UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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: 48,382,432 shares of common stock as of
September 13, 2005.
EVOLVE ONE, INC.
Form 10-QSB for the period ended June 30, 2005
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this quarterly report on Form 10-QSB 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 June 30, 2005 unaudited)...............1
Condensed Consolidated Statements of Operations for the Three Months and Six
Months ended June 30, 2005 and 2004 (unaudited)................................2
Condensed Consolidated Statements of Cash Flows for the
Six Months ended June 30, 2005 and 2004 (unaudited)..........................3-4
Notes to Condensed Consolidated Financial Statements (unaudited)............5-11
Item 2. Management's Discussion and Analysis or Plan of Operation.........12-17
Item 3. Controls and Procedures .............................................17
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
ii
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EVOLVE ONE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2005
(UNAUDITED)
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents ..................................... $ 139,113
Marketable equity securities, net ............................. 1,500
Inventory ..................................................... 62,675
-----------
Total Current Assets ...................................... 203,288
PROPERTY AND EQUIPMENT, NET ..................................... 7,439
OTHER ASSETS
Other assets .................................................. 3,990
-----------
Total Other Assets ........................................ 3,990
-----------
TOTAL ASSETS .................................................... $ 214,717
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Overdraft at bank ............................................. $ 20,301
-----------
Total Current Liabilities ................................. 20,301
-----------
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, 48,382,432 shares issued and outstanding ........ 484
Additional paid in capital .................................... 7,956,263
Deferred stock compensation ................................... (156,948)
Accumulated deficit ........................................... (7,600,433)
Accumulated other comprehensive loss .......................... (4,950)
-----------
Total Stockholders' Equity ................................ 194,416
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ...................... $ 214,717
===========
See accompanying notes to condensed consolidated financial statements.
1
EVOLVE ONE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three For the Three For the Six For the Six
Months Ended Months Ended Months Ended Months Ended
June 30, 2005 June 30, 2004 June 30, 2005 June 30, 2004
------------- ------------- ------------- -------------
SALES AND REVENUE .............................. $ 11,458 $ 245,155 $ 103,775 $ 494,954
COST OF SALES .................................. 8,067 172,373 73,174 324,467
------------ ------------ ------------ ------------
GROSS PROFIT ................................... 3,391 72,782 30,601 170,487
------------ ------------ ------------ ------------
OPERATING EXPENSES
Stock compensation expense .................... 188,635 - 220,052 -
Impairment .................................... 91,959 - 130,776 -
Selling, general and administrative expenses .. 199,161 320,028 454,143 697,544
------------ ------------ ------------ ------------
Total Operating Expenses ................. 479,755 320,028 804,971 697,544
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS ........................... (476,364) (247,246) (774,370) (527,057)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Loss from sale of marketable equities ......... - - - (49,050)
Investment income ............................. - 5,271 - 13,663
Unrealized gain (loss) on marketable securities - (2,346) - (694)
------------ ------------ ------------ ------------
Total Other Income (Expense) ............. - 2,925 - (36,081)
------------ ------------ ------------ ------------
NET LOSS ....................................... $ (476,364) $ (244,321) $ (774,370) $ (563,138)
-------- ============ ============ ============ ============
LOSS PER COMMON SHARE - BASIC AND DILUTED
Loss from continuing operations ............... (0.02) (0.01) (0.03) (0.02)
Loss from discontinued operations ............. - - - -
------------ ------------ ------------ ------------
Net loss per share - basic and diluted ........ $ (0.02) $ (0.01) $ (0.03) $ (0.02)
============ ============ ============ ============
Weighted average number of shares outstanding
during the period - basic and diluted ........ 31,292,322 24,770,432 27,804,797 24,770,432
============ ============ ============ ============
See accompanying notes to condensed consolidated financial statements.
2
EVOLVE ONE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Six For the Six
Months Ended Months Ended
June 30, 2005 June 30, 2004
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .................................................................. $(774,370) $(563,138)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization ........................................... 34,337 48,997
Loss on marketable equity securities .................................... - 49,050
Unrealized loss on marketable equity securities ......................... - 694
Provision for uncollectible accounts receivable ......................... 940 -
Provision for uncollectible note receivable ............................. 10,000 -
Loss on impairment of property and equipment ............................ 130,776 -
Stock issued for services ............................................... 220,051 -
Changes in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable ................................................... - 9,666
Inventory ............................................................. 24,034 242,013
Other assets .......................................................... 20,151 9,431
Increase (decrease) in:
Accounts payable ...................................................... (64,731) (64,341)
Other accrued liabilities ............................................. - (1,428)
Accrued salaries ...................................................... - 125,698
--------- ---------
Net Cash Used In Operating Activities ............................... (398,812) (143,358)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ...................................................... - (1,990)
Intangibles ............................................................... - (6,500)
Loan receivable - Onspan Networking, Inc., Net ............................ - 675,000
Interest receivable - Onspan Networking, Inc. ............................. - 17,940
Proceeds from sale of marketable equity securities ........................ - 950
--------- ---------
Net Cash Used In Investing Activities ............................... - 685,400
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash overdraft ............................................................ 20,301 -
Exercise of stock options ................................................. 20,700 -
Proceeds from sale of common stock ........................................ 220,000 -
Proceeds from loan payable ................................................ 100,000 -
--------- ---------
Net Cash Provided By Financing Activities ........................... 361,001 -
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS ................................... (37,811) 542,042
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ............................ 176,924 118,912
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .................................. $ 139,113 $ 660,954
========= =========
See accompanying notes to condensed consolidated financial statements.
