UNAUDITED)
Shares Weighted Average
Price
----------- -----------------
Beginning Balance, January 1, 2004 ........... 128,000 $.0005
Options granted ............................. 2,920,000 .0549
Options exercised ........................... - -
Options cancelled ........................... - -
----------- ------
Ending Balance, December 31, 2004 ............ 3,048,000 .0554
----------- ------
Options granted ............................. 70,000,000 .30
Options exercised ........................... (152,000) .14
Options cancelled ........................... - -
----------- ------
Ending Balance, March 31, 2005 ............... 72,896,000 $ .029
=========== ======
Options exercisable at period end ............ 72,896,000
===========
Weighted average fair value of options
granted to employees during the year ......... .30 .131
=========== ======
During the three months ended March 31, 2005, the Company granted 70,000,000
stock options to employees. The Company granted 2,920,000 stock options to
certain employees during the year ended December 31, 2004. The Company applies
APB Opinion No. 25 and related interpretations in accounting for stock options
issued to employees. Had compensation cost been determined based on the fair
market value at the grant date, consistent with SFAS 123, the Company's net
income (loss) would have changed to the pro-forma amounts indicated below.
For the Three For the Three
Months Ended March Months Ended March
31, 2005 31, 2004
------------------ ------------------
Net loss available to
common stockholders As Reported $ (298,006) $ (318,816)
Pro Forma $ (8,519,659) $ (318,816)
Basic and diluted loss
per share As Reported (0.01) (0.01)
Pro Forma (0.32) (0.01)
Weighted
Number Average Weighted Number Weighted
Outstanding Remaining Average Exercisable Average
Range of at March 31, Contractual Exercise at March 31, Exercise
Exercise Price 2005 Life Price 2005 Price
---------------- ------------ ----------- -------- ------------ --------
$.000125 - .5625 72,896,000 7.8 .29 72,896,000 .29
8
EVOLVE ONE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2005
(UNAUDITED)
Number Weighted
Outstanding Average Weighted Number Weighted
at Remaining Average Exercisable Average
Range of December 31, Contractual Exercise at December Exercise
Exercise Price 2004 Life Price 31, 2004 Price
---------------- ------------ ----------- -------- ------------ --------
$.000125 - .5625 3,048,000 4.93 .0526 3,048,000 .0526
NOTE 7 COMMITMENTS AND CONTINGENCIES
During 2005, Messrs. Schultheis and Tabin entered into separate Separation and
Severance Agreements with the Company pursuant to which they provided their
resignations and also agreed to the termination of their prior employment
agreements with the Company. Both of them received options to purchase
10,000,000 shares of common stock at an exercise price of $0.30 per share
expiring January 26, 2013, and both were paid the sum of $6,144 to defray health
insurance premiums for the ensuing six months.
On January 26, 2005, Irwin Horowitz, a director of the Company was elected as
President and Chief Executive Officer of Evolve One. Mr. Horowitz has entered
into an employment agreement with the Company pursuant to which he will receive
an annual salary of $12,000 per year, reimbursement of his expenses, including
travel and lodging costs until such as time as he relocates his principal
residence to the location of the Company's offices, and an automobile allowance
of up to $1,500 on a monthly basis. In addition, the Company granted to Mr.
Horowitz an option to purchase up to 50,000,000 shares of common stock
exercisable at $0.30 per share and expiring January 26, 2013.
A summary of the status of the Company's stock options as of March 31, 2005 and
the changes during the three months ended March 31, 2005 and the year ended
December 31, 2004 is presented below:
NOTE 8 SEGMENT INFORMATION
The Company reports segments based upon the management approach, which
designates the internal reporting that is used by management for making
operating decisions and assessing performance.
