U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 2003
Commission file number 0-26415
EVOLVE ONE, INC.
(Name of small business issuer in its charter)
DELAWARE 13-3876100
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6413 CONGRESS AVENUE, SUITE 230, BOCA RATON, FL 33487
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (561) 988-0819
INTERNATIONAL INTERNET, INC.
(Former name of small business issuer)
Securities registered pursuant COMMON STOCK, $.00001 PAR VALUE
to Section 12(g) of the Act: (Title of Class)
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 ___ No _X_.
Check if delinquent filers in response to Item 405 of Regulation S-B is not
contained in this form, and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year - $1,368,886.
As of December 31, 2003 the registrant had outstanding 3,096,304 shares of its
Common Stock, par value $.00001, its only class of voting securities. The
aggregate market value of the shares of Common Stock of the registrant held by
non-affiliates on December 31, 2003, was approximately $166,667 based on its
closing price on the OTC: Bulletin Board on that date. (See Item 5).
DOCUMENTS INCORPORATED BY REFERENCE
No documents are incorporated by reference into this Report except those
Exhibits so incorporated as set forth in the Exhibit index.
Transitional Small Business Disclosure Format (Check one): Yes [ ]; No [X].
TABLE OF CONTENTS
INTRODUCTION
PART I
Item 1. Description of Business...............................................2
Item 2. Description of Properties............................................11
Item 3. Legal Proceedings....................................................11
Item 4. Submission of Matters to a Vote of Security Holders..................11
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.............11
Item 6. Management's Discussion and Analysis or Plan or Operation............13
Item 7. Financial Statements.................................................18
Item 8. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure.............................................19
Item 8A. Controls and Procedures..............................................19
PART III
Item 9. Directors, Executive officers, Promoters and Control persons
Compliance with Section 16(a) of the Exchange Act....................19
Item 10. Executive Compensation...............................................22
Item 11. Security Ownership of Certain Beneficial Owners and Management.......23
Item 12. Certain Relationships and Related Transactions.......................24
Item 13. Exhibits and Reports on Form 8-K.....................................25
Item 14. Principal Accountant Fees and Services...............................25
Signatures....................................................................27
ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS DEVELOPMENT AND BUSINESS OF ISSUER
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"). 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.
EONE's original business was operated as a developmental stage company in Mr.
Cigar, Inc. ("Cigar"), in which the company previously owned a majority
interest. Cigar was in the business of licensing, selling and/or operating cigar
vending machines. The Company opened its StogiesOnline.com Internet site in
November 1998. As a result of the success of the StogiesOnline website, the
Company refocused its resources in 1999 into the Internet cigar sales market and
other specialty goods. EONE sold the vending equipment and business of Cigar in
December 1999.
STOGIESONLINE.COM
Stogies ("Cigarcigar.com") 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 sold online to retail and wholesale customers. Stogies markets
a wide variety of premium cigars and related tobacco products on a retail basis
throughout the United States via the Internet. Management utilizes its website
located at URL (www.CigarCigar.com) as its primary advertising vehicle. Stogies'
cigar line consists of nationally recognized brand names - Arturo Fuente, AVO,
Cohiba, Don Diego, Garcia y Vega, H. Upmann, Macanudo, Montecristo, Opus X,
Partagas, Punch, and Te-Amo.
As a direct buyer from most manufacturers, Stogies is eligible to participate in
promotions, which enables it to pass substantial savings to its customers.
Stogies purchases overstocked or overproduced items from manufacturers and other
retailers, including factory brand name seconds. Currently, Stogies has entered
into non-exclusive distribution agreements with: Miami Cigar, Inc. - distributes
Leon Jimenes and Tatiana cigars, Altadis - the manufacturer of Montecristo, H.
Upmann, Don Diego, Romeo y Julieta, General Cigar - the distributor of Punch,
Macanudo, Cohiba Red Dot, Partagas, Hoyo de Monterrey, and Excalibur
Inter-Continental Cigars - the manufacturer of Al Capone and Santa Clara - the
manufacturer of El Rey del Mundo and Garcia y Vega.
Stogies' website highlights its sale items and changes its product offerings and
featured specials weekly. In the event that Stogies does not have a particular
product in stock, a customer may place an order to ship on arrival, or
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telemarketers may direct the customer to similar products by utilizing its
database. Stogies currently uses United Parcel Service for shipping orders from
its inventory, which is maintained in its Boca Raton, Florida warehouse
facility.
Stogies current client base consists of over 10,000 customers in the United
States. Purchases from repeat customers have been steady, with repeat buyers
accounting for approximately one-third of current orders. During the two years
ended December 31, 2003, Stogies did not have any significant customers, the
loss of which would have an adverse effect on operations.
A1DISCOUNT PERFUME INC.
On September 28, 2001, the Company created a Subsidiary named A1DiscountPerfume
Inc. and in October 2001, launched a new e-commerce site specializing in men's
and women's fragrances. The site is located at http://www.A1DiscountPerfume.com.
The site is a competitor of other discount as well as full price online
retailers of Perfume and Cologne. The site employs the Microsoft / Great Plains
eEnterprise system 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 A1DiscountPerfume.com to
inexpensively reach customers anywhere, around the clock.
TRADEMARKS
At this time, the Company has no registered trademarks or trade names.
COMPETITION
All direct marketing and retail businesses are highly competitive. With the
Internet, the Company competes for consumer expenditures with all other forms of
retail businesses, including department, discount, warehouse and specialty
stores, mail order, catalog and television home shopping companies as well as
other direct sellers and infomercials. The Internet home shopping industry is
highly competitive. The Company believes that the Internet shopping industry is
still very attractive to consumers, manufacturers and retailers. The industry
offers consumers convenience, entertainment and the opportunity to test market
new products, create brand awareness and access additional channels. The Company
is at a competitive disadvantage in attracting viewers due to the fact that the
Company's Internet site is limited to its future advertising budget. The Company
expects increasing competition for viewers from major Internet providers and
retailers that may seek to enter Internet shopping. The Company believes that
the number of new entrants into the Internet shopping industry will also
continue to increase. The Company believes that it is positioned to compete;
however, no assurance can be given that the Company will be able to acquire
consistent advertising at prices favorable to the Company. The Company's
competitors are larger and more diversified than the Company, have greater
financial, marketing, merchandising and distribution resources; therefore, the
Company cannot predict the degree of success, if any, with which it will meet
competition in the future.
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TECHNOLOGICAL CHANGE
The Internet is characterized by technological change. The Company's success
will depend, in part, on its ability to enhance its existing services, develop
new services that address the needs of its prospective customers and respond to
technological advances and practices on a timely basis. The development of a Web
site entails significant technical, financial and business risks. There can be
no assurance that the Company will successfully implement new technologies or
adapt its Web site, proprietary technology and transaction-processing systems to
customer requirements or emerging industry standards. If the Company is unable,
for technical, legal, financial or other reasons, to adapt in a timely manner in
response to changing market conditions, such inability could have a material
adverse effect on the Company's business, prospects, financial condition and
results of operations.
EMPLOYMENT
The Company has four full-time employees in administration and management, two
full-time employees and one part-time employee in the Stogies and Perfume
operation.
RISK FACTORS
WE HAVE A LIMITED OPERATING HISTORY UPON WHICH YOU CAN EVALUATE OUR BUSINESS AND
PROSPECTS
We began offering products for sale on our Web site in 1998. Accordingly, we
have a limited history upon which you can evaluate our business and prospects.
You should consider our prospects in light of the risks, expenses and
difficulties frequently encountered by online commerce companies. As an online
commerce Company, we have a rapidly evolving and unpredictable business model,
we face intense competition, we must effectively manage our growth, and we must
respond quickly to rapid changes in customer demands and industry standards. We
may not succeed in addressing these challenges and risks.
UNAUTHORIZED BREAK-INS OR OTHER ASSAULTS ON OUR SERVICE COULD HARM OUR BUSINESS
Our servers are vulnerable to computer viruses, physical or electronic break-ins
and similar disruptions, which could lead to interruptions, delays, loss of
data, public release of confidential data or the inability to complete customer
transactions. In addition, unauthorized persons may improperly access our data.
These and other types of attacks could harm us. Actions of this sort may be very
expensive to remedy and could damage our reputation and discourage new and
existing customers from using our service.
SYSTEM FAILURES COULD HARM OUR BUSINESS
Our servers have experienced system failures from time to time. In addition to
placing increased burdens on our outsourced engineering staff, these outages
create customer questions and complaints that need to be addressed by our
customer support personnel. Any unscheduled interruption in our service results
in an immediate loss of revenues that can be substantial and may cause some
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customers to switch to competitors. If we experience frequent or persistent
system failures, our reputation and brand could be permanently harmed. We have
been taking steps to increase the reliability and redundancy of our system.
These steps are expensive, reduce our margins and may not be successful in
reducing the frequency or duration of unscheduled downtime.
Substantially all of our computer hardware for operating our services currently
is located at our facility in Boca Raton, Florida. These systems and operations
are vulnerable to damage or interruption from hurricanes, floods, fires, power
loss, telecommunication failures, terrorism and similar events. We do not
maintain fully redundant systems or alternative providers of hosting services,
and we do not carry business interruption insurance sufficient to compensate us
for losses that may occur. Despite any precautions we may take, the occurrence
of a natural disaster or other unanticipated problems could result in lengthy
interruptions in our services. Any damage to or failure of our systems could
result in interruptions in our service. Interruptions in our service will reduce
our revenues and profits, and our future revenues and profits will be harmed if
our customers believe that our system is unreliable.
We may experience breakdowns in our payment processing system that could damage
customer relations and expose us to liability, which could affect adversely our
ability to become profitable.
A system outage or data loss could have a material adverse effect on our
business, financial condition and results of operations. To operate our business
successfully, we must protect our payment processing and other systems from
interruption by events beyond our control. Events that could cause system
interruptions include:
- fire;
- hurricane;
- terrorist attacks;
- natural disasters;
- computer viruses;
- unauthorized entry;
- telecommunications failure;
- computer denial of service attacks; and
- power surges, losses and blackouts.
