U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For Quarter Ended: SEPTEMBER 30, 2002
Commission File Number: 000-26415
EVOLVE ONE, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 13-3876100
(State of Incorporation) (IRS Employer ID No)
6413 CONGRESS AVENUE, SUITE 240, BOCA RATON, FL 33487
(Address of principal executive office)
(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 Securities 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 [ ].
The number of shares outstanding of registrant's common stock, par value $.00001
per share, as of November 8, 2002 was 773,980,936.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X].
EVOLVE ONE, INC. AND SUBSIDIARIES
INDEX
Page
No.
----
Part I. Financial Information (unaudited)
Item 1. Condensed Consolidated Financial Statements:
Balance Sheet - September 30, 2002 ..............................3
Statements of Operations-
Three and Nine Months Ended September 30, 2002 and 2001 .........4
Statement of Stockholders' Equity -
Nine Months Ended September 30, 2002 ............................5
Statements of Cash Flows -
Nine Months Ended September 30, 2002 and 2001 .................6-7
Notes to Financial Statements.................................8-15
Item 2. Managements Discussion and Analysis or Plan of Operations .....15-19
Item 3. Controls and Procedures ..........................................20
Part II. Other Information
Item 5. Other Information ................................................20
Item 6. Exhibits and Reports on 8-K ......................................20
Signatures .......................................................21
Certifications ................................................22-25
Exhibit Index ....................................................26
2
EVOLVE ONE, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheet
September 30, 2002
(Unaudited)
Assets
Current assets
Cash and cash equivalents ..................................... $ 1,612,506
Accounts receivable ........................................... 21,012
Marketable equity securities .................................. 476,019
Inventory ..................................................... 338,521
Prepaid expenses .............................................. 82,225
Deferred taxes ................................................ 34,800
-----------
Total current assets ............................................ 2,565,083
Property and equipment, net ..................................... 324,597
Marketable equity securities .................................... 615,900
Other assets .................................................... 11,070
-----------
$ 3,516,650
===========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable .............................................. $ 54,762
Accrued salaries payable ...................................... 75,000
Note Payable .................................................. 42,234
Accrued expenses .............................................. 416
-----------
Total current liabilities ....................................... 172,412
-----------
Deferred income taxes ........................................... 34,800
-----------
Commitments and contingencies
Stockholders' equity
Cumulative convertible preferred stock, $.0001 par value;
authorized 10,000,000 shares; outstanding -0- shares ........ -
Common stock, $.00001 par value. Authorized 1,000,000,000
shares; issued and outstanding 776,225,936 shares ........... 7,762
Paid-in capital ............................................... 6,730,363
Accumulated deficit ........................................... (3,524,320)
Accumulated other comprehensive income ........................ 95,633
-----------
Total stockholders' equity ...................................... 3,309,438
-----------
$ 3,516,650
===========
See accompanying notes to condensed consolidated financial statements.
3
EVOLVE ONE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
Three and Nine Months ended September 30, 2002 and 2001
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
Sales and revenues .................................... $ 326,643 $ 284,568 $ 850,086 $ 900,360
Cost of sales ......................................... 216,653 236,429 570,178 721,476
------------- ------------- ------------- -------------
Gross profit .......................................... 109,990 48,139 279,908 178,884
Selling, general and administrative expense ........... 377,564 396,643 1,073,278 1,238,127
------------- ------------- ------------- -------------
Loss from operations ................................ (267,574) (348,504) (793,370) (1,059,243)
------------- ------------- ------------- -------------
Other income (expense):
Interest expense .................................... (1,625) (1,014) (3,825) (6,904)
Gain (loss) from sale of marketable equity securities (39,910) - (12,058) 2,300
Investment income ................................... 3,804 16,470 12,283 71,198
Other expenses ...................................... (16,000) (20,000) (16,000) (20,000)
Unrealized (loss) on marketable securities .......... (1,322) (46,254) (4,625) (48,069)
------------- ------------- ------------- -------------
Total other income (expense) ...................... (55,053) (50,798) (24,225) (1,475)
------------- ------------- ------------- -------------
Loss before income taxes .............................. (322,627) (399,302) (817,595) (1,060,718)
Income tax expense (benefit) .......................... (88,800) (220,700) 381,500 (466,300)
------------- ------------- ------------- -------------
Loss from continuing operations ....................... (233,827) (178,602) (1,199,095) (594,418)
Loss from earnings of a discontinued division ......... - (54,875) - (161,820)
------------- ------------- ------------- -------------
Net loss .............................................. $ (233,827) $ (233,477) $ (1,199,095) $ (756,238)
============= ============= ============= =============
Net loss per share
Basic ............................................... $ (0.00) $ (0.00) $ (0.00) $ (0.00)
============= ============= ============= =============
Diluted ............................................. $ (0.00) $ (0.00) $ (0.00) $ (0.00)
============= ============= ============= =============
Discontinued operations ............................. $ - $ (0.00) $ - $ (0.00)
============= ============= ============= =============
Weighted average shares outstanding
Basic ............................................... 778,958,165 788,446,187 785,248,758 788,446,187
============= ============= ============= =============
Diluted ............................................. 778,958,165 788,446,187 785,248,758 788,446,187
============= ============= ============= =============
See accompanying notes to condensed consolidated financial statements.