For the three months ended March 31, 2005, the Company operated in the following
segments, none of which have inter-segment revenues:
Ventures Stogies Corporate Auction Store Consolidated
----------- ----------- ----------- ------------- ------------
Revenue ........... $ 5 $ 23,514 $ - $ 68,798 $ 92,317
Net income (loss) .. 5 (55,072) (200,355) (42,584) (298,006)
Assets ............ 5,480 116,119 159,886 3,280 284,765
Depreciation ...... - 16,677 5,305 673 22,655
9
EVOLVE ONE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2005
(UNAUDITED)
For the three months ended March 31, 2004, the Company operated in the following
segments, none of which have inter-segment revenues:
A1Discount
Ventures Stogies Corporate Perfume Consolidated
----------- ----------- ----------- ----------- ------------
Revenue ........... $ - $ 241,493 $ - $ 8,306 $ 249,799
Operating loss .... (143) (58,117) (216,192) (5,358) (279,810)
Other income
(expense) ......... (47,398) - 8,392 - (39,006)
Net loss .......... (47,541) (58,117) (207,800) (5,358) (318,816)
Assets ............ 377,508 470,310 721,224 39,148 1,608,190
NOTE 9 RELATED PARTY TRANSACTIONS
See Notes 4, 5, 6 and 7 and 11.
NOTE 10 GOING CONCERN
As reflected in the accompanying consolidated financial statements, the Company
has incurred losses since its inception, used cash in operations during the
three months ended March 31, 2005 of $222,659 and has an accumulated deficit of
$7,124,069 This raises substantial doubt about its ability to continue as a
going concern. The ability of the Company to continue as a going concern is
dependent on the Company's ability to raise additional capital and implement its
business plan. The financial statements do not include any adjustments that
might be necessary if the Company is unable to continue as a going concern.
Management believes that actions presently being taken to obtain additional
funding and implement its business plan provide the opportunity for the Company
to continue as a going concern.
NOTE 11 SUBSEQUENT EVENTS
During April 2005, the Company entered into an employment agreement with an
individual as the Director of Franchising. The agreement calls for the
individual to receive a salary of $ 52,000, 3,000,000 stock options exercisable
at $0.075 for a period of three years and 3,000,000 stock options exercisable at
$0.15 for a period of three years.
During May 2005, Irwin Horowitz, the Company's Chief Executive Officer and
President, loaned the Company $100,000 for working capital, which loan is
non-interest bearing, unsecured and payable on demand. Previously, in March
2005, Robert Sands, a director of the Company, completed a subscription for
units of the Company's securities, which were exchanged for a loan on the same
terms as that of Mr. Horowitz. It is the intention of the Company to exchange
such obligations for units of securities of the Company pursuant to which
Messrs. Horowitz and Sands will each receive 6,000,000 shares of common stock
and an option to purchase 6,000,000 shares of common stock exercisable at $0.15
per share and expiring in May 2008.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis of our financial condition and
results of operations should be read with the unaudited condensed consolidated
financial statements and related notes contained in this report. All statements
other than statements of historical fact included in this annual report are, or
may be deemed to be, forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. These statements involve known and unknown risks, uncertainties and
other factors that may cause our actual results, levels of activity, performance
or achievements to be materially different than any expressed or implied by
these forward-looking statements. In some cases, you can identify
forward-looking statements by terminology such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential," "continue," or the negative of these terms or other comparable
terminology. Important factors that could cause actual results to differ
materially from those discussed in such forward-looking statements include:
o General economic factors including, but not limited to, changes in
interest rates and trends in disposable income;
o Information and technological advances;
o Cost of products sold;
o Competition; and
o Success of marketing, advertising and promotional campaigns.
We are subject to specific risks and uncertainties related to our
business model, strategies, markets and legal and regulatory environment. With
respect to any forward-looking statement that includes a statement of its
underlying assumptions or bases, we believe such assumptions or bases to be
reasonable and have formed them in good faith, assumed facts or bases almost
always vary from actual results, and the differences between assumed facts or
bases and actual results can be material depending on the circumstances. When,
in any forward-looking statement, we express an expectation or belief as to
future results, that expectation or belief is expressed in good faith and is
believed to have a reasonable basis, but there can be no assurance that the
stated expectation or belief will result or be achieved or accomplished. All
subsequent written and oral forward-looking statements attributable to us, or
anyone acting on our behalf, are expressly qualified in their entirety by the
cautionary statements. We do not undertake any obligations to publicly release
any revisions to any forward-looking statements to reflect events or
circumstances after the date of this prospectus or to reflect unanticipated
events that may occur.