3
EVOLVE ONE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Six For the Six
Months Ended Months Ended
June 30, 2005 June 30, 2004
------------- -------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
-------------------------------------------------
Cash paid for income taxes .................................................. $ - $ -
========= =========
Cash paid for interest expense .............................................. $ - $ -
========= =========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
-----------------------------------------------------------------------
During 2005, a stockholder converted $100,000 in loans payable to common stock.
See accompanying notes to condensed consolidated financial statements.
4
EVOLVE ONE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2005
(UNAUDITED)
NOTE 1 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) ORGANIZATION
Evolve One, Inc. (the "Company", Evolve One or "EONE") is a diversified
holding company that develops and operates Internet and direct retail
marketing companies. The Company's operating subsidiaries presently
include StogiesOnline.com, Inc. ("Stogies") (www.CigarCigar.com), an
online distributor of brand name premium cigars and accessories,
AuctionStore.com Inc. ("AuctionStore") (www.Auctionstore.com) is an
eBay(R) Trading Assistant and Internet- based seller of consigned
merchandise whose primary medium of sales is through eBay(R),
AuctionStore Franchise Corp. ("Franchise"), a recently formed
subsidiary that will market and service AuctionStore franchises and
International Internet Venture I, LLC ("Ventures") which from time to
time has owned 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.
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. As of December 31,
2004, the Company decided to discontinue the operations of
A1DiscountProducts.com and has classified these operations as
discontinued operations.
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, as amended, which is included in the Company's Form 10-KSB for
the year ended December 31, 2004, as amended. 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.
5
EVOLVE ONE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 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 June 30, 2005 and 2004 excludes
98,096,000 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 June 30, 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
six months ended June 30, 2005 and 2004 were as follows:
2005 2004
---- --------
Realized loss ................... $ - $(49,050)
==== ========
Unrealized loss ................. $ - $ 1,652
==== ========
6
EVOLVE ONE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2005
(UNAUDITED)
The change in unrealized gains (losses) from available-for-sale
securities included as a component of equity for the six months ended
June 30, 2005 and 2004 were as follows:
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 the Company 67,500
stock options under a revolving note agreement. The options have an
exercise price of $.10 per share. Onspan Networking, Inc. also granted
the Company on June 19, 2003, 607,500 stock options. 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 OTHER COMPREHENSIVE INCOME (LOSS)
The following represents a reconciliation of other comprehensive loss
for the six months ended June 30, 2005:
Accumulated other comprehensive loss at December 31, 2004 $(4,950)
Unrealized gain from marketable equity securities ....... -
-------
Net accumulated other comprehensive loss ................ $(4,950)
=======
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 its
securities for an aggregate price of $100,000. Each unit had a cost of
$5,000 and consisted of 100,000 shares of common stock and one three
year option consisting of 100,000 shares of common stock exercisable at
$.25 cents per share. The Company rejected the subscription agreement
and recorded the proceeds as a loan payable at March 31, 2005. The loan
is unsecured, non-interest bearing and due on demand. During June 2005,
the loan was converted into common stock in the Company's June 2005
private placement (See Note 5).
NOTE 5 CAPITAL STOCK
On March 15, 2005, the Company entered into a Management Agreement with
Diversifax Inc. ("Diversifax"). Irwin Horowitz, a principal
shareholder, member of the Board of Directors and Chief Executive
officer of the Company, is also a principal shareholder and Chief
Executive Officer of Diversifax. Under the terms of the agreement,
Diversifax makes available to the Company its facilities at 39
Stringham Avenue, Valley Stream, New York; the services on a part-time
basis of six 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 10 days' prior written notice by either
party, or the agreement may be renewed for a successive six-month term.
7
EVOLVE ONE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2005
(UNAUDITED)
In consideration for the management services and facilities provided by
Diversifax during the initial six-month term, the Company issued
Diversifax 2,900,000 shares of its common stock. In addition, in the
event the market price of the Company's common stock on the six-month
anniversary date is below $0.15 per share, the Company will issue
Diversifax additional shares of its common stock so that the 2,900,000
shares of common stock initially issued 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.