4
EVOLVE ONE, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Stockholders' Equity
Nine Months Ended September 30, 2002
(Unaudited)
Accumulated
Other
Common Stock Paid-in Accumulated Comprehensive
Shares Par Value Capital Deficit Income Total
------------ ------------ ------------ ------------ ------------ ------------
Balance, January 1, 2002 ..... 788,446,187 $ 7,884 $ 6,819,781 $ (2,325,225) $ 727,896 $ 5,230,336
Repurchase and Retirement
of Common Stock ............ (12,220,251) (122) (89,418) - - (89,540)
Comprehensive income:
Unrealized (loss) on
available-for-sale
securities, net ........... - - - - (632,263) (632,263)
Net loss .................. - - - (1,199,095) - (1,199,095)
------------
Total comprehensive loss . - - - - - (1,831,358)
------------ ------------ ------------ ------------ ------------ ------------
Balance, September 30, 2002 .. 776,225,936 $ 7,762 $ 6,730,363 $ (3,524,320) $ 95,633 $ 3,309,438
============ ============ ============ ============ ============ ============
See accompanying notes to condensed consolidated financial statements.
5
EVOLVE ONE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Nine months ended September 30, 2002 and 2001
(Unaudited)
2002 2001
Cash flows from operating activities
Net earnings (loss) ............................................. $(1,199,095) $ (756,238)
Less: (Loss) from discontinued operations, net .................. - (161,820)
----------- -----------
(Loss) from continuing operations ............................... (1,199,095) (594,418)
Adjustments to reconcile (loss) from continuing operations to net
cash (used in) operating activities:
Depreciation and amortization ................................. 123,791 170,407
(Gain) loss on marketable investment securities ............... 12,058 (2,300)
Unrealized loss on marketable investment securities ........... 4,625 48,069
Proceeds from sale of marketable investment securities ........ - 5,642
Deferred income taxes ......................................... 381,500 (466,300)
Net change in operating assets of a discontinued operation .... - (95,714)
Decrease (increase) in assets:
Accounts receivable ......................................... 14,112 42,544
Inventory ................................................... (69,721) 242,635
Other assets ................................................ 119,089 36,073
Increase (decrease) in liabilities:
Accounts payable ............................................ 8,777 (75,711)
Accrued expenses ............................................ 70,614 (34,520)
----------- -----------
Net cash (used in) operating activities ......................... (534,250) (723,593)
----------- -----------
Cash flows from investing activities
Capital expenditures .......................................... (5,180) (107,385)
Purchase of marketable investment securities .................. - (9,000)
Proceeds from sale of marketable investment securities ........ 187,943 -
----------- -----------
Net cash provided by (used in) investing activities ............. 182,763 (116,385)
----------- -----------
Cash flows from financing activities
Repurchase of treasury stock .................................. (89,540) -
Loan repayment ................................................ (115,729) (60,287)
----------- -----------
Net cash (used in) financing activities ......................... (205,269) (60,287)
----------- -----------
Net cash (used in) continuing operations ........................ (556,756) (900,265)
Net cash (used in) discontinued operations ...................... - (161,820)
----------- -----------
Net (decrease) in cash and cash equivalents ..................... (556,756) (1,062,085)
Cash and cash equivalents, beginning of period .................. 2,169,262 3,393,582
----------- -----------
Cash and cash equivalents, end of period ........................ $ 1,612,506 $ 2,331,497
=========== ===========
Continued
See accompanying notes to condensed consolidated financial statements.
6
EVOLVE ONE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Nine months ended September 30, 2002 and 2001
(Unaudited)
(Continued)
2002 2001
Supplemental Cash Flow Information
Cash paid for:
Interest ...................................................... $ 3,825 $ 6,904
Supplemental Schedule of Noncash Investing and Financing Activities
Insurance Financing ............................................. $ 157,963 $ 91,054
See accompanying notes to condensed consolidated financial statements.