Overview
--------
Our present operations consist of two Internet based businesses within
the United States, Stogies and AuctionStore. Stogies is an online distributor
and retailer of brand name premium cigars. AuctionStore, is an eBay(R) Trading
Assistant and Internet-based seller of consigned merchandise whose primary
medium of sales is eBay(R). Stogies became operational in November 1998, and
AuctionStore became operational in December 2004. Effective December 31, 2004,
we discontinued operations of our A1Discount Perfume operating line of business
as discussed in Note 1 of the Notes to Condensed Consolidated Financial
Statements appearing elsewhere in this report. Our Stogies segment generates
revenues from the sale of cigars and cigar accessories. Our AuctionStore.com
segment, which was formed during the third quarter of fiscal 2004, generates
revenues from selling items that are generated from individuals, charity fund
donation drives and business liquidations. Our focus is to continue to develop
sales with a strong appeal to charities and expansion through franchising.
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The Company will intensify its effort by increased hiring of sales people and
entering into a management agreement with an affiliate which will seek to
promote sales over several states. Furthermore, Evolve has engaged an expert in
franchise development and marketing. We are developing a nationwide franchise
model that is now in the final process of completing its regulatory
documentations and government filings. The Company expects to sell franchises
when the various documents are completed and/or approved by the regulatory
authorities.
Critical Accounting Policies
----------------------------
We have identified the policies outlined below as critical to our
business operations and an understanding of our results of operations. The
listing is not intended to be a comprehensive list of all of our accounting
policies. In many cases, the accounting treatment of a particular transaction is
specifically dictated by accounting principles generally accepted in the United
States, with no need for management's judgment in their application. The impact
and any associated risks related to these policies on our business operations is
discussed throughout Management's Discussion and Analysis or Plan of Operations
where such policies affect our reported and expected financial results. For a
detailed discussion on the application of these and other accounting policies,
see the Notes to Condensed Consolidated Financial Statements appearing elsewhere
herein. Our preparation of the financial statements requires us to make
estimates and assumptions that affect the reported amount of assets and
liabilities, disclosure of contingent assets and liabilities at the date of our
financial statements, and the reported amounts of revenue and expenses during
the reporting period. There can be no assurance that actual results will not
differ from those estimates.
New Accounting Standards
------------------------
In March 2004, the Emerging Issues Task Force ("EITF") reached a
consensus on Issue No. 03-01, "The Meaning of Other-Than-Temporary Impairment
and Its Application to Certain Investments." EITF 03-01 provides guidance on
other-than-temporary impairment models for marketable debt and equity securities
accounted for under SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," and SFAS No. 124, "Accounting for Certain Investments
Held by Not-for-Profit Organizations," and non-marketable equity securities
accounted for under the cost method. The EITF developed a basic three-step model
to evaluate whether an investment is other-than-temporarily impaired. In
September 2004, the FASB issued FASB Staff Position EITF 03-01-1, which delays
the effective date until additional guidance is issued for the application of
the recognition and measurement provisions of EITF 03-01 to investments in
securities that are impaired; however, the disclosure requirements are effective
for annual periods ending after June 15, 2004. The adoption of the disclosure
provisions of EITF 03-01 did not have a material effect on our results of
operations or financial condition.
In November 2004, the Financial Accounting Standards Board ("FASB")
issued SFAS 151, INVENTORY COSTS--AN AMENDMENT OF ARB NO. 43, CHAPTER 4. The
Statement amends the guidance of ARB No. 43, Chapter 4, INVENTORY PRICING , by
clarifying that abnormal amounts of idle facility expense, freight, handling
costs, and wasted materials (spoilage) should be recognized as current-period
charges and by requiring the allocation of fixed production overheads to
inventory based on the normal capacity of the production facilities. It does not
appear that this Statement will have a material effect on our financial
position, operations or cash flows when it becomes effective in 2006.
In December 2004, the FASB issued SFAS No. 123R "Share-Based Payment"
("SFAS 123R"), a revision to SFAS No. 123 "Accounting for Stock-Based
Compensation" ("SFAS 123"), and superseding APB Opinion No. 25 "Accounting for
Stock Issued to Employees" and its related implementation guidance. SFAS 123R
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establishes standards for the accounting for transactions in which an entity
exchanges its equity instruments for goods or services, including obtaining
employee services in share-based payment transactions. SFAS 123R applies to all
awards granted after the required effective date and to awards modified,
repurchased, or cancelled after that date. Adoption of the provisions of SFAS
123R is effective as of the beginning of the first interim or annual reporting
period that begins after June 15, 2005. We are currently in the process of
evaluating the potential impact that the adoption of SFAS 123R will have on our
consolidated financial position and results of operations.