Payment of the percentage fee will be made in cash or stock as
determined by Diversifax. As of June 30, 2005, the Company recorded an
expense of $220,052 and deferred stock compensation of $156,948. The
Company will amortize the fair value of the stock over the term of the
agreement.
On June 20, 2005, the Company completed subscription arrangements with
four accredited investors and one unaccredited family member of the
chief executive officer of the Company. The Company sold $320,000 of
units in this offering and as consideration therefore received $220,000
in cash and the conversion of a $100,000 loan payable.. Pursuant to the
subscription arrangements, the Company issued 19,200,000 shares of its
common stock and an equal number of warrants exercisable at $0.15 per
share for a term ending in May 2008. Dr. Horowitz and Diversifax
purchased an aggregate $200,000 of units in this offering and received
12,000,000 shares of common stock and warrants to purchase 12,000,000
shares. Mr. Sands, a director of the Company, converted the $100,000
note payable described in Note 4 above into 6,000,000 shares of common
stock and 6,000,000 common stock purchase warrants as part of the
offering. No commissions or fees were paid in connection with the
issuance. Inasmuch as the investors were all members of management and
accredited investors or, in one instance, was a relative of a member of
management, the shares were exempt from registration under the
Securities Act of 1933 by virtue of Section 4(2) of that Act.
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 initially 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. During 2005, the Company amended its
stock option Plan to increase the number of shares covered by the Plan
to 100,000,000 shares of common stock. 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.
8
EVOLVE ONE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2005
(UNAUDITED)
A summary of the status of the Company's stock options as of June 30,
2005 and the changes during the six months ended June 30, 2005 and the
year ended December 31, 2004 is presented below:
Weighted
Average
Shares 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 ....................... 76,000,000 .30
Options exercised ..................... (152,000) .14
Options cancelled ..................... - -
----------- ------
Ending Balance, June 30, 2005 .......... 78,896,000 $.029
=========== ======
Options exercisable at period end ...... 78,896,000 .131
=========== ======
Weighted average fair value of options
granted to employees during the year ... .30 .131
=========== ======
During the six months ended June 30, 2005, the Company granted
76,000,000 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 Six For the Six
Months Ended Months Ended
June 30, 2005 June 30, 2004
------------- -------------
Net loss available to
common stockholders As Reported $ (774,370) $ (563,138)
Pro Forma $ (8,996,023) $ (563,138)
Basic and diluted loss
per share As Reported (0.03) (0.02)
Pro Forma (0.32) (0.02)
9
EVOLVE ONE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2005
(UNAUDITED)
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of Outstanding at Contractual Exercise Exercisable at Exercise
Exercise Price June 30, 2005 Life Price June 30, 2005 Price
---------------- -------------- ----------- -------- -------------- --------
$.000125 - .5625 78,896,000 7.5 .29 76,896,000 .29
Weighted
Number Average Weighted Number Weighted
Outstanding at Remaining Average Exercisable at Average
Range of December 31, Contractual Exercise December 31, Exercise
Exercise Price 2004 Life Price 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, former executive officers,
directors and principal shareholders of the Company, 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. Mr. Horowitz entered
into an employment agreement with the Company pursuant to which he
receives 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.
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.
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. The sharp reduction in
revenues is due to the reorganization of the company to focus on
AuctionStore and Franchise activities only.
10
EVOLVE ONE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2005
(UNAUDITED)
For the six months ended June 30, 2005, the Company operated in the
following segments, none of which have inter-segment revenues:
Ventures Stogies Corporate Auction Store Consolidated
-------- --------- --------- ------------- ------------
Revenue ......... $ - $ 33,409 $ - $ 70,366 $ 103,775
Net income (loss) - (183,198) (457,027) (134,145) (774,370)
Assets .......... 1,500 50,611 143,890 18,716 214,717
Depreciation .... - 19,303 5,305 9,729 34,337
For the six months ended June 30, 2004, the Company operated in the
following segments, none of which have inter-segment revenues:
A1Discount
Ventures Stogies Corporate Perfume Consolidated
-------- --------- --------- ---------- ------------
Revenue ......... $ - $ 480,093 $ - $ 14,861 $ 494,954
Operating loss... (233) (122,619) (394,100) (10,105) (527,057)
Other income
(expense) ....... (49,744) - 13,663 - (36,081)
Net loss ........ (49,977) (122,619) (380,437) (10,105) (563,135)
Assets .......... 231,462 325,882 613,603 30,467 1,201,414
NOTE 9 RELATED PARTY TRANSACTIONS
See Notes 4, 5, 6 and 7.
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 six months ended June 30, 2005 of $774,370 and
has an accumulated deficit of $7,600,433 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.