7
EVOLVE ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 of companies includes wholly-owned subsidiaries, StogiesOnline.com, Inc.
("Stogies") (www.CigarCigar.com), A1Discount Perfume, Inc. ("A1 Discount
Perfume") (WWW.A1DISCOUNTPRODUCTS.COM), and International Internet Venture I,
LLC ("Ventures"). The Company previously had majority interests in The
BroadcastWeb.com, Inc. ("BroadcastWeb") (www.thebroadcastweb.com) which it sold
in 2001(Note E) and Mr. Cigar, Inc. 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 A1Discount
Perfume, 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 a
competitor of other discount as well as full price online retailers of perfume
and cologne, and has recently expanded into yoga products, office accessories,
and cigar accessories. The site employs the Microsoft / Great Plains eEnterprise
system the Company purchased which permits customers to benefit by having direct
access to up-to-the-minute information about inventory, pricing, "hot deals" as
well as order information. The eEnterprise system allows A1 Discount Perfume to
inexpensively reach customers anywhere, around the clock.
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, 2001, which is included in the Company's Form 10-KSB for the year
ended December 31, 2001. 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.
8
New accounting standards
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations."
SFAS No. 141 requires the purchase method of accounting for business
combinations initiated after June 30, 2001 and eliminates the
pooling-of-interests method. The Company believes that the adoption of SFAS No.
141 will not have a significant impact on its financial statements.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets", which is effective for fiscal years beginning after December 15, 2001.
SFAS No. 142 requires, among other things, the discontinuance of goodwill
amortization. In addition, the standard includes provisions upon adoption for
the reclassification of certain existing recognized intangibles such as
goodwill, reassessment of the useful lives of existing recognized intangibles,
reclassification of certain intangibles out of previously reported goodwill and
the testing for impairment of existing goodwill and other intangibles.
In June 2001, the Emerging Issues Task Force ("EITF") issued EITF Issue No.
00-25, "Vendor Income Statement Characterization of Consideration Paid to a
Reseller of the Vendor's Products." EITF Issue No. 00-25 addresses whether
consideration from a vendor to a reseller is (a) an adjustment of the selling
prices of the vendor's products and, therefore, should be deducted from revenue
when recognized in the vendor's income statement or (b) a cost incurred by the
vendor for assets or services received from the reseller and, therefore, should
be included as a cost or expense when recognized in the vendor's income
statement. The Company adopted EITF Issue No. 00-25 effective January 1, 2002.
The adoption of EITF Issue No. 00-25 did not have a material impact on the
Company's financial statements.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations", which provides the accounting requirements for retirement
obligations associated with tangible long-lived assets. This statement requires
entities to record the fair value of a liability for an asset retirement
obligation in the period in which it occurred. This statement is effective for
the Company's 2003 fiscal year, and early adoption is permitted. The adoption of
SFAS 143 is not expected to have a material impact on the Company's consolidated
results of operations, financial position or cash flows.
In October 2001, the FASB issued SFAS No. 144, " Accounting for the Impairment
or Disposal of Long Lived Assets", which excludes from the definition of
long-lived assets goodwill and other intangibles that are not amortized in
accordance with SFAS 142. SFAS 144 requires that long-lived assets to be
disposed of by sale be measured at the lower of carrying amount or fair value
less cost to sell, whether reported in continuing operations or in discontinued
operations. SFAS 144 also expands the reporting of discontinued operations to
include components of an entity that have been or will be disposed of rather
than limiting such discontinuance to a segment of a business. This statement is
effective for the Company's 2003 fiscal year, and early adoption is permitted.
The Company is currently evaluating the impact of SFAS 144 to determine the
effect, if any, it may have on the Company's consolidated results of operations,
financial position or cash flows.
9
In April 2002, the FASB issued Statement No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Correction".
This statement eliminates extraordinary accounting treatment for reporting gain
or loss on debt extinguishments, and amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions. The provisions of this
statement are effective for the Company with the beginning of fiscal year 2003;
however, early application of the statement is encouraged. Debt extinguishments
reported as extraordinary items prior to scheduled or early adoption of this
statement would be reclassified in most cases following adoption. The Company
does not anticipate a significant impact on its results of operations from
adopting this statement.
In June 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". This statement requires recording
costs associated with exit or disposal activities at their fair values when a
liability has been incurred. Under previous guidance, certain exit costs were
accrued upon management's commitment to an exit plan, which is generally before
an actual liability has been incurred. Adoption of this statement is required
with the beginning of fiscal year 2003. This statement will impact the timing of
exit or disposal activities reported by the Company after adoption.