RISKS RELATING TO POSSIBLE FLORIDA POWER SURGES
The State of Florida experiences chronic power surges. Although we have some
emergency backup power, power surges may adversely affect our business.
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WE ARE DEPENDENT ON THE CONTINUED GROWTH OF ONLINE COMMERCE
The business of selling goods over the Internet is relatively new. Rapid growth
in the use of and interest in the Internet and online services is a recent
phenomenon. Even as the Internet is accepted, concerns about fraud, privacy and
other problems may mean that a broad base of consumers may not adopt the
Internet as a medium of commerce. If these consumers prove to be less active and
we are unable to gain efficiencies in our operating costs, including our cost of
acquiring new customers, our business could be adversely impacted.
THE COMPANY'S REVENUES AND OPERATING RESULTS CAN BE UNPREDICTABLE.
OUR OPERATING RESULTS MAY FLUCTUATE
Our operating results have varied on an annual basis during our operating
history. Our operating results may fluctuate significantly as a result of a
variety of factors, many of which are outside our control.
Factors that may affect our operating results include the following:
- our ability to attract new users and to maintain customer satisfaction;
- our ability to keep our websites operational;
- the amount and timing of operating costs and capital expenditures
relating to the maintenance and expansion of our business, operations
and infrastructure;
- the introduction of new services and products by us or our competitors;
- volume, size, timing and completion rate of sales on our websites;
- consumer confidence in our selling transactions and service;
- our ability to upgrade and develop our systems and infrastructure to
accommodate growth;
- technical difficulties or interruptions;
- our ability to attract new personnel in a timely and effective manner;
- our ability to retain key employees;
- our ability to integrate and manage any acquisitions successfully;
- our ability to expand our product offerings successfully;
- the timing, cost and availability of advertising in traditional media;
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- the timing of payments to us and of marketing and other expenses under
existing and future contracts;
- consumer trends and popularity of some Goods;
- the success of our brand building and marketing campaigns;
- the level of use of the Internet ;
- increasing consumer acceptance of the Internet and other online
services for commerce; and
- general economic conditions and economic conditions specific to the
Internet and e-commerce industries.
Our limited operating history makes it difficult for us to forecast the level or
source of our revenues or earnings accurately. We believe that period-to-period
comparisons of our operating results may not be meaningful, and you should not
rely upon them as an indication of future performance. Our operating results in
one or more future quarters may fall below the expectations of securities
analysts and investors. In that event, the trading price of our common stock
would almost certainly decline.
ENTERING NEW BUSINESS AREAS WILL REQUIRE SIGNIFICANT EXPENSE AND COULD STRAIN
MANAGEMENT, FINANCIAL AND OPERATIONAL RESOURCES
We intend to expand our operations by promoting new or complementary products,
services or sales formats and by expanding our product or service offerings.
This will require significant additional expense and could strain our
management, financial and operational resources. We cannot expect to benefit in
these new markets from the early-to-market advantage that we experienced in the
online cigar market. Our gross margins in these new business areas may be lower
than our existing business activities. In addition, we may have limited or no
experience in these new business areas. We may not be able to expand our
operations in a cost-effective or timely manner. Any new business that our
customers do not receive favorably could damage our reputation and the
CigarCigar.com brand.
WE RELY ON A SMALL NUMBER OF SUPPLIERS; OUR BUSINESS WOULD BE HARMED IF OUR
CURRENT SUPPLIERS STOP SELLING MERCHANDISE TO US ON ACCEPTABLE TERMS
Although we increased our direct purchasing from manufacturers, we purchase a
majority of our cigars from three major vendors. We do not have long-term
contracts or arrangements with most of our vendors to guarantee the availability
of merchandise, or particular payment terms or the extension of credit limits.
Our current vendors may stop selling merchandise to us on acceptable terms. We
may not be able to acquire merchandise from other suppliers in a timely and
efficient manner and on acceptable terms.
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WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS IF PEOPLE OR PROPERTY ARE HARMED
BY THE PRODUCTS WE SELL
As we enter new lines of business, we may increasingly sell products, such as
cigar cutters, that may increase our exposure to product liability claims
relating to personal injury, or property damage caused by such products. We
maintain insurance, but we cannot be certain that our coverage will be adequate
for liabilities actually incurred or that insurance will continue to be
available to us on economically reasonable terms, if at all. In addition, some
of our vendor agreements with our suppliers do not indemnify us from product
liability.
GOVERNMENT REGULATION OF INTERNET COMMERCE IS EVOLVING AND UNFAVORABLE CHANGES
COULD HARM OUR BUSINESS
We are subject to general business regulations and laws or regulations regarding
taxation and access to online commerce. These laws or regulations may impede the
growth of the Internet or other online services. Regulatory authorities may
adopt specific laws and regulations governing the Internet or online commerce.
These regulations may cover taxation, user privacy, pricing, content,
copyrights, distribution, electronic contracts and characteristics and quality
of products and services. Changes in consumer protection laws also may impose
additional burdens on companies conducting business online, both in the US and
internationally. It is not clear how existing laws governing issues such as
property ownership, sales and other taxes, libel and personal privacy apply to
the Internet and online commerce. Unfavorable resolution of these issues may
harm our business.
THE COMPANY'S FUTURE STRATEGY MAY INCLUDE PURSUING ACQUISITIONS THAT MAY NOT BE
SUCCESSFUL.
The Company's future strategy may include pursuing acquisitions that may not be
successful. Acquisitions involve a number of operational risks that the acquired
business will not be successfully integrated, may distract management attention,
may involve unforeseen costs and liabilities, and possible regulatory costs,
some or all of which could have a materially adverse effect on the Company's
financial condition or results of operations. The Company may make these
additional acquisitions with cash or with stock, or a combination thereof. If
the Company does make any such acquisitions, various associated risks may be
encountered, including potential dilution to the Company's then current
shareholders, as a result of additional shares of common stock being issued in
connection with the acquisitions.
OUR BUSINESS IS DEPENDENT ON THE DEVELOPMENT AND MAINTENANCE OF THE INTERNET
INFRASTRUCTURE
The success of our service will depend largely on the development and
maintenance of the Internet infrastructure. This includes maintenance of a
reliable network backbone with the necessary speed, data capacity and security,
as well as timely development of complementary products, for providing reliable
Internet access and services. The Internet has experienced, and is likely to
continue to experience, significant growth in the numbers of users and amount of
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traffic. If the Internet continues to experience increased numbers of users,
increased frequency of use or increased bandwidth requirements, the Internet
infrastructure may be unable to support the demands placed on it. In addition,
the performance of the Internet may be harmed by increased number of users or
bandwidth requirements or by "viruses", "worms" and similar programs. The
Internet has experienced a variety of outages and other delays as a result of
damage to portions of its infrastructure, and it could face outages and delays
in the future. These outages and delays could reduce the level of Internet usage
as well as the level of traffic and the processing transactions on our service.
WE ARE DEPENDENT ON KEY PERSONNEL
Our future performance will be substantially dependent on the continued services
of our senior management and other key personnel. Our future performance also
will depend on our ability to retain and motivate our other key personnel. The
loss of the services of any of our executive officers or other key employees
could harm our business. We do not maintain any "key person" life insurance
policies. Our businesses are all dependent on attracting and retaining key
personnel. Our future success also will depend on our ability to attract, train,
retain and motivate highly skilled technical, managerial, marketing and customer
support personnel. We may be unable to successfully attract, integrate or retain
sufficiently qualified personnel
WE ARE CONTROLLED BY CERTAIN STOCKHOLDERS, EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors own nearly 66% of our outstanding common
stock. As a result, they have the ability to effectively control our Company and
direct our affairs and business, including the election of directors and
approval of significant corporate transactions. This concentration of ownership
may have the effect of delaying, deferring or preventing a change in control of
our Company and may make some transactions more difficult or even impossible
without the support of these stockholders. Any of these events could decrease
the market price of our common stock.
FUTURE SALES OF OUR COMMON STOCK MAY CAUSE OUR STOCK PRICE TO DECLINE
If our stockholders sell substantial amounts of our common stock in the public
market, the market price of our common stock could decline.
OUR STOCK PRICE HAS BEEN AND MAY CONTINUE TO BE EXTREMELY VOLATILE
The trading price of our common stock has been and is likely to be extremely
volatile. Our stock price could be subject to wide fluctuations in response to a
variety of factors, including the following:
- actual or anticipated variations in our quarterly operating results;
- additions or departures of key personnel;
- announcements of new services by us or our competitors;
- changes in financial estimates by securities analysts;
- conditions or trends in the Internet and online commerce
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- changes in the market valuations of other Internet companies;
- developments in Internet regulation;
- announcements by us or our competitors of significant acquisitions,
strategic partnerships, joint ventures or capital commitments;
- sales of our common stock or other securities in the open market; and
- other events or factors, including these described in this "Risk
Factors" section and others that may be beyond our control.
In addition, the trading price of Internet stocks in general, and ours in
particular, have experienced extreme price and volume fluctuations in recent
periods. These fluctuations often have been unrelated or disproportionate to the
operating performance of these companies. Notwithstanding a sharp decline in the
prices of Internet stocks in general, the valuation of our stock remains
extraordinarily high based on conventional valuation standards such as
price-to-earnings and price-to-sales ratios. The trading price of our common
stock has increased and decreased enormously from the initial offering price.
This trading price and valuation may not be sustained. Negative changes in the
public's perception of the prospects of Internet or e-commerce companies have in
the past and may in future depress our stock price regardless of our results.
Other broad market and industry factors may decrease the market price of our
common stock, regardless of our operating performance. Market fluctuations, as
well as general political and economic conditions, such as recession or interest
rate or currency rate fluctuations, also may decrease the market price of our
common stock. In the past, following declines in the market price of a company's
securities, securities class-action litigation often has been instituted.
Litigation of this type, if instituted, could result in substantial costs and a
diversion of management's attention and resources.
THE COMPANY'S STOCK PRICE WILL FLUCTUATE AND COULD SUBJECT THE COMPANY TO
LITIGATION.