In December 2004, the FASB issued SFAS 153, "Exchanges of Non-monetary
Assets, an amendment of APB 29, Accounting for Non-monetary Transactions." The
amendments made by SFAS 153 are based on the principle that exchanges of
non-monetary assets should be measured based on the fair value of the assets
exchanged. Further, the amendments eliminate the narrow exception for
non-monetary exchanges of similar productive assets and replace it with a
broader exception for exchanges of non-monetary assets that do not have
commercial substance. Previously, APB 29 required that the accounting for an
exchange of a productive asset for a similar productive asset or an equivalent
interest in the same or similar productive asset should be based on the recorded
amount of the asset relinquished. APB 29 provided an exception to its basic
measurement principle (fair value) for exchanges of similar productive assets.
The FASB believes that exception required that some non-monetary exchanges,
although commercially substantive, be recorded on a carryover basis. By focusing
the exception on exchanges that lack commercial substance, the FASB believes
SFAS 153 produces financial reporting that more faithfully represents the
economics of the transactions. SFAS 153 is effective for non-monetary asset
exchanges occurring in fiscal periods beginning after June 15, 2005. Earlier
application is permitted for non-monetary asset exchanges occurring in fiscal
period beginning after the date of issuance. The provisions of this Statement
shall be applied prospectively. We are in the process of determining the impact
of this statement on our consolidated financial statements.
Property, Plant and Equipment
-----------------------------
Property, plant and equipment are recorded at cost and are depreciated
on a straight-line basis over the estimated useful lives of such assets. Changes
in circumstances such as technological advances, changes to our business model
or changes in our capital strategy could result in the actual useful lives
differing from our estimates. In those cases where the we determine that the
useful life of property, plant and equipment should be shortened, we will
depreciate the net book value in excess of the estimated salvage value over its
revised remaining useful life.
Deferred Tax Assets
-------------------
We record a valuation allowance to reduce the carrying value of our
deferred tax assets to an amount that is more likely than not to be realized.
While we have considered future taxable income and prudent and feasible tax
planning strategies in assessing the need for the valuation allowance, should we
determine that we would not be able to realize all or part of our net deferred
tax assets in the future, an adjustment to the carrying value of the deferred
tax assets would be charged to income in the period in which such determination
was made.
Investments
-----------
Investments are classified as either available-for-sale or trading
securities and are held for resale in anticipation of short-term market
movements or until such securities are registered or are otherwise unrestricted.
At March 31, 2005, investments consisted of common stock and options to acquire
common stock held for resale.
13
Trading account assets, consisting of marketable equity securities, are
stated at fair value. Unrealized gains or losses on trading securities are
recognized in the statement of operations on a monthly basis based on changes in
the fair value of the security as quoted on national or inter-dealer stock
exchanges.
Available-for-sale assets, which are also required to be reported at
fair value, with unrealized gains and losses excluded from earnings, are
reported as a separate component of stockholders' equity (net of the effect of
income taxes).
Results of Operations
---------------------
We reported sales and revenues of $92,317 for the three months ended
March 31, 2005 as compared to $241,799 for the three months ended March 31,
2004, a decrease of $149,482, or approximately 61.8%. Included in sales and
revenues for the three months ended March 31, 2005, are sales and revenues of
$23,514 attributable to our Stogies segment, a decrease of $217,979 or
approximately 90.3%, from our sales and revenues from this segment of $241,493
for the three months March 31, 2004. The decrease in sales and revenues from our
Stogies segment is primarily attributable to our plan to reduce inventory and
refocus of our business effort in this segment to concentrate more on cigar
accessories, including cigar ashtrays, cigar books, cigar cutters, cigar
humidors and cigar lighters, which earn a greater gross profit percentage, as
well as an increased focus on our Auctionstore.com segment. During the three
months ended March 31, 2005 we reported sales and revenues from our
Auctionstore.com segment of $68,798. Because this segment was formed in the
third quarter of fiscal 2004 we did not have comparable sales and revenues
during the three months ended March 31, 2004. During the three months ended
March 31, 2004 we reported sales and revenues of $8,306 from our A1 Discount
Perfume segment. As described earlier in this section, this segment was
discontinued in fiscal 2004. For the balance of fiscal 2005 we anticipate that
sales and revenues will increase from its present rate as the franchise program
expands. No assurances can be provided that any of our marketing programs will
succeed.