B. MARKETABLE INVESTMENT 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 investment securities as shown in the accompanying balance
sheet and their estimated market value at September 30, 2002 are as follows:
2002
Trading securities:
Cost ...................................................... $ 10,572
Unrealized (loss) ......................................... (8,590)
-----------
1,982
Available-for-sale securities:
Cost ...................................................... 936,604
Unrealized gain ........................................... 153,333
-----------
1,089,937
-----------
1,091,919
Marketable investment securities classified as current .......... 476,019
-----------
Marketable investment securities classified as non-current ...... $ 615,900
===========
10
Gains (losses) from trading securities that were included in earnings for the
nine months ended September 30, 2002 and 2001 were as follows:
2002 2001
---- ----
Realized gain (loss) .......................... $ (12,058) $ 2,300
============ ===========
Unrealized (loss) ............................. $ (4,625) $ (48,069)
============ ============
The change in unrealized losses from available-for-sale securities included as a
component of equity for the nine months ended September 30, 2002 were as
follows:
2002
----
Unrealized (loss) $(1,013,763)
Deferred income tax benefit 381,500
-----------
Change in accumulated other comprehensive (loss) $ (632,263)
============
The Company's investment in available-for-sale securities includes 10,100,000
shares (10,000,000 of which are not registered) of SGD Holdings, Ltd., formerly
known as Goldonline International, Inc. ("SGD"), a holding company primarily
engaged in acquiring and developing jewelry related businesses, with a cost of
$108,854 and a closing value on September 30, 2002 of $1,010,000 ($.10 per
share). The Company's investment represents approximately 10.4% of the
outstanding stock of SGD and accordingly the Company is subject to certain
restrictions on the number of shares it can sell. The Company classifies
6,159,000 shares of SGD as non-current and 3,941,000 shares of SGD as current,
which is approximately the maximum number of shares it could sell within the
next 12 months.
C. OTHER COMPREHENSIVE INCOME
The following represents a reconciliation of other comprehensive income for the
nine months ended September 30, 2002:
Accumulated other comprehensive income at 12/31/01: .............. $ 727,896
Unrealized loss from marketable securities ........ $ (1,055,763)
Reclassification adjustment ....................... 42,000
------------
Net unrealized loss from marketable securities ................... (1,013,763)
Deferred income tax benefit ...................................... 381,500
-----------
Net accumulated other comprehensive income ....................... $ 95,633
===========
11
D. INCOME TAXES
The components of income tax expense for continuing operations are as follows
for the nine months ended September 30, 2002 and 2001:
2002 2001
---- ----
Current tax expense (benefit):
Federal .......................................... $ - $ -
State ............................................ - -
--------- ---------
- -
Deferred tax expense (benefit) ...................... 381,500 (466,300)
--------- ---------
Total income tax expense (benefit) ............... $ 381,500 $(466,300)
========= =========
Total income tax expense (benefit) applicable to earnings (loss) from continuing
operations before income taxes is reconciled with the "normally expected"
federal income tax expense (benefit) as follows for the nine months ended
September 30, 2002 and 2001:
2002 2001
---- ----
"Normally expected" income tax expense (benefit) .. $(278,000) $(360,600)
Increase (decrease) in taxes resulting from:
State income taxes, net of Federal income
Tax benefit ..................................... (29,700) (38,500)
Nondeductible meals and other ..................... 2,400 (67,200)
Change in valuation allowance ..................... 686,800 -
--------- ---------
$ 381,500 $(466,300)
========= =========
The deferred income tax liabilities (assets) at September 30, 2002 are comprised
of the following:
Current Noncurrent
Unrealized loss on trading securities ........... $ (3,200) $ -
Unrealized gain on available-for-sale securities 25,100 32,600
Net operating loss .............................. (1,263,000) -
Asset basis ..................................... - 2,200
----------- -----------
Total deferred income tax liabilities (assets) (1,241,100) 34,800
Valuation allowance .......................... 1,206,300 -
----------- -----------
Net deferred income tax liabilities (assets) .... $ (34,800) $ 34,800*
=========== ===========
* Included in Other Comprehensive Income
12
The Company has provided a valuation allowance on the deferred tax assets
because of uncertainty regarding its realization. The increase in the valuation
account during the nine months ended September 30, 2002 was $686,800. Management
utilizes tax planning strategies and projected future taxable income in
assessing these assets.