The market price of the Company's common stock may fluctuate significantly in
response to a number of factors, some of which are beyond its control. These
factors include:
- quarterly variations in operating results;
- changes in accounting treatments or principles;
- additions or departures of key personnel;
- stock market price and volume fluctuations of publicly-traded companies
in general and Internet-related companies in particular; and
- general political, economic and market conditions.
THERE IS A LIMITED PUBLIC MARKET FOR THE COMPANY'S COMMON STOCK AND THERE ARE NO
ASSURANCES OF A CONTINUED TRADING MARKET FOR THE COMPANY'S COMMON STOCK.
The Company's common stock is currently quoted on the Over the Counter Market.
The Company's common stock is thinly traded. There are no assurances the Company
will maintain its listing. If the Company's common stock should be delisted, it
is likely that the stock would then be quoted on the Pink Sheets, which would
materially and adversely effect any future liquidity in the Company's common
stock.
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ITEM 2. DESCRIPTION OF PROPERTY
At December 31, 2002 the Company maintained two office spaces. The corporate
headquarters was located at 6413 Congress Avenue, Suite 240, Boca Raton, Florida
33487. The Stogies warehouse and retail cigar outlet center was located at 6405
Congress Avenue, Suite 160, Boca Raton, Florida 33487. The combined square
footage of the corporate headquarters and Stogies warehouse was 6,293 square
feet, and the combined monthly rent was $7,149. The corporate office phone
number is (561) 988-0819. In June 2002, the Company moved the corporate
headquarters to the Stogies warehouse. In June 2004, the Company did not renew
the Stogies warehouse lease and is currently renting from a Company owned by the
majority shareholders of EvolveOne, Inc. On August 20, 2004 the Company signed a
new lease for 5,325 sq feet of office and warehouse space at 1000 Clint Moore
Road, Suites 101 and 102, Boca Raton FL 33487. The initial monthly base rent is
approximately $6,500.
ITEM 3. LEGAL PROCEEDINGS
Lakewood Development(s) Corporation v. Gary Schultheis and Herbert Tabin and
Evolve One, Inc., Civil Action No. 4-03-CV-1224-A, in the United States District
Court of the Northern District of Texas, Ft. Worth Division (Complaint filed on
August 6, 2003). This action asserts claims for violation of Texas securities
law, fraud, breach of contract, and breach of fiduciary duties. The action
sought damages in the amount of $4,125,000 for the plaintiff, the plaintiffs'
attorneys' fees and costs, and certain other relief.
On April 6, 2004, United States District Court Judge John McBryde of the United
States District Court of the Northern District of Texas, Ft. Worth Division,
entered a final judgment in favor of Evolve One, Inc. and its officers Gary
Schultheis and Herbert Tabin dismissing the case with prejudice. The court also
ordered Lakewood to pay defendants' court costs.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
None
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The following chart shows the quarterly high and low bid prices for the
Company's Common Stock for the last two fiscal years, as reported on the
OTC:Bulletin Board. The prices represent quotations by dealers without
adjustments for retail mark-ups, mark-downs or commissions and may not represent
actual transactions.
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OPENING HIGH LOW CLOSING
BID BID BID BID
------- ----- ----- -------
2003 Fourth Quarter 0.22 0.24 0.15 0.16
2003 Third Quarter 0.22 0.42 0.20 0.22
2003 Second Quarter 0.40 0.51 0.209 0.22
2003 First Quarter (*) 0.30 1.075 0.30 0.40
2002 Fourth Quarter (*) 0.775 0.85 0.175 0.30
2002 Third Quarter (*) 1.50 1.975 0.775 0.775
2002 Second Quarter (*) 0.75 3.50 0.75 1.50
2002 First Quarter (*) 2.375 2.375 0.625 0.85
(*) As restated for 250 - 1 stock split
HOLDERS
As of December 31, 2003, there were approximately 701 holders of record of the
Company's common stock, an undetermined number of which represent more than one
individual participant in securities positions with the Company.
DIVIDENDS
The Company has never paid cash dividends on its common stock, and intends to
utilize current resources to expand its operations. Therefore, it is not
anticipated that cash dividends will be paid on the Company's common stock in
the foreseeable future.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table sets forth securities authorized for issuance under equity
compensation plans, including individual compensation arrangements, by us under
our stock option plan and any compensation plans not previously approved by our
shareholders as of December 31, 2003.
NUMBER OF SECURITIES TO WEIGHTED AVERAGE
BE ISSUED UPON EXERCISE EXERCISE PRICE OF
OF OUTSTANDING OPTIONS, OUTSTANDING OPTIONS,
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS
------------- ----------------------- -------------------
Stock Option Plan (1) - -
Equity compensation plans not
approved by shareholders 16,000 $.004
------------
(1) Our Stock Option Plan has previously been approved by our shareholders, and
reflects the only such equity compensation plan for which we have sought
shareholder approval.
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ITEM 6. 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 consolidated financial statements
and related notes contained in this annual 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 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.
The Company's continuing operations consist of two Internet based businesses
within the United States, Stogies and A1Discount Perfume. Stogies is an online
distributor and retailer of brand name premium cigars. A1Discount Perfume is an
online retailer of premium perfumes and colognes. Stogies became operational in
November 1998 and it accounts for substantially all of the sales revenue.
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
13
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 May 2003, the FASB issued SFAS No. 150 - "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity". The standard
improves the accounting for certain financial instruments that, under previous
guidance, issuers could account for as equity. The standard requires that those
instruments be classified as liabilities in statements of financial position.
This standard is effective for interim periods beginning after June 15, 2003.
The adoption of SFAS No. 150 did not have an effect on our results of
operations, financial position or debt covenants.
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 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.
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 December 31,
2003, investments consisted of common stock and options to acquire 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.
14
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 $1,880,028 at December 31, 2002
to $946,932 at December 31, 2003. The working capital decreased in the amount of
$933,096 consists primarily of decreases in cash in the amount of $1,252,071,
and marketable securities in the amount of $193,425, and an increase in accrued
liabilities in the amount of $129,216 offset by an increase in loan receivable
in the amount of $692,940.
During the twelve months ended December 31, 2003 stockholders' equity decreased
$1,235,174, which includes increases in other comprehensive income in the amount
of $109,709, and the net loss for the year of ($1,344,883) (See Other
Comprehensive Income below).
RESULTS OF OPERATIONS
SALES AND COST OF SALES
Internet and retail sales for the Stogies segment, for the twelve months ended
December 31, 2003 compared to the same period in 2002 decreased ($73,185) from
$1,395,988 in 2002 to $1,322,803 in 2003. Since employing the Microsoft/Great
Plains eEnterprise system the Company's Stogies segment improved its gross
profit percentage of approximately 34.5% during the twelve months ended December
31, 2002 to 36.8% during the twelve months ended December 31, 2003. The increase
in gross profit percentage is due to better promotions, and a decreased
concentration on wholesale sales and better purchasing.
Internet sales for the A1discount Perfume segment, for the twelve months ended
December 31, 2003 as compared to the same period in 2002 decreased ($12,122)
from $58,205 in 2002 to $46,083 in 2003. A1discount Perfume segment improved its
gross profit percentage of approximately 34.9 % during the twelve months ended
December 31, 2002 to 40.4% during the twelve months ended December 31, 2003. The
decrease in gross profit percentage is due to greater competition.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased $146,172 from $1,540,023
in the twelve months ended December 31, 2002 to $1,393,851 in the twelve month
period ended December 31, 2003. The decrease in selling, general and
administrative expense for the twelve months ended December 31, 2003 consists
primarily of decreases in: accounting - ($41,450); bad debt - ($29,770);
insurance - ($95,237); rent - ($14,844); depreciation - ($61,165); and legal
- ($10,240); and increases in; payroll - $16,700; - advertising - $33,835;
employee benefits - $13,000; and consulting - $56,600. Accounting fee decreased
15
due to the 2002 and 2003 audits not being performed until 2004. The decrease in
bad debt is primarily due to the write off of the note receivable from IBD
Vending ($14,945) in 2002, insurance decrease is due primarily to the
cancellation of the D & O policy in 2003, rent decrease is due to the
cancellation of the lease for Suite 240 in June 2003 and depreciation decrease
is due to the accelerated methods used to determine depreciation. Advertising
increase is due primarily to increased advertising for the A1Discount Perfume
site, and consulting increased due to the hiring of an outside IT consultant and
increased services needed to move computer servers due to the move out of our
former corporate headquarters in Suite 240.
MARKETABLE EQUITY SECURITIES
The Company sold marketable equity securities and realized a loss of ($476,444)
during the twelve month period ended December 31, 2003 and a ($12,058) loss
during the twelve month period ended December 31, 2002.
The Company had no unrealized losses during the twelve month period ended
December 31, 2003 and recorded unrealized losses in the amount of ($4,956)
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 $19,663 and $14,524 from interest and dividends in the
twelve month period ended December 31, 2003 and 2002, respectively. The increase
is due primarily to interest earned on an outstanding note receivable from
Onspan Networking, Inc., a related party.
INCOME TAXES
The Company had an income tax expense of $439,200 for the twelve month period
ended December 31, 2002, resulting primarily from the reduction in deferred
taxes associated with the change in unrealized gain included in other
comprehensive income (loss). As of December 31, 2003, there is no deferred tax
benefit recorded due to the provision for 100% valuation allowance.
OTHER COMPREHENSIVE INCOME
During the year ended December 31, 2003, the Company recorded a decrease in its
net unrealized gain from available-for-sale securities in the amount of
$109,709. The decrease consisted of a decline in market value of $356,755 plus a
reclassification adjustment of $466,464. 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 $59,115 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
16
realize the value assigned, under Statement of Accounting Standards #115
(Accounting for Certain Investments in Debt and Equity Securities), to these
securities.