Our cost of sales as a percentage of sales and revenues was 70.5% for
the three months ended March 31, 2005 as compared to 54.2% for the three months
ended March 31, 2004. This increase in cost of sales and corresponding decrease
in our gross profit margins is primarily attributable to increase in overhead
and our inability to acquire better brands of cigars.
Operating expenses for the three months ended March 31, 2005 decreased
$60,085, or approximately 15.6%, to $325,216 from $385,301 for the comparable
three-month period in fiscal 2004. Included in this change was a decrease of
$91,502, or approximately 23.7%, in selling, general and administrative expenses
for the three months ended March 31, 2005 as compared to the three months ended
March 31, 2004. The decrease in selling, general and administrative expenses was
due to the decrease in payroll expense. Internet cigar sales decreased due to
lack of our ability to buy brand name cigars at a discounted price. This
decrease in selling, general and administrative expenses was offset by a
non-cash expense of $31,417 for stock based compensation representing the
current portion of the expense attributable to the value of stock issued to a
company controlled by Dr. Irwin Horowitz, our CEO, as compensation for
management services and facilities provided us by this company as more fully
described in Note 5 of the Notes to Condensed Consolidated Financial Statements
appearing elsewhere in this report. We did not have a comparable expense during
the first quarter of fiscal 2004. We anticipate that operating expenses will
substantially increase due to the roll out of our franchising marketing program
during the balance of fiscal 2005.
14
We reported $0 in other income (expense) for the three months ended
March 31, 2005 as compared to $(39,006) for the three months ended March 31,
2004. The expense during 2004 was related to a loss from the sale of marketable
securities we held which was offset by investment income and an unrealized gain
on marketable securities we held. We also reported $0 in loss from discontinued
operations during the three months ended March 31, 2005 as compared to $(4,358)
during the three months ended March 31, 2004 which related to the
discontinuation of our A1Discount Perfume segment.
Liquidity and Capital Resources
-------------------------------
Liquidity is the ability of a company to generate funds to support its
current and future operations, satisfy its obligations and otherwise operate on
an ongoing basis. We had working capital at March 31, 2005 of $30,838, a
decrease of $176,979, or approximately 85%, from working capital of $207,817 at
December 31, 2004. The working capital change consists primarily of a decrease
of $(101,959) in cash, $(940) in accounts receivable, $(15,346) in inventory,
$(845) in other current assets and $(42,111) in accounts payable which was
offset by an increase of $100,000 in loan payable.
Net cash used in operating activities for the three months ended March
31, 2005 was $(222,659) as compared to $(60,928). This increase of $161,731, or
approximately 265%, is primarily attributable to:
o an increase of $46,256 in loss on impairment of property and
equipment related to a one-time write down of certain computer equipment, and
o an increase of $31,417 in stock-based compensation representing the
current portion of the value of the shares of our common stock issued to a
company controlled by our CEO as compensation for management services and the
provision of facilities to us,
which were primarily offset by:
o a decrease of $20,810 in our net loss,
o a decrease of $49,050 in loss on marketable equity securities,
o a decrease of $5,950 in accounts receivable,
o a decrease of $83,234 in inventory,
o a decrease of $64,760 in accounts payable, and
o a decrease of $58,949 in accrued salaries.
Net cash used in investing activities was $0 for the three months ended
March 31, 2005 as compared to $(15,467) for the three months ended March 31,
2004. Net cash provided by financing activities for the three months ended March
31, 2005 was $120,700 as compared to $0 for the three months ended March 31,
2004. The increase in the 2005 period represents $20,700 received from the
exercise of stock options and $100,000 received as a loan from one of our
directors as further described in Note 4 of the Notes to Condensed Consolidated
Financial Statements appearing elsewhere herein.