E. DISCONTINUED OPERATIONS
On December 14, 2001 the Company entered into a stock purchase agreement with
NYCLE Acquisition Corp ("the Purchaser") to sell the Company's interest in
BroadcastWeb (an aggregator and broadcaster of streaming media programming on
the Web). The Company sold, transferred and assigned to the Purchaser all of its
shares of the common stock of BroadcastWeb, represent 1,350 shares of the 1,500
outstanding shares of the common stock of BroadcastWeb. Pursuant to the stock
purchase agreement, the Company assumed liability for the outstanding
intercompany payable, the Purchaser is not responsible for any outstanding debt,
federal, state, and local taxes but is responsible for all vendor payables.
Pursuant to Accounting Principles Board Opinion No. 30, "Reporting the Results
of Operations - Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and Transactions"
("APB 30"), the Consolidated Financial Statements of EONE have been reclassified
to reflect the sale of BroadcastWeb. Accordingly, the revenues, costs and
expenses, assets and liabilities, and cash flows of BroadcastWeb have been
segregated in the Consolidated Statements of Income, Consolidated Balance Sheets
and Consolidated Statements of Cash Flows. The net operating results, net assets
and net cash flows of this business have been reported as "Discontinued
Operations."
Following is summarized financial information for the discontinued operations
during the nine months ended September 30, 2001, including expenses associated
with the divestiture:
2001
----
Net sales - BroadcastWeb ............... $ 7,795
=========
Loss from operations before income taxes $(266,815)
Income tax benefit ..................... 97,200
---------
Net loss from discontinued operations .. $(161,820)
=========
Net earnings (loss) per common share:
Basic .................................. $ 0.00
=========
Diluted ................................ $ 0.00
=========
F. STOCK REPURCHASE
The Company has been authorized and empowered to acquire in the open market up
to one million dollars of the common stock of the Company upon such terms and
conditions as management shall determine consistent with applicable rules and
regulations of the Securities and Exchange Commission. Pursuant to a plan
13
approved by the board of directors, the Company has repurchased in the nine
month period ended September 30, 2002 a total of 12,220,251 shares of its common
stock for $89,540. The repurchased shares are held in treasury and have been
treated as constructively retired. Effective October 7, 2002, the Company ceased
the stock repurchase plan.
G. SEGMENT INFORMATION
The Company reports segments based upon the management approach, which
designates the internal reporting that is used by management for making
operating decisions and assessing performance.
For the nine months ended September 30, 2002, the Company operated in the
following segments, none of which have intersegment revenues:
A1Discount
Ventures Stogies Corporate Perfume Consolidated
---------- ---------- ---------- -------------- ------------
Revenue ........$ - $ 827,363 $ - $ 22,723 $ 850,086
Operating Loss . (45,278) (207,507) (536,664) (3,921) (793,370)
Other income
(expense) ...... (15,760) - (8,465) - (24,225)
Loss from
continuing
operations ..... (59,338) (129,506) (1,007,830) (2,421) (1,199,095)
Assets ......... 1,233,348 1,365,104 874,343 43,855 3,516,650
For the nine months ended September 30, 2001, the Company operated in the
following segments, none of which have intersegment revenues:
Broadcast Web
Ventures Stogies Corporate (Discontinued) Consolidated
---------- ---------- ---------- -------------- ------------
Revenue ........$ - $ 900,360 $ - $ - $ 900,360
Operating Loss . (48,995) (517,928) (492,320) - (1,059,243)
Other income
(expense) ...... (43,214) - 41,739 - (1,475)
Loss from
continuing
operations ..... 27,191 (327,427) (294,182) - (594,418)
Assets ......... 3,356,111 1,588,163 2,374,469 316,415 7,635,158
The Ventures segment owns an equity interest in several companies, mainly with
Internet operations, and derives its revenue from the net gains and losses
recognized when the investments are sold. In addition, the Ventures segment
recognizes income or loss from the unrealized gains or losses associated with
its trading securities.
14
The Stogies segment is an online distributor and retailer of brand name premium
cigars within the United States. Stogies revenue includes wholesale sales to
cigar stores, as well as, retail sales to internet customers.
The A1Discount segment is an online distributor and retailer of brand name
premium colognes, perfumes and exercise and yoga equipment within the United
States. A1Discount revenue includes retail sales to internet customers.
Corporate assets consist of the majority of the cash and certain notes
receivable. Interest expense is allocated to the other segments to the extent it
exceeds interest income.