During the latter part of 2002 the Company became aware, based upon Securities
and Exchange Commission (SEC) filings by SGD, that SGD had taken the position
that the Company was the holder of pre-split shares (SGD had a 6 for 1 reverse
split) and rather than the Company owning 10 Million shares of SGD the Company
was the holder of only 1,666,666 shares of SGD. It is the Company's position
that the number of shares that the Company held of SGD as of December 31, 2003
and 2002 is 10 Million. This is based upon purchase and sale arrangements
between the Company and SGD wherein the Company was sold, issued and receive 10
Million post split shares of SGD from SGD (formerly known as GoldOnline.com,
Inc.). The shares issued and delivered to the Company by SGD reflected the split
and the new split CUSIP change. On November 11, 2000, following the Company's
receipt of these shares, the Company filed a Form 13D, with the SEC, reflecting
the ownership of these shares. The Form 13D had been prepared by SGD's Counsel.
SGD filed quarterly and annual financial reports with the SEC reflecting the
ownership of 10 Million shares by the Company. Should it ultimately be
determined that the shares should be pre-split shares then our investment in
SGD, as of December 31, 2003, rather then being included in the accompanying
balance sheet as $151,500 (current $59,115; long-term $92,385) might be reduced
depending upon the impact of the share price differential on the market price of
the SGD shares and the reduced number of shares that the Company would be
considered as holding.
17
ITEM 7. FINANCIAL STATEMENTS
The Consolidated Financial Statements of Evolve One, Inc., and Subsidiaries, for
the years ended December 31, 2003 and 2002, together with the report thereon of
Goldstein Lewin & Co. dated June 18, 2004 is set forth as follows:
PAGE
----
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F-1
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheet F-2
Consolidated Statements of Operations F-3
Consolidated Statement of Changes in Stockholders' Equity F-4
Consolidated Statements of Cash Flows F-5-6
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS F-7-21
18
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Evolve One, Inc. and Subsidiaries
Boca Raton, Florida
We have audited the accompanying consolidated balance sheet of Evolve One, Inc
and Subsidiaries as of December 31, 2003, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
each of the two years in the period ended December 31, 2003. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
Except as discussed in the following paragraph, we conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
As discussed in Note 3, we were unable to verify the number of shares of SGD
Holdings, Inc. held by the Company for the years ended December 31, 2003 and
2002, due to a lack of conclusive evidential matter. Therefore, we were unable
to satisfy ourselves as to the carrying value of the investment.
In our opinion, except for the effects of such adjustments, if any, as might
have been determined to be necessary had we been able to examine conclusive
evidence regarding the number of shares of SGD Holdings, Inc. held by the
Company, the financial statements referred to in the first paragraph above
present fairly, in all material respects, the financial position of Evolve One,
Inc. and Subsidiaries as of December 31, 2003, and the results of their
operations and their cash flows for the two years in the period ended December
31, 2003 in conformity with U. S. generally accepted accounting principles.
/s/ GOLDSTEIN LEWIN & CO.
Boca Raton, Florida
June 18, 2004, except for Note 11
as to which the date is August 20, 2004
F-1
EVOLVE ONE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2003
ASSETS
CURRENT ASSETS
Cash and cash equivalents ..................................... $ 118,912
Accounts receivable ........................................... 25,489
Marketable equity securities .................................. 64,682
Inventory ..................................................... 355,546
Loan Receivable - Onspan Networking, Inc ...................... 692,940
Prepaid expenses .............................................. 6,580
-----------
TOTAL CURRENT ASSETS ...................................... 1,264,149
PROPERTY AND EQUIPMENT, NET ..................................... 202,396
NOTE RECEIVABLE ................................................. 10,000
MARKETABLE EQUITY SECURITIES .................................... 92,385
OTHER ASSETS .................................................... 10,708
-----------
TOTAL ASSETS ................................................ $ 1,579,638
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable .............................................. $ 85,393
Other accrued liabilities ..................................... 1,824
Accrued salaries .............................................. 230,000
-----------
TOTAL CURRENT LIABILITIES ................................. 317,217
-----------
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 3,096,304 shares ............. 31
Paid-in capital ............................................... 6,730,343
Accumulated deficit ........................................... (5,205,514)
Accumulated other comprehensive income (loss) ................. (262,439)
-----------
Total stockholders' equity ................................ 1,262,421
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .................. $ 1,579,638
===========
See Notes to the Consolidated Financial Statements.
F-2
EVOLVE ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2003 AND 2002
2003 2002
---- ----
Sales and revenue .................................. $ 1,368,886 $ 1,454,193
COST OF SALES ...................................... 863,078 1,008,484
----------- -----------
GROSS PROFIT ....................................... 505,808 445,709
Selling, general and administrative expense ........ 1,393,851 1,540,023
----------- -----------
Loss from operations ............................. (888,043) (1,094,314)
----------- -----------
OTHER INCOME (EXPENSE):
(Loss) from sale of marketable equity securities . (476,444) (12,058)
Gain on the sale of property and equipment ....... - 5,436
Investment income ................................ 19,663 14,524
Interest expense ................................. (59) (4,838)
Unrealized (loss) on marketable equity securities - (4,956)
----------- -----------
Total other income (expense) ................... (456,840) (1,892)
----------- -----------
EARNINGS (LOSS) BEFORE INCOME TAXES ................ (1,344,883) (1,096,206)
INCOME TAX EXPENSE ................................. - 439,200
----------- -----------
NET EARNINGS (LOSS) ................................ $(1,344,883) $(1,535,406)
----------- -----------
NET EARNINGS (LOSS) PER SHARE
BASIC ............................................ $ (0.43) $ (0.49)
=========== ===========
DILUTED .......................................... $ (0.43) $ (0.49)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
BASIC ............................................ 3,096,304 3,129,763
=========== ===========
DILUTED .......................................... 3,096,304 3,129,763
=========== ===========
See Notes to the Consolidated Financial Statements.
F-3
EVOLVE ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2003 AND 2002
Accumulated
Other
Common Stock Paid-in Accumulated Comprehensive
Shares Par Value Capital Deficit Income Total
--------- --------- ----------- ----------- ---------- -----------
BALANCE , January 1, 2002 ............. 3,154,165 31 6,827,634 (2,325,225) 727,896 5,230,336
Repurchase and Retirement
of Common Stock .................. (57,861) - (97,291) - - (97,291)
Comprehensive income (loss): -
Unrealized (loss) on available-
for-sale securities, net ........ - - - - (1,100,044) (1,100,044)
Net loss .......................... - - - (1,535,406) - (1,535,406)
-----------
Total comprehensive income (loss) - - - - - (2,635,450)
--------- ---- ----------- ----------- ---------- -----------
BALANCE, December 31, 2002 ............ 3,096,304 31 6,730,343 (3,860,631) (372,148) 2,497,595
Comprehensive income (loss):
Unrealized gain on available-
for-sale securities, net ........ - - - - 109,709 109,709
Net loss .......................... - - - (1,344,883) - (1,344,883)
-----------
Total comprehensive income (loss) - - - - - (1,235,174)
--------- ---- ----------- ----------- ---------- -----------
BALANCE, December 31, 2003 ............ 3,096,304 $ 31 $ 6,730,343 $(5,205,514) $ (262,439) $ 1,262,421
========= ==== =========== =========== ========== ===========
See Notes to the Consolidated Financial Statements.
F-4
EVOLVE ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2003 AND 2002
2003 2002
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) .......................................... $(1,344,883) $(1,535,406)
Adjustments to reconcile net (loss) from
continuing operations to net
cash (used in) operating activities:
Depreciation and amortization ..................... 108,843 165,561
(Gain) on sale of property and equipment .......... - (5,436)
Loss on marketable equity securities ............. 476,444 12,058
Unrealized loss on marketable equity securities ... - 4,956
Deferred income taxes ............................. - 439,200
Purchase of marketable equity securities .......... (900) -
Decrease (increase) in assets:
Accounts receivable ............................. 15,266 (5,631)
Inventory ....................................... (19,939) (66,807)
Note receivable ................................. (10,000) -
Other assets .................................... 70,704 124,376
Increase (decrease) in liabilities:
Accounts payable ................................ (14,355) 53,763
Other accrued liabilities ....................... (784) (2,194)
Accrued salaries ................................ 130,000 100,000
----------- -----------
Net cash (used in) operating activities ............ (589,604) (715,560)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures .............................. (12,733) (22,908)
Interest receivable - Onspan Networking, Inc. ..... (17,940) -
Loan receivable - Onspan Networking, Inc. ......... (675,000) -
Proceeds from sale of property and equipment ..... - 7,500
Proceeds from sale of marketable equity securities 43,206 187,943
----------- -----------
Net cash provided by (used in) investing activities . (662,467) 172,535
----------- -----------
Continued
See Notes to the Consolidated Financial Statements.
F-5
EVOLVE ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2003 AND 2002
(CONTINUED)
2003 2002
---- ----
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchase of treasury stock ...................... $ - $ (97,291)
Loan repayment .................................... - (157,963)
----------- -----------
Net cash (used in) financing activities ............. - (255,254)
----------- -----------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS ......... (1,252,071) (798,279)
CASH AND CASH EQUIVALENTS, beginning of period ...... 1,370,983 2,169,262
----------- -----------
CASH AND CASH EQUIVALENTS, end of period ............ $ 118,912 $ 1,370,983
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest .............................. $ 59 $ 4,838
=========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Insurance financing ................................. $ - $ 157,963
=========== ===========
See Notes to the Consolidated Financial Statements.
F-6
EVOLVE ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. 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.A1DiscountPerfume.com), and International Internet Venture I, LLC
("Ventures"). EONE, through its Ventures division, owns an equity interest in
several companies, some of which are classified as trading securities and some
of which are classified as available-for-sale securities. EONE was incorporated
in Delaware on June 21, 1994.
Stogies became an online distributor and retailer of brand name premium cigars
within the United States on November 18, 1998. Stogies' products consist of
premium cigars, factory brand name seconds and mass market cigars, which are
distributed online to retail and wholesale customers.
On September 28, 2001, the Company created a new subsidiary named 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.
Certain reclassifications of the amounts presented for the comparative period
have been made to conform to the current presentation.
NEW ACCOUNTING STANDARDS
In May 2003, the FASB issued SFAS No. 150 - "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity". The standard
improves the accounting for certain financial instruments that, under previous
guidance, issuers could account for as equity. The standard requires that those
instruments be classified as liabilities in statements of financial position.
This standard is effective for interim periods beginning after June 15, 2003.
