U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Quarter Ended: June 30, 2002
Commission File Number: 000-26415
EVOLVE ONE, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 13-3876100
(State of Incorporation) (IRS Employer ID No)
6413 Congress Avenue, Suite 240, Boca Raton, FL 33487
(Address of principal executive office)
(561) 988-0819
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ].
The number of shares outstanding of registrant's common stock, par value $.00001
per share, as of June 30, 2002 was 778,988,189.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X].
Evolve One, Inc. and Subsidiaries
INDEX
Page
No.
Part I. Financial Information (unaudited)
Item 1. Condensed Consolidated:
Balance Sheet - June 30, 2002 ...................................3
Statements of Operations-
Three and Six Months Ended June 30, 2002 and 2001 ..............4
Statement of Stockholders' Equity -
Six Months Ended June 30, 2002 ..................................5
Statements of Cash Flows -
Six Months Ended June 30, 2002 and 2001 .......................6-7
Notes to Financial Statements -
Six Months Ended June 30, 2002 and 2001 ......................8-15
Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations .....................................15-19
Part II. Other Information ................................................19
2
Evolve One, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet
June 30, 2002
(Unaudited)
Assets
Current assets
Cash and cash equivalents ................................... $ 