H. SEC COMMUNICATIONS
In a letter dated September 5, 2002, the staff of the Southeast Regional Office
(the "Staff") of the Securities and Exchange Commission ("SEC") informed EONE
that the Staff intends to recommend that the SEC pursue a federal injunctive
action against the Company for violations of the antifraud provisions of the
federal securities laws. Since receiving the letter, which did not explain the
basis for the Staff's recommendation, the Company has met with the Staff twice
to discuss the matter, and has been informed that the potential charges relate
to two press releases issued by the Company in March 2000. The Staff has
indicated that the Company may submit a written statement explaining why it
believes the SEC should not accept the Staff's recommendation, but the Company
has determined not to submit such a statement at this time.
The Company has also been informed that the Staff intends to recommend similar
charges against EONE's principal shareholders, Herb Tabin and Gary Schultheis,
based on the same press releases and transactions in the securities of other
companies.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following discussion and analysis of the Company's financial condition and
results of operations should be read with the condensed consolidated financial
statements and related notes contained in this quarterly report on Form 10-QSB
("Form 10-QSB"). All statements other than statements of historical fact
included in this Form 10-QSB 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 the
Company's 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: 1. General economic factors including, but not limited to,
changes in interest rates and trends in disposable income; 2. Information and
technological advances; 3. Cost of products sold; 4. Competition; and 5. Success
of marketing, advertising and promotional campaigns. The Company is subject to
specific risks and uncertainties related to its business model, strategies,
markets and legal and regulatory environment. For a detailed discussion of some
of these risks, please see the risk factors included in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 2001, as filed with the
SEC in April 2002. You should carefully review the risks described in this Form
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10-QSB and in other documents the Company files from time to time with the SEC.
You are cautioned not to place undue reliance on the forward-looking statements,
which speak only as of the date of this Form 10-QSB. The Company undertakes no
obligation to publicly release any revisions to the forward-looking statements
to reflect events or circumstances after the date of this document.
The Company's continuing operations consist of two Internet based businesses
Stogies and A1Discount Perfume. Stogies is an online distributor and retailer of
brand name premium cigars within the United States. A1Discount Perfume is a
online retailer of premium perfumes and colognes Stogies became operational in
November 1998 and its accounts for substantially all of the sales revenue.
The following discussion and analysis has been restated to reflect the
discontinued operation of BroadcastWeb.
CRITICAL ACCOUNTING POLICIES
The Company has identified the policies outlined below as critical to its
business operations and an understanding of its results of operations. The
listing is not intended to be a comprehensive list of all of the Company's
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
the Company's business operations is discussed throughout Management's
Discussion and Analysis or plan of operations where such policies affect the
Company's reported and expected financial results. For a detailed discussion on
the application of these and other accounting policies, see the Notes to
Consolidated Financial Statements. The Company's preparation of the financial
statements requires it to make estimates and assumptions that affect the
reported amount of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the Company's 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.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost and is depreciated on a
straight-line basis over the estimated useful lives of such assets. Changes in
circumstances such as technological advances, changes to the Company's business
model or changes in the Company's capital strategy could result in the actual
useful lives differing from the Company's estimates. In those cases where the
Company determines that the useful life of property, plant and equipment should
be shortened, the Company will depreciate the net book value in excess of the
estimated salvage value over its revised remaining useful life.
DEFERRED TAX ASSETS
The Company records a valuation allowance to reduce the carrying value of its
deferred tax assets to an amount that is more likely than not to be realized.
While the Company has considered future taxable income and prudent and feasible
tax planning strategies in assessing the need for the valuation allowance,
should the Company determine that it would not be able to realize all or part of
its 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.
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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 September 30,
2002, investments consisted entirely of common stock held for resale. 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. Net
unrealized losses related to investments held for trading as of September 30,
2002, aggregated ($4,625).
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).
Liquidity and Capital Resources
The Company decreased its working capital from $3,746,452 at December 31, 2001
to $2,392,671 at September 30, 2002. The working capital decrease in the amount
of $1,353,781 consists primarily of decreases in cash in the amount of $556,756,
and marketable securities in the amount of $612,289, and a decrease in current
and deferred income taxes in the amount of $207,600.
During the nine months ended September 30, 2002 stockholders' equity decreased
$1,920,898, which includes decreases in other comprehensive income in the amount
of $632,263, the net loss for the year of $1,199,095, and $89,540 for the
repurchase of 12,220,251 shares of common stock (See Other Comprehensive Income
below).