The adoption of SFAS No. 150 did not have an effect on our results of
operations, financial position or debt covenants.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of EONE, Inc. and its
subsidiaries. All significant intercompany balances and transactions have been
eliminated in consolidation.
REVENUE RECOGNITION
Revenue from sales of cigars, perfume and cologne over the Internet is
recognized upon shipment. Provision is made at the time the related revenue is
recognized for estimated product returns.
F-7
EVOLVE ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RISK AND UNCERTAINTIES
The Company is subject to all of the risks inherent in an early stage company in
the Internet industry. These risks include, but are not limited to, a limited
operating history, limited management resources, dependence upon consumer
acceptance of the Internet, Internet related security risks and the changing
nature of the electronic commerce industry. The Company's operating results may
be materially affected by the foregoing factors.
CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all highly
liquid short-term investments purchased with an original maturity of three
months or less to be cash equivalents.
MARKETABLE EQUITY SECURITIES
Marketable Equity Securities are classified into three categories as follows:
o Held-to-maturity securities reported at amortized cost;
o Trading securities reported at fair value with unrealized gains and
losses included in earnings;
o Available-for-sale securities reported at fair value with unrealized
gains and losses reported in other comprehensive income (loss).
Cost of securities sold are determined by the specific identification method.
INVENTORIES
Inventories are stated at the lower of cost or market determined by the
first-in, first-out method. Inventory consists of cigars, colognes and related
accessories.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated on an accelerated
basis over the assets' estimated useful lives. Depreciation expense for the
periods ended December 31, 2003 and 2002 amounted to $108,843 and $164,190,
respectively.
COMPREHENSIVE INCOME
Other comprehensive income refers to revenue, expense and gains and losses that
under generally accepted accounting principles are included in comprehensive
income but are excluded from net earnings (loss) as these amounts are recorded
directly to an adjustment to stockholders' equity, net of tax. The Company's
other comprehensive income is composed of net unrealized losses on
available-for-sale securities.
F-8
EVOLVE ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INCOME TAXES
The Company recognizes deferred tax assets and liabilities based on differences
between the financial reporting and tax bases of assets and liabilities using
the enacted tax rates and laws that are expected to be in effect when the
differences are expected to be recovered. The Company provides a valuation
allowance for deferred tax assets for which it does not consider realization of
such assets to be more likely than not.
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.
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 years ending December 31,
2003 and 2002, excludes 16,000 and 8,000 common shares rspectively, issuable
pursuant to outstanding options. These shares were excluded because their affect
was anti-dilutive.
STOCK-BASED COMPENSATION
The Company granted stock options to directors and employees that are more fully
described in Note 9. 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."
The proforma effect of the compensation expense would not be material in
computing the net (loss) and (loss) per share if the Company had applied the
fair value recognition provisions of Statements on Financial Accounting
Standards ("SFAS") No. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION," and SFAS
No. 148 "ACCOUNTING FOR STOCK-BASED COMPENSATION - TRANSITION AND DISCLOSURE."
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash, accounts receivable, accounts payable, and accrued
liabilities approximate fair value because of the short maturity of the
instruments and the provision, if any, for what management believes to be
adequate reserves for potential losses.
F-9
EVOLVE ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LONG-LIVED ASSETS
The Company reviews for the impairment of long-lived assets whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. An impairment loss would be recognized when estimated future
cash flows expected to result from the use of the asset and its eventual
disposition is less than its carrying amount.
CONCENTRATION OF CREDIT RISK
The Company at times has cash in banks in excess of FDIC insurance limits and
places its temporary cash investments with high credit quality financial
institutions.
ADVERTISING EXPENSE
The Company expenses advertising costs as they are incurred. Advertising expense
for the years ended December 31, 2003 and 2002 amounted to $133,979 and
$100,144, respectively.
SHIPPING AND HANDLING
The Company's shipping and handling costs are included under Cost of Sales.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company's accounts receivable are reported net of bad debt reserves, which
are regularly evaluated by management for adequacy. The evaluation includes and
is not limited to a review of individual customer accounts that have balances
beyond the agreed upon terms of the sale. Reserve values are assigned to
individual accounts based on the Company's recent payment experience with the
customer and knowledge of the customer's creditworthiness.
STOCK SPLIT
On January 31, 2003, the Company effected a 250 to 1 reverse stock split. All
share and per share amounts have been retroactively restated to reflect the
reverse stock split.
F-10
EVOLVE ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2: PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 2003:
In Years
--------
Furniture ............................ $ 51,375 7
Equipment ............................ 728,957 5
Leasehold Improvements ............... 68,603 10
--------
848,935
Less: Accumulated Depreciation ...... 646,539
--------
$202,396
========
NOTE 3. 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.
F-11
EVOLVE ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The amortized cost of equity securities as shown in the accompanying balance
sheet and their estimated market value at December 31, 2003 are as follows:
2003
----
Trading securities:
Cost ................................................... $ 10,572
Unrealized (loss) ...................................... (8,920)
---------
1,652
---------
Available-for-sale securities:
Cost ................................................... 417,854
Unrealized (loss) ...................................... (262,439)
---------
155,415
---------
157,067
Marketable equity securities classified as current .............. 64,682
---------
Marketable equity securities classified as non-current .......... $ 92,385
=========
Gains (losses) from trading securities that were included in earnings for the
years ended December 31, 2003 and 2002 were as follows:
2003 2002
---- ----
Realized (loss) .................................. $ (476,444) $ (12,058)
=========== ===========
Unrealized (loss) ................................ $ - $ (4,956)
=========== ===========
The change in unrealized gains (losses) from available-for-sale securities
included as a component of equity for the years ended December 31, 2003 and 2002
were as follows:
2003 2002
---- ----
Net unrealized gain (loss) ....................... $ 109,709 $(1,539,244)
Decrease in deferred tax asset ................... 41,200 439,200
Allowance deferred taxes ......................... (41,200) -
----------- -----------
Accumulated other comprehensive income (loss) .... $ 109,709 $(1,100,044)
=========== ===========
F-12
EVOLVE ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 December 31, 2003 of $151,500 ($.015 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.
During the latter part of 2002 the Company became aware, based upon Securities
and Exchange Commission (SEC) filings by SGD, that SGD had taken the position
that the Company was the holder of pre-split shares (SGD had a 6 for 1 reverse
split) and rather than the Company owning 10 Million shares of SGD the Company
was the holder of only 1,666,666 shares of SGD. It is the Company's position
that the number of shares that the Company held of SGD as of December 31, 2003
and 2002 is 10 Million. This is based upon purchase and sale arrangements
between the Company and SGD wherein the Company was sold, issued and receive 10
Million post split shares of SGD from SGD (formerly known as GoldOnline.com,
Inc.). The shares issued and delivered to the Company by SGD reflected the split
and the new split CUSIP change. On November 11, 2000, following the Company's
receipt of these shares, the Company filed a Form 13D, with the SEC, reflecting
the ownership of these shares. The Form 13D had been prepared by SGD's Counsel.
SGD filed quarterly and annual financial reports with the SEC reflecting the
ownership of 10 Million shares by the Company. Should it ultimately be
determined that the shares should be pre-split shares then our investment in
SGD, as of December 31, 2003, rather then being included in the accompanying
balance sheet as $151,500 (current $59,115; long-term $92,385) might be reduced
depending upon the impact of the share price differential on the market price of
the SGD shares and the reduced number of shares that the Company would be
considered as holding.
NOTE 4. OTHER COMPREHENSIVE INCOME (LOSS)
The following represents a reconciliation of other comprehensive income (loss)
for the year ended December 31, 2003:
Accumulated other comprehensive (loss) at 12/31/02: $(372,148)
Unrealized (loss) from marketable equity securities ... $(356,755)
Reclassification adjustment ........................... 466,464
---------
Net unrealized gain from marketable equity securities . 109,709
---------
Net accumulated other comprehensive (loss) ............ $(262,439)
=========
F-13
EVOLVE ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company has an operating lease for facilities which expires June 2004.
Minimum future obligations over the term of the lease is as follows:
YEAR ENDED DECEMBER 31,
-----------------------
2004 $32,695
Rent expense for the years ended December 31, 2003 and 2002 aggregated $72,177
and $87,021 respectively. In June 2004, the Company did not renew the Stogies
warehouse lease and is currently renting from a company owned by the majority
shareholders of Evolve One, Inc. (Note 11).
LITIGATION
Lakewood Development(s) Corporation v. Gary Schultheis and Herbert Tabin and
Evolve One, Inc., Civil Action No. 4-03-CV-1224-A, in the United States District
Court of the Northern District of Texas, Ft. Worth Division (Complaint filed on
August 6, 2003). This action asserts claims for violation of Texas securities
law, fraud, breach of contract, and breach of fiduciary duties. The action
sought damages in the amount of $4,125,000, for the plaintiff, the plaintiffs'
attorneys' fees and costs, and certain other relief.
On April 6, 2004, United States District Court Judge John McBryde of the United
States District Court of the Northern District of Texas, Ft. Worth Division,
entered a final judgment in favor of Evolve One, Inc. and its officers Gary
Schultheis and Herbert Tabin dismissing the case with prejudice. The court also
ordered Lakewood to pay defendants' court costs.
F-14
EVOLVE ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. INCOME TAXES
The components of income tax expense for continuing operations are as follows
for the years ended December 31, 2003 and 2002:
2003 2002
---- ----
Current tax expense:
Federal ......................................... $ - $ -
State ........................................... - -
----------- -----------
Deferred tax expense ............................... - 439,200
----------- -----------
Total income tax expense ........................ $ - $ 439,200
=========== ===========
Total income tax expense applicable to earnings (loss) from continuing
operations before income taxes is reconciled with the "normally expected"
federal income tax expense as follows for the year ended December 31, 2003 and
2002:
2003 2002
---- ----
"Normally expected" income tax expense (benefit) ... $ (457,300) $ (372,700)
Increase (decrease) in taxes resulting from:
State income taxes, net of Federal income
tax benefit ...................................... (48,400) (39,800)
Nondeductible meals and other ...................... 42,800 (292,600)
Change in valuation allowance ...................... 462,900 1,144,300
----------- -----------
$ - $ 439,200
=========== ===========
The deferred income tax liabilities (assets) at December 31, 2003 are comprised
of the following:
CURRENT NONCURRENT
------- ----------
Unrealized loss on trading securities .............. $ (4,000) $ -
Unrealized gain on available-for-sale securities ... (40,100) (58,700)
Officers Salaries .................................. (86,500) -
Net operating loss ................................. (1,937,800) -
Asset basis ........................................ - 400
----------- -----------
Total deferred income tax (assets) .............. (2,068,400) (58,300)
Valuation allowance ............................. 2,068,400 58,300
----------- -----------
Net deferred income tax (assets) ................... $ - $ -
=========== ===========
F-15
EVOLVE ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 twelve months ended December 31, 2003 and 2002 were $462,900
and $1,144,300 respectively. Management utilizes tax planning strategies and
projected future taxable income in assessing these assets.