11
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. In May 2005 the Company formed a new
subsidiary, AuctionStore Franchise Corp., to market and service franchises of
AuctionStore.com. The Company 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 were effective as of the beginning of the first interim or annual reporting
period that began after December 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 was 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 do not believe that SFAS 153 will have a
material impact 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 June 30, 2005, investments consisted of common stock and options to acquire
common stock held for resale.
14
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 $103,775 for the six months ended
June 30, 2005 as compared to $494,954 for the six months ended June 30, 2004, a
decrease of $391,179, or approximately 79%. Included in sales and revenues for
the six months ended June 30, 2005, are sales and revenues of $33,409
attributable to our Stogies segment, a decrease of $446,684 or approximately
93%, from our sales and revenues from this segment of $480,093 for the six
months June 30, 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 on our AuctionStore and AuctionStore Franchise operations.
During the six months ended June 30, 2005 we reported sales and revenues from
our Auctionstore.com segment of $70,366 and we did not report any sales and
revenues from our newly formed AuctionStore Franchise subsidiary. Because our
AuctionStore subsidiary was formed in the third quarter of fiscal 2004 we did
not have comparable sales and revenues during the six months ended June 30,
2004. During the six months ended June 30, 2004 we reported sales and revenues
of $14,861 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 from our AuctionStore.com subsidiary
will continue to increase. In addition, we presently plan to launch our
AuctionStore Franchise program during fiscal 2005 which may provide additional
sales and revenue during this fiscal year.
Our cost of sales as a percentage of sales and revenues was 70.5% for
the six months ended June 30, 2005 as compared to 65.6% for the six months ended
June 30, 2004. This increase in cost of sales and corresponding decrease in our
gross profit margins is primarily attributable to a reduction in our margins on
sales of products by Stogies resulting from market competition.
Operating expenses for the six months ended June 30, 2005 increased
$107,427, or approximately 15.4%, to $804,971 from $697,544 for the comparable
six-month period in fiscal 2004. Included in this change was a decrease of
$243,4016, or approximately 34.9%, in selling, general and administrative
expenses for the six months ended June 30, 2005 as compared to the six months
ended June 30, 2004. The decrease in selling, general and administrative
expenses was due to the decrease in payroll expense. This decrease in selling,
general and administrative expenses was offset by an increase of $220,052 in
non-cash 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, as well as a one time expense of $130,776 for impairment of certain
computer equipment and leasehold improvements. We did not have a comparable
expenses during the six months ended June 30, 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.
15
We reported $0 in other income (expense) for the six months ended June
30, 2005 as compared to $(36,081) for the six months ended June 30, 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 loss on
marketable securities we held, offset by investment income of $13,663.
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 of $182,987 at June 30, 2005, a
decrease of $24,830, or approximately 11.9%, from working capital of $207,817 at
December 31, 2004. The working capital change consists primarily of a decrease
of $(37,811) in cash, $(940) in accounts receivable, $(24,033) in inventory,
$(6,475) in other current asset and a decrease of $(64,731) in accounts payable
which was offset by an increase of $20,301 in bank overdraft.
Net cash used in operating activities for the six months ended June 30,
2005 was $(398,812) as compared to $(143,358). This increase of $255,454, or
approximately 178%, is primarily attributable to:
o an increase of 211,232 in our net loss,
o an increase of $10,940 in provisions for uncollectible accounts
receivable and note receivable,
o an increase of $130,776 in loss on impairment of property and
equipment related to a one-time write down of certain computer equipment, and
o an increase of $220,051 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 $14,660 in depreciation and amortization,
o a decrease of $49,050 in loss on marketable equity securities,
o a decrease of $217,979 in inventory,
o a decrease of $10,720 in other assets,
o a decrease of $1,428 in other accrued liabilities, and
o a decrease of $125,698 in accrued salaries.
Net cash used in investing activities was $0 for the six months ended
June 30, 2005 as compared to $685,400 for the six months ended June 30, 2004.
Net cash provided by financing activities for the six months ended June 30, 2005
was $361,001 as compared to $0 for the six months ended June 30, 2004. The
increase in the 2005 period represents $20,301 benefit from the cash overdraft,
$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 (unaudited) appearing elsewhere
herein and $220,000 in net proceeds from the sale of our equity securities as
described in Note 5 of the Notes to Condensed Consolidated Financial Statements
(unaudited) appearing elsewhere herein.
16
We do not generate sufficient sales and revenues to fund our ongoing
operations and satisfy our obligations. At June 30, 2005 we had cash and cash
equivalents of $139,113. At June 30, 2005 we had an accumulated deficit of
$(7,600,433) 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 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. Based upon that evaluation, our CEO
has concluded that our disclosure controls and procedures are effective for
timely gathering, analyzing and disclosing the information we are required to
disclose in our reports filed under the Securities Exchange Act of 1934, as
amended. 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.
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
None.
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 15, 2005
18