Results of Operations
Sales
Sales increased 14.8% from $284,568 for the three months ended September 30,
2001 to $326,643 for the three months ended September 30, 2001. Sales decreased
5.6% from $900,360 for the nine months ended September 30, 2001 to $850,086 for
the nine months ended September 30, 2002. The increase in sales for the three
months ended September 30, 2002 compared to the same period in 2001 is
attributable to a number of factors, including the Company's efforts to
concentrate more on internet and retail sales and less on wholesale sales,
expanded product lines, better promotions and expanded name recognition. The
decrease in sales for the nine months ended September 30, 2002 compared to the
same period in 2001 is attributable to a number of factors, including lower
wholesale sales due to loss or wholesale salesman and more concentration on
internet sales with higher margins.
Internet and retail sales for the nine months ended September 30, 2002 compared
to the same period in 2001 increased 23% due to the Company's effort to expand
its potential customer market. During the nine months ended September 30, 2002,
the Company added wine accessories (including books, corkscrews, decanters and
racks) and cigar accessories (including ashtrays, books, cutters, humidors and
lighters) to its list of products carried on its CigarCigar.com website. Since
employing the Microsoft/Great Plains eEnterprise system the Company's Stogies
segment improved its gross profit percentage of approximately 19.8% during the
nine months ended September 30, 2001 to 32.8% during the nine months ended
September 30, 2002, resulting in a consolidated increase of 56% ($101,024) in
gross profit for the nine months ending September 30, 2002 compared to September
30, 2001.
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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 a competitor of other discount as well as full price
online retailers of perfume and cologne, as well as exercise and yoga equipment.
For the nine months ended September 30, 2002, A1 Discount Perfume has had sales
of $22,723 and a gross profit percentage of 35.3%. The site employs the
Microsoft / Great Plains eEnterprise system the Company purchased which permits
customers to benefit by having direct access to up-to-the-minute information
about inventory, pricing, "hot deals" as well as order information. The
eEnterprise system allows A1DiscountProducts.com to inexpensively reach
customers anywhere, around the clock.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased $19,079 from $396,643 in
the three months ended September 30, 2001 to $377,564 in the three month ended
September 30, 2002. The decrease in selling, general and administrative expense
for the three months ended September 30, 2002 consists primarily of decreases
in: salaries and wages ($34,600), depreciation ($17,730), legal and professional
($20,500), offset by increases in accrued Officer's salaries as per employment
contract signed in January 2002, bad debt $14,700, and insurance $10,600.
Selling, general and administrative expenses decreased $164,849 from $1,238,127
in the nine months ended September 30, 2001 to $1,073,278 in the nine month
period ended September 30, 2002 as compared to the same period of the prior
year. The decrease in selling, general and administrative expense for the nine
months ended September 30, 2002 consists primarily of decreases in: salaries and
wages - ($67,721); advertising - ($50,260); consulting - ($22,431); legal and
professional - ($21,472); and postage -($11,303) and increases in - insurance -
$36,449 and bad debt - $28,101. The decrease in salaries and wages includes a
decrease due to the resignation of a corporate officer, the reduction of staff
in the Stogies division, including one wholesale representative, one computer
personnel and four administrative staff, offset by $75,000 in accrued officer
salaries as per an employment contract signed in January 2002. Advertising
decreased due to more efficient placement and use of internal advertising.
Consulting decreased due to bringing the public relations position in house. The
increase in insurance cost is due in part to the directors and officers
liability insurance premium increasing, as well as an additional property
insurance policy starting in February 2001. The increase in bad debt is
primarily due to the write off of the note receivable from IBD vending
($14,945), and the write off of uncollectable wholesale accounts receivable on
the Stogies division.
Marketable Investment Securities
The Company sold marketable equity securities and recorded realized (losses) of
($39,910) during the three month period ended September 30, 2002 and $0 during
the three month period ended September 30, 2001.
The Company sold marketable equity securities and recognized realized gain(loss)
of ($12,058) during the nine month period ended September 30, 2002 and $2,300
during the nine month period ended September 30, 2001.
18
The Company recorded unrealized losses in the amount of ($1,322) during the
three month period ended September 30, 2002 and unrealized losses in the amount
of ($46,254) during the same period of the prior year. Available-for-sale
securities are described in Other Comprehensive Income (below).
The Company recorded unrealized losses in the amount of ($4,625) during the nine
month period ended September 30, 2002 and unrealized losses in the amount of
($48,069) during the same period of the prior year. Available-for-sale
securities are described in Other Comprehensive Income (below).
Investment Income
The Company had income of $3,804 and $16,470 from interest and dividends in the
three month period ended September 30, 2002 and 2001, respectively. The Company
had income of $12,283 and $71,198 from interest and dividends in the nine month
period ended September 30, 2002 and 2001, respectively. The decrease is due
primarily to lower interest rates and lower balances in interest bearing money
market accounts in 2002.