The Company has net operating loss carry forwards as of December 31, 2003,
approximating $3,887,000 for federal and state income tax purposes, which expire
as follows:
AVAILABLE
YEAR OF ORIGINATION EXPIRING LOSS CARRYFORWARD
------------------- -------- -----------------
2000 2020 $ 864,000
2001 2021 1,329,000
2002 2022 968,000
2003 2023 726,000
-----------
$ 3,887,000
===========
The Company has net capital loss carry forwards as of December 31, 2003,
approximating $1,262,000 for federal and state income tax purposes, which expire
as follows:
AVAILABLE
YEAR OF ORIGINATION EXPIRING LOSS CARRYFORWARD
------------------- -------- -----------------
2001 2006 $ 777,000
2002 2007 9,000
2003 2008 476,000
-----------
$ 1,262,000
===========
NOTE 7. 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 approved by the board of directors, the Company has
repurchased in the twelve month period ended December 31, 2002 a total of 57,861
shares of its common stock for $97,291. The repurchased shares have been
retired. Effective October 7, 2002, the Company ceased the stock repurchase
plan.
F-16
EVOLVE ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. LOAN RECEIVABLE
The Company issued a demand line of credit with Onspan Networking, Inc. a
related party, where certain officers and directors of the Company are also
officers and directors of Onspan Networking Inc., totaling $1,000,000, under
which Onspan Networking, Inc. may borrow on an unsecured basis with interest at
5% annually. On June 19, 2003, Onspan Networking, Inc. borrowed $675,000 under
this line of credit. The Company has accrued $17,940 in interest on the note for
a total of $692,940.
The terms of the demand line of credit state that Onspan Networking, Inc. must
issue options to the Company to purchase common stock equal to 10% of the dollar
amount of the loan advance at an exercise price of $0.10 per share, and options
to purchase common stock equal to 90% of the dollar amount of the loan advance
at the ten trading day average at the time of the draw ($0.30 at June 19, 2003).
On June 19, 2003, Onspan Networking, Inc. granted 67,500 stock options to Evolve
One, Inc. under the revolving note agreement. The options have an exercise price
of $.10 per share. Onspan Networking, Inc. also granted on June 19, 2003,
607,500 stock options to Evolve One, Inc. in the same note agreement. These
options have an exercise price of $.30 per share. The Company currently has
excluded these "options" on common stock from 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.
On May 27, 2004 Onspan Networking, Inc. repaid the entire balance outstanding
under the line of credit, including accrued interest.
NOTE 9. STOCK OPTIONS
In November 1999, the Board of Directors approved the establishment of Evolve
One, Inc. Stock Option Plan (the "Plan") to provide incentives to attract future
employees and retain existing key employees with the Company. The Company has
reserved 100,000 shares of common stock for the grant of qualified incentive
options or non-qualified options to employees and directors of the Company or
its parents or subsidiaries, and to non-employee directors, consultants and
advisors and other persons who may perform significant services for or on behalf
of the Company under the Plan. 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 than10% of the Company's common stock for which the exercise price
must be at least 110% of such fair market value. Non-statutory options must
provide for an exercise price of not less than 85% of the fair market value. The
Plan was approved by the shareholders at a meeting on November 11, 1999.
The Company applied Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized for the incentive stock options granted to employees under
its stock option plan in its statements of operations. During 2002, the Company
granted nonqualified options to purchase 8,000 shares of common stock to
directors outside of the Plan, these stock options expire January 3, 2007 and
have an exercise price of $.007 per share and vest immediately. On January 3,
F-17
EVOLVE ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2003 the Company granted nonqualified options to purchase an additional 8,000
shares of common stock to directors outside of the Plan. These options were
granted in accordance with employment contracts. The additional stock options,
expiring January 3, 2008, have an exercise price of $.001 per share and vest
immediately.
A summary of the status of the Company's stock options as of December 31, 2003
and the changes during the years ended December 31, 2003 and 2002 is presented
below:
WEIGHTED
AVERAGE
SHARES PRICE
------ -----
Beginning Balance, January 1, 2002 ........ - $ -
Options granted ........................... 8,000 .007
Options exercised ......................... - -
Options cancelled ......................... - -
------ -----
Ending Balance, December 31, 2002 ......... 8,000 $.007
------ -----
Options granted ........................... 8,000 $.001
Options exercised ......................... - -
Options cancelled ......................... - -
------ -----
Ending Balance, December 31, 2003 ......... 16,000 $.004
====== =====
The pro forma compensation expense of the stock options would not be material to
the accompanying financial statements for the current period, if the Company
would have elected SFAS No. 123. The Company used the Black-Scholes option
pricing model to determine the fair value of the grants. The assumptions were
applied as follows:
Risk Free Interest Rate ................................ 3.4%
Expected Dividend Yield ................................ 0%
Expected Option Life ................................... 5 years
Expected Stock Price Volatility ........................ 138%
F-18
EVOLVE ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. 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 twelve months ended December 31, 2003, the Company operated in the
following segments, none of which have inter-segment revenues:
A1DISCOUNT
VENTURES STOGIES CORPORATE PERFUME CONSOLIDATED
-------- ------- --------- ------- ------------
Revenue .... $ - $1,322,803 $ - $ 46,083 $ 1,368,886
Operating
(Loss) ..... (19,384) (213,725) (634,661) (20,273) (888,043)
Other
(expense) . (476,380) (59) 19,599 - (456,840)
Net Loss ... (495,764) (213,784) (615,062) (20,273) (1,344,883)
Assets ..... 176,453 624,493 729,532 49,160 1,579,638
For the twelve months ended December 31, 2002, the Company operated in the
following segments, none of which have inter-segment revenues:
A1DISCOUNT
VENTURES STOGIES CORPORATE PERFUME CONSOLIDATED
-------- ------- --------- ------- ------------
Revenue .... $ - $1,395,988 $ - $58,205 $ 1,454,193
Operating
Loss ....... (109,981) (244,798) (736,646) (2,889) (1,094,314)
Other income
(expense) .. 13 5,436 (7,341) - (1,892)
Net Loss ... (108,068) (146,462) (1,279,287) (1,589) (1,535,406)
Assets ..... 718,401 785,206 1,152,548 43,796 2,699,951
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.
F-19
EVOLVE ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 primarily of cash and a loan receivable from Onspan
Networking, Inc. a related party. Interest expense is allocated to the other
segments to the extent it exceeds interest income.
NOTE 11. SUBSEQUENT EVENTS
On June 25, 2004, the company purchased the URL named (www.Auctionstore.com) for
$6,500. On July 22, 2004 the Company created a new wholly owned subsidiary,
Auctionstore.com a Florida Corporation. The Company plans to start operations in
the fourth quarter of 2004.
On August 6, 2004, the Company received a late filers notice from the Securities
and Exchange Commission. The letter dated July 29, 2004, stated: "IT APPEARS
THAT THE REGISTRANT ("EVOLVE ONE, INC."), IS NOT IN COMPLIANCE WITH ITS
REPORTING REQUIREMENTS UNDER SECTION 13(A) OF THE SECURITIES EXCHANGE ACT OF
1934. IF THE REGISTRANT IS IN COMPLIANCE WITH ITS REPORTING REQUIREMENTS, PLEASE
CONTACT US WITHIN FIFTEEN DAYS FROM THE DATE OF THIS LETTER SO WE CAN DISCUSS
THE REASONS WHY OUR RECORDS DO NOT INDICATE THAT COMPLIANCE. IF THE REGISTRANT
IS NOT IN COMPLIANCE WITH ITS REPORTING REQUIREMENTS, IT SHOULD FILE ALL
REQUIRED REPORTS WITHIN FIFTEEN DAYS FROM THE DATE OF THIS LETTER. IF THE
REGISTRANT HAS NOT FILED ALL REQUIRED REPORTS WITHIN FIFTEEN DAYS FROM THE DATE
OF THIS LETTER, PLEASE BE AWARE THAT THE REGISTRANT MAY BE SUBJECT, WITHOUT
FURTHER NOTICE, TO AN ADMINISTRATIVE PROCEEDING TO REVOKE ITS REGISTRATION UNDER
THE SECURITIES EXCHANGE ACT OF 1934. THIS ADMINISTRATIVE PROCEEDING WOULD BE
BROUGHT BY THE COMMISSION'S DIVISION OF ENFORCEMENT PURSUANT TO SECTION 12(J) OF
THE SECURITIES EXCHANGE ACT OF 1934. IF THE REGISTRANT'S STOCK IS TRADING, IT
ALSO MAY BE SUBJECT TO A TRADING SUSPENSION BY THE COMMISSION PURSUANT TO
SECTION 12(K) OF THE SECURITIES EXCHANGE ACT OF 1934. FINALLY, PLEASE CONSIDER
WHETHER THE REGISTRANT IS ELIGIBLE TO TERMINATE ITS REGISTRATION UNDER THE
SECURITIES EXCHANGE ACT OF 1934. IF THE REGISTRANT IS ELIGIBLE TO TERMINATE ITS
REGISTRATION, IT WOULD DO SO BY FILING A FORM 15 WITH THE COMMISSION. WHILE THE
FILING OF A FORM 15 MAY CEASE THE REGISTRANT'S ON-GOING REQUIREMENT TO FILE
PERIODIC AND CURRENT REPORTS, IT WOULD NOT REMOVE THE REGISTRANT'S OBLIGATION TO
FILE ALL REPORTS REQUIRED UNDER SECTION 13(A) OF THE SECURITIES EXCHANGES ACT OF
1934 THAT WERE DUE ON OR BEFORE THE DATE THE REGISTRANT FILED ITS FORM 15.
AGAIN, IF THE REGISTRANT IS ELIGIBLE TO TERMINATE ITS REGISTRATION UNDER THE
SECURITIES EXCHANGE ACT OF 1934, PLEASE NOTE THAT THE FILING OF A FORM 15 WOULD
NOT REMOVE THE REGISTRANT'S REQUIREMENT TO FILE DELINQUENT SECURITIES EXCHANGE
ACT OF 1934 REPORTS - THE REGISTRANT WOULD STILL BE REQUIRED TO FILE WITH THE
COMMISSION ALL PERIODIC REPORTS DUE ON OR BEFORE THE DATE ON WHICH THE
REGISTRANT FILED A FORM 15."