We do not generate sufficient sales and revenues to fund our ongoing
operations and satisfy our obligations. At March 31, 2005 we had cash and cash
equivalents of $74,965, which includes $100,000 of loan proceeds received from
one of our directors during the quarter. Subsequent to March 31, 2005 our CEO
has also lent us $100,000 for working capital. At March 31, 2005 we had an
accumulated deficit of $(7,124,069) and an accumulated other comprehensive loss
of $(4,950). The report from our independent registered public accounting firm
on our audited financial statements at December 31, 2004 contains an explanatory
15
paragraph regarding doubt as to our ability to continue as a going concern as a
result of our significant recurring losses from operations since inception. We
will require funds to satisfy our current obligations and implement our business
model. We do not presently have any commitments for additional working capital
and there are no assurances that such capital will be available to us when
needed or upon terms and conditions which are acceptable to us. If we are able
to secure additional working capital through the sale of equity securities, the
ownership interests of our current stockholders will be diluted. If we raise
additional working capital through the issuance of debt or dividend paying
securities our future interest and dividend expenses will increase. If we are
unable to secure additional working capital as needed, our ability to implement
our business model and meet our operating obligations as they become due and
continue our business and operations could be in jeopardy and we may be required
to cease operations. In that event, you would lose your investment in our
company.
ITEM 3. CONTROLS AND PROCEDURES
Our management, which includes our CEO who is our sole officer, has
conducted an evaluation of the effectiveness of our disclosure controls and
procedures (as defined in Rule 13a-14(c) promulgated under the Securities and
Exchange Act of 1934, as amended) as of a date (the "Evaluation Date") as of the
end of the period covered by this report. In connection with the restatement
described in Note 2 to the Company's Condensed Consolidated Financial Statements
(unaudited) appearing elsewhere in this report, management determined that there
was a material weakness in the Company's internal control over financial
reporting as of March 31, 2005 as more fully described below. Based upon that
evaluation, our CEO has concluded that our disclosure controls and procedures
are not effective because of the material weakness described below.
As more fully described in Note 3 to the Company's Condensed
Consolidated Financial Statements (unaudited), we are amending our original Form
10-QSB for the three months ended March 31, 2005 to restate our unaudited
balance sheet for the three months ended March 31, 2005 related to unrealized
gain from marketable securities. Management recently determined that the
marketable securities were permanently impaired as of December 31, 2002 and the
Company has previously restated its audited financial statements for the year
ended December 31, 2004. As a result of this restatement, the amount of the
Company's accumulated other comprehensive loss was at March 31, 2005 as reported
was overstated and its accumulated deficit at March 31, 2005 was understated.
Because of this accounting error, the Company has determined that a deficiency
in internal controls existed related to the accounting for unrealized gain from
marketable securities. Specifically, the Company did not have adequate controls
over the presentation of unrealized gain from marketable securities.
Accordingly, management determined that this control deficiency constituted a
material weakness. A material weakness is a control deficiency, or combination
of control deficiencies, that results is a more than remote likelihood that a
material misstatement of the annual or interim financial statements will not be
prevented or detected.
Management has taken the remedial steps necessary to eliminate the
material weakness relating to financial disclosure controls that resulted in the
restatement discussed above. Other than the changes discussed above, there have
been no significant changes made in our internal controls or in other factors
that could significantly affect our internal controls subsequent to the end of
the period covered by this report based on such evaluation.
16
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
During May 2005, Irwin Horowitz, our Chief Executive Officer and
President, loaned us $100,000 for working capital, which loan is non-interest
bearing, unsecured and payable on demand. Previously, in March 2005, Robert
Sands, a director of our company, completed a subscription for units of our
securities, which were exchanged for a loan on the same terms as that of Mr.
Horowitz. It is our intention to exchange such obligations for units of our
securities pursuant to which Messrs. Horowitz and Sands will each receive
6,000,000 shares of common stock and an option to purchase 6,000,000 shares of
common stock exercisable at $0.15 per share and expiring in May 2008.
ITEM 6. EXHIBITS
Exhibit No. Description
31.1 Rule 13a-14(a)/15d-14(a) certification of President
31.2 Rule 13a-14(a)/15d-14(a) certification of principal accounting officer
32.1 Section 1350 certification
17
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
has duly caused this report to be signed on its behalf by the undersigned as
duly authorized.
EVOLVE ONE, INC.
By: /s/ Irwin Horowitz
Irwin Horowitz, President and CEO,
principal executive officer and
principal accounting officer
Dated: September 13, 2005
18