Income Taxes
The Company had a income tax benefit of $466,300 for the nine month period ended
September 30, 2001 resulting primarily from the net operating loss incurred. The
deferred tax expense of $381,500 for the nine months ended September 30, 2002
consists primarily of a change in the deferred tax valuation allowance.
Discontinued Operations
On December 14, 2001, the Company entered into a stock purchase agreement with
NYCLE Acquisition Corp to sell its 90% investment in BroadcastWeb The 2001
discontinued operations have been restated to segregate the net loss of
BroadcastWeb of ($161,820) for the nine months ended September 30, 2001 and
($54,875) for the three months ended September 30, 2002.
Other Comprehensive Income
During the nine months ended September 30, 2002, the Company recorded a decrease
in its net unrealized gain from available-for-sale securities in the amount of
$632,263. The decrease consisted of a decline in market value of $1,055,763 plus
a reclassification adjustment of $42,000 and a decrease in related deferred tax
liability $381,500. Available-for-sale securities consist primarily of
securities of SGD Limited Holdings (SGD), a holding company principally engaged
in acquiring and developing jewelry related businesses. The Company's investment
represents approximately 10.4% of the outstanding stock of SGD and accordingly,
the Company is subject to certain restrictions on the shares it can sell. Of the
10,100,000 shares of SGD stock held by the Company, 3,941,000 shares valued at
$394,100 have been classified as current. The securities of SGD significantly
decreased in value over the past year as a reflection of the overall market
conditions. Due to the size of the Company's investment and the limited trading
volume of SGD as well as other available-for-sale securities, there can be no
assurance that the Company will realize the value assigned, under Statement of
Accounting Standards #115 (Accounting for Certain Investments in Debt and Equity
Securities), to these securities.
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ITEM 3. CONTROLS AND PROCEDURES
The Company's President and Principal Financial and Accounting Officer and
Controller have concluded, based on their evaluation within 90 days of the
filing date of this report, that the Company's disclosure controls and
procedures (as defined in Exchange Act Rules 13a -14(c) and 15d-14(c)) were
adequate and designed to ensure that material information relating to the
Company and its consolidated subsidiaries would be made known to them by others
within those entities. There have been no significant changes in our internal
controls or in other factors that could significantly affect these controls
subsequent to the date of the previously mentioned evaluation.
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
In a letter dated September 5, 2002, the staff of the Southeast Regional Office
(the "Staff") of the Securities and Exchange Commission ("SEC") informed EONE
that the Staff intends to recommend that the SEC pursue a federal injunctive
action against the Company for violations of the antifraud provisions of the
federal securities laws. Since receiving the letter, which did not explain the
basis for the Staff's recommendation, the Company has met with the Staff twice
to discuss the matter, and has been informed that the potential charges relate
to two press releases issued by the Company in March 2000. The Staff has
indicated that the Company may submit a written statement explaining why it
believes the SEC should not accept the Staff's recommendation, but the Company
has determined not to submit such a statement at this time. The Company has also
been informed that the Staff intends to recommend similar charges against EONE's
principal shareholders, Herb Tabin and Gary Schultheis, based on the same press
releases and transactions in the securities of other companies.
The Company also announced that, effective Monday, October 7, 2002, it has
ceased the stock repurchase plan previously disclosed in its Form 10-QSB for the
period ended June 30, 2002.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Number Description
99.1 Certification of President and Principal Financial
and Accounting Officer relating to a periodic report
containing financial statements
(b) Reports on Form 8-K None.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
EVOLVE ONE, INC.
Date: November 13, 2002 By: /s/ Gary Schultheis
-------------------
Gary Schultheis,
President
(Principal Financial and
Accounting Officer)
21
CERTIFICATION OF PRESIDENT
I, Gary Schultheis, President of Evolve One, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Evolve One, Inc.:
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors: (or persons performing the
equivalent functions)
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls, and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
22
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 13, 2002 By: /s/ Gary Schultheis
Gary Schultheis, President
23
CERTIFICATION OF PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER
I, Gary Schultheis, Principal Financial and Accounting Officer of Evolve One,
Inc., certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Evolve One, Inc.:
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a. designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors: (or persons performing the
equivalent functions)
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls, and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
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6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 13, 2002 By: /s/ Gary Schultheis
Gary Schultheis,
Principal Financial and
Accounting Officer
25
EXHIBIT INDEX
Exhibit # Description
99.1 Certification of President And Principal Financial and
Accounting Officer Relating to a Periodic Report containing
Financial Statements
26