F-20
On August 20, 2004 the Company signed a new five year lease for 5,325 sq feet of
office and warehouse space at 1000 Clint Moore Road, Suites 101 and 102, Boca
Raton Fl 33487. The initial monthly base rent is approximately $6,500 plus sales
tax and other charges.
Minimum future obligations over the term of the leases are as follows:
YEAR ENDED DECEMBER 31,
-----------------------
2004 $13,091
2005 79,005
2006 81,783
2007 84,623
2008 87,578
2009 75,127
F-21
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 8A. 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.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
The following table sets forth the names, ages and current positions with the
Company held by the Directors, Executive Officers and Significant Employees,
together with the year such positions were assumed. There is no immediate family
relationship between or among any of the Directors, Executive Officers or
Significant Employees, except Ms. Dermer is the sister-in-law of Mr. Tabin. The
Company is not aware of any arrangement or understanding between any Director or
Executive officer and any other person pursuant to which he was elected to his
current position.
POSITION OR OFFICE DATE FIRST
NAME AGE WITH THE COMPANY ELECTED
---- --- ------------------ ----------
Gary Schultheis 38 President, Director 1998
Herbert Tabin 37 Director 1998
Martin Scott 36 Director 2001
Marissa Dermer 36 Controller 2000
GARY SCHULTHEIS is a co-founder of Evolve One, Inc. and has served as its
President and a Director of the Company since February 1998. Mr. Schultheis
currently serves as President and CEO of Millennium Holdings Group, Inc., a
corporate consulting firm. In February 1999, Mr. Schultheis became Vice
President of Interactive Golf Marketing a publicly traded company that became
WowStores.com. In August 1999, Mr. Schultheis resigned as Vice President of
WowStores.com after its acquisition by Stockfirst.com. From March 1994 to
February 1996, Mr. Schultheis was President of Wall Street Enterprises d/b/a
Wall Street Associates, a financial consulting firm specializing in mergers and
acquisitions. In February 1996, Wall Street Enterprises was acquired by
Millennium Holdings Group, Inc. Currently, Wall Street Enterprises d/b/a Wall
Street Associates is a wholly-owned subsidiary of Millennium Holdings Group,
19
Inc. From 1985 to 1992, Mr. Schultheis was employed with Air Express
International now Danzas DHL, holding a position in staging and logistics. Mr.
Schultheis attended the State University of New York at Farmingdale in 1984.
HERBERT TABIN is a Director and founder of the Company and currently serves as
its Director of Marketing. Mr. Tabin has been a Director of Evolve One, Inc.
since February 1998. Mr. Tabin is currently the President, CEO and a Director of
a related party, OnSpan Networking, Inc., a publicly traded company. Mr. Tabin
is also currently Vice President of Millennium Holdings Group, Inc. a private
Florida-based venture capital firm. Mr. Tabin has been Vice President with
Millennium Holdings since 1996. In February 1999, Mr. Tabin became President of
Interactive Golf Marketing a publicly traded company that became WowStores.com.
In August 1999, Mr. Tabin resigned as President of WowStores.com following its
acquisition by StockFirst.com. Previously, Mr. Tabin was a Vice President of
Marketing with LBI Group, Inc., a merchant banking and venture capital group
from April 1995 to December 1996. From September 1993 to March 1995 Mr. Tabin
was a vice president with HBL Associates a financial relations firm in New York
City. From 1989 to August 1993 Mr. Tabin was employed with the American Stock
Exchange and New York-based Stock Brokerage firms Stratton Securities,
Continental Broker-Dealer and Kensington Wells, Inc. Mr. Tabin received a
Bachelor of Science in Business Economics from the State University of New York
At Oneonta in 1989. In March 2000, the State University of New York At Oneonta
named their campus' largest computer lab, the Tabin Computer Lab.
MARISSA DERMER is currently the controller for the Company. Ms. Dermer is also
currently a Director of publicly traded, Onspan Networking Inc., a related
party, symbol ONSP and is their Chief Financial Officer. From September 1997 to
April 2000, Ms. Dermer was an assistant controller with Mitchell Hutchins Asset
Management, Inc., the mutual fund advisory group of Paine Webber Inc. Prior to
her employment with Paine Webber, Ms. Dermer was a manager of David Berdon and
Company LLP, a prominent public accounting firm headquartered in New York City
from 1990 to 1997. Ms. Dermer graduated in 1990 from the State University of New
York at Albany with a degree in Business/Accounting.
MARTIN SCOTT is a certified public accountant, he owns a consulting practice
that specializes in assisting small public companies in preparing financial
reports. He was Chief Financial Officer of Geotec Thermal Generators,
Incorporated from January 2000 Until July 2001. Mr. Scott served as Secretary
and Treasurer and Principal Accounting and Financial Officer of Registry Magic,
Inc., a NASDAQ traded company since October 1997. From June 1996 until October
1997, Millward & Co., CPAs, employed him as an Audit Supervisor. From October
1995 until June 1996, Mr. Scott served as Controller of ERD Waste Corp., a
NASDAQ traded company, a waste disposal company. Prior thereto, from January
1995, he was employed as a Senior Accountant with the firm of Richard A. Eisner
& Co., LLP. From January 1991 to January 1995, he was employed as a Senior
Accountant with the firm of Feldman Radin & Co., P.C.
20
CODE OF ETHICS
Effective November 18, 2002, our board of directors adopted a Code of
Business Conduct and Ethics that applies to, among other persons, our company's
President (being our principal executive officer) as well as all employees. As
adopted, our Code of Business Conduct and Ethics sets forth written standards
that are designed to deter wrongdoing and to promote:
- honest and ethical conduct, including the ethical handling of actual or
apparent conflicts of interest between personal and professional
relationships;
- full, fair, accurate, timely, and understandable disclosure in reports
and documents that we file with, or submit to, the Securities and
Exchange Commission and in other public communications made by us;
- compliance with applicable governmental laws, rules and regulations;
- the prompt internal reporting of violations of the Code of Business
Conduct and Ethics to an appropriate person or persons identified in
the Code of Business Conduct and Ethics; and
- accountability for adherence to the Code of Business Conduct and
Ethics.
Our Code of Business Conduct and Ethics requires, among other things,
that all of our company's personnel shall be accorded full access to our
President with respect to any matter that may arise relating to the Code of
Business Conduct and Ethics. Further, all of our company's personnel are to be
accorded full access to our company's board of directors if any such matter
involves an alleged breach of the Code of Business Conduct and Ethics by our
President.
In addition, our Code of Business Conduct and Ethics emphasizes that
all employees, and particularly managers and/or supervisors, have a
responsibility for maintaining financial integrity within our company,
consistent with generally accepted accounting principles, and federal,
provincial and state securities laws. Any employee who becomes aware of any
incidents involving financial or accounting manipulation or other
irregularities, whether by witnessing the incident or being told of it, must
report it to his or her immediate supervisor or to our company's President. If
the incident involves an alleged breach of the Code of Business Conduct and
Ethics by the President, the incident must be reported to any member of our
board of directors. Any failure to report such inappropriate or irregular
conduct of others is to be treated as a severe disciplinary matter. It is
against our company policy to retaliate against any individual who reports in
good faith the violation or potential violation of our company's Code of
Business Conduct and Ethics by another.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
NONE.
On August 6, 2004, the Company received a late filers notice from the Securities
And Exchange Commission. The letter dated July 29, 2004, stated: "IT APPEARS
THAT THE REGISTRANT ("EVOLVE ONE, INC."), IS NOT IN COMPLIANCE WITH ITS
REPORTING REQUIREMENTS UNDER SECTION 13(A) OF THE SECURITIES EXCHANGE ACT OF
21
1934. IF THE REGISTRANT IS IN COMPLIANCE WITH ITS REPORTING REQUIREMENTS, PLEASE
CONTACT US WITHIN FIFTEEN DAYS FROM THE DATE OF THIS LETTER SO WE CAN DISCUSS
THE REASONS WHY OUR RECORDS DO NOT INDICATE THAT COMPLIANCE. IF THE REGISTRANT
IS NOT IN COMPLIANCE WITH ITS REPORTING REQUIREMENTS, IT SHOULD FILE ALL
REQUIRED REPORTS WITHIN FIFTEEN DAYS FROM THE DATE OF THIS LETTER. IF THE
REGISTRANT HAS NOT FILED ALL REQUIRED REPORTS WITHIN FIFTEEN DAYS FROM THE DATE
OF THIS LETTER, PLEASE BE AWARE THAT THE REGISTRANT MAY BE SUBJECT, WITHOUT
FURTHER NOTICE, TO AN ADMINISTRATIVE PROCEEDING TO REVOKE ITS REGISTRATION UNDER
THE SECURITIES EXCHANGE ACT OF 1934. THIS ADMINISTRATIVE PROCEEDING WOULD BE
BROUGHT BY THE COMMISSION'S DIVISION OF ENFORCEMENT PURSUANT TO SECTION 12(J) OF
THE SECURITIES EXCHANGE ACT OF 1934. IF THE REGISTRANT'S STOCK IS TRADING, IT
ALSO MAY BE SUBJECT TO A TRADING SUSPENSION BY THE COMMISSION PURSUANT TO
SECTION 12(K) OF THE SECURITIES EXCHANGE ACT OF 1934. FINALLY, PLEASE CONSIDER
WHETHER THE REGISTRANT IS ELIGIBLE TO TERMINATE ITS REGISTRATION UNDER THE
SECURITIES EXCHANGE ACT OF 1934. IF THE REGISTRANT IS ELIGIBLE TO TERMINATE ITS
REGISTRATION, IT WOULD DO SO BY FILING A FORM 15 WITH THE COMMISSION. WHILE THE
FILING OF A FORM 15 MAY CEASE THE REGISTRANT'S ON-GOING REQUIREMENT TO FILE
PERIODIC AND CURRENT REPORTS, IT WOULD NOT REMOVE THE REGISTRANT'S OBLIGATION TO
FILE ALL REPORTS REQUIRED UNDER SECTION 13(A) OF THE SECURITIES EXCHANGES ACT OF
1934 THAT WERE DUE ON OR BEFORE THE DATE THE REGISTRANT FILED ITS FORM 15.
AGAIN, IF THE REGISTRANT IS ELIGIBLE TO TERMINATE ITS REGISTRATION UNDER THE
SECURITIES EXCHANGE ACT OF 1934, PLEASE NOTE THAT THE FILING OF A FORM 15 WOULD
NOT REMOVE THE REGISTRANT'S REQUIREMENT TO FILE DELINQUENT SECURITIES EXCHANGE
ACT OF 1934 REPORTS - THE REGISTRANT WOULD STILL BE REQUIRED TO FILE WITH THE
COMMISSION ALL PERIODIC REPORTS DUE ON OR BEFORE THE DATE ON WHICH THE
REGISTRANT FILED A FORM 15."
ITEM 10. EXECUTIVE COMPENSATION
The following table shows the cash compensation of the Company's chief executive
officer and each officer whose total cash compensation exceeded $100,000, for
the three fiscal years ended December 31, 2003. The Company has no long-term
compensation plans.
NAME AND FISCAL OTHER ALL
PRINCIPAL YEAR ANNUAL OTHER
POSITION ENDED SALARY ($) BONUS ($) COMPENSATION COMPENSATION
-------- ----- ---------- --------- ------------ ------------
Gary Schultheis 12/31/03 $ 100,000 $ 5,312 N/A N/A
12/31/02 $ 100,000 $ 5,572 N/A N/A
12/31/01 $ 100,000 $ 5,572 N/A N/A
Herbert Tabin 12/31/03 $ 100,000 $ 5,312 N/A N/A
12/31/02 $ 100,000 $ 5,572 N/A N/A
12/31/01 $ 100,000 $ 5,052 N/A N/A
In 2003 the Company accrued $130,000 in salaries in accordance with the
employment agreement signed January 3, 2002 with its President and Director of
Marketing, see Employment Contracts below.
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OPTION/SAR GRANTS IN LAST FISCAL YEAR
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (NUMBER) FISCAL YEAR ($/SHARE) DATE
---- ---------------- ----------- --------- ----
Gary Schultheis 4,000 50% .001 1/3/08
Herbert Tabin 4,000 50% .001 1/3/08
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
VALUE OF
NUMBER OF SECURITIES UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY
ACQUIRED OPTIONS/SARS AT OPTIONS/SARS
ON VALUE FY-END (NUMBER) AT FY-END ($)
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (NUMBER) ($) UNEXERCISABLE UNEXERCISABLE
---- -------- -------- ------------- -------------
Gary Schultheis - 0 None None
Herbert Tabin - 0 None None
EMPLOYMENT CONTRACTS
In January 2002, the Company's President and Director of Marketing entered into
employment agreements with the Company. The contracts expire in January 2009 and
provide for the granting of 4,000 stock options (as restated for the reverse
stock split) each to the President and Director of Marketing at an exercise
price of the average of closing price for the five (5) trading days preceding
the anniversary date less fifteen (15%) percent each year. The annual salary
under each of the agreements is $150,000, which is to be increased by 10% each
year.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table indicates all persons who, as of December 31, 2003, the most
recent practicable date, are known by the Company to own beneficially more than
5% of any class of the Company's voting securities and all Directors of the
Company and all Officers who are not Directors of the Company, as a group. As of
December 31, 2003, there were 3,112,304 (1) shares of the Company's common stock
outstanding.
23
NAME AND ADDRESS AMOUNT AND NATURE
TITLE OF BENEFICIAL OF BENEFICIAL % OF
OF CLASS OWNER OWNER CLASS
-------- ----- ----- -----
Common Gary Schultheis (2) 1,028,137 33.03%
6413 Congress Ave, Suite 230
Boca Raton, FL 33487
Common Herbert Tabin (3) 1,026,499 32.98%
6413 Congress Ave, Suite 230
Boca Raton, FL 33487
Common All directors and executive 2,054,636 66.01%
officers as a group (two persons)
(1) This amount includes options to acquire an aggregate of 16,000 common shares
of stock, 8,000 common shares at an exercise price of $.007 per share, and
8,000 shares at an exercise price of $.001 per share.
(2) This amount includes options to acquire 8,000 common shares of stock, 4,000
at an exercise price of $.007 per share and 4,000 at an exercise price of
$.001 per share.
(3) This amount includes options to acquire 8,000 common shares of stock, 4,000
at an exercise price of $.007 per share and 4,000 at an exercise price of
$.001 per share.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company issued a demand line of credit with Onspan Networking, Inc. a
related party, totaling $1,000,000, under which Onspan Networking, Inc. may
borrow on an unsecured basis with interest at 5% annually. On June 19, 2003
Onspan Networking, Inc. borrowed $675,000 under this line of credit. The Company
has accrued $17,940 in interest on the note.
The terms of the demand line of credit state that Onspan Networking, Inc. must
issue options to the Company to purchase common stock equal to 10% of the dollar
amount of the loan advance at an exercise price of $0.10 per share, and options
to purchase common stock equal to 90% of the dollar amount of the loan advance
at the ten trading day average at the time of the draw ($0.30 at June 19, 2003).
On June 19, 2003, Onspan Networking, Inc. granted 67,500 stock options to Evolve
One, Inc. under the revolving note agreement. The options have an exercise price
of $.10 per share. Onspan Networking, Inc. also granted on June 19, 2003,
607,500 stock options to Evolve One, Inc. in the same note agreement. These
options have an exercise price of $.30 per share. The Company currently has
excluded these "options" on common stock from 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.
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ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
The following documents are filed as a part of this report or are
incorporated by reference to previous filings, if so indicated:
(a) EXHIBITS
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
14 Evolve One, Inc. Code of Business Conduct and
Ethics Adopted by the Board of Directors On
November 18, 2002, (Filed as Exhibit 14 to
registrant December 2002, Form 10-KSB)
21 Subsidiaries of Evolve One, Inc. (Filed as
Exhibit 21 to registrant December 2002, Form
10-KSB)
31.1 Certification of President and Principal
Financial and Accounting Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of President and Principal
Financial and Accounting Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
(b) REPORTS ON FORM 8-K
Employment Agreement with President and Principal Financial and
Accounting Officer, and Director of Marketing
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
AUDIT FEES
The aggregate audit fees billed by Goldstein Lewin & Co. for
professional services rendered for the audit of our annual financial statements
included in our Annual Report on Form 10-KSB for the fiscal year ended December
31, 2003 and for the review of quarterly financial statements included in our
Quarterly Reports on Form 10-QSB for the quarters ending March 31, June 30, and
September 30, 2003 were $8,000.
25
The aggregate audit fees billed by Goldstein Lewin & Co. for
professional services rendered for the audit of our annual financial statements
included in our Annual Report on Form 10-KSB for the fiscal year ended December
31, 2002 and for the review of quarterly financial statements included in our
Quarterly Reports on Form 10-QSB for the quarters ending March 31, June 30, and
September 30, 2002 were $40,750.
AUDIT RELATED FEES
For the fiscal years ended December 31, 2003 and 2002, the aggregate
fees billed for assurance and related services by Goldstein, Lewin & Co.
relating to the performance of the audit of our financial statements which are
not reported under the caption "Audit Fees" above was $0 and $0, respectively.
TAX FEES
For the fiscal years ended December 31, 2003 and 2002 the aggregate
fees billed for tax compliance, tax advice and tax planning, include the
preparation of federal and state corporate income tax returns billed to Evolve
One by Goldstein Lewin & Co. for the fiscal years ended December 31, 2003 and
2002 were approximately $5,400 and $5,500, respectively.
ALL OTHER FEES
Other than fees relating to the services described above under "Audit
Fees," "Audit-Related Fees" and "Tax Fees," there were no additional fees billed
by Goldstein Lewin & Co. for services rendered to Evolve One for the fiscal
years ended December 31, 2003 and 2002.
AUDIT COMMITTEE POLICIES
Effective May 6, 2003, the Securities and Exchange Commission adopted
rules that require that before our independent auditor is engaged by us to
render any auditing or permitted non-audit related service, the engagement be:
* approved by our audit committee; or
* entered into pursuant to pre-approval policies and procedures established
by the audit committee, provided the policies and procedures are detailed as to
the particular service, the audit committee is informed of each service, and
such policies and procedures do not include delegation of the audit committee's
responsibilities to management.
The audit committee pre-approves all services provided by our
independent auditors, including those set forth above. The audit committee has
considered the nature and amount of fees billed by Goldstein Lewin & Co. and
believes that the provision of services for activities unrelated to the audit is
compatible with maintaining Goldstein Lewin & Co.'s independence.
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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: September 24, 2004 By: /s/ Gary Schultheis
-------------------
Gary Schultheis,
President
(President and Principal Financial and
Accounting Officer)
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
Date: September 24, 2004 By: /s/ Gary Schultheis
-------------------
Gary Schultheis,
Director
Date: September 24, 2004 By: /s/ Herbert Tabin
-----------------
Herbert Tabin,
Director
Date: September 24, 2004 By: /s/ Martin Scott
----------------
Martin Scott,
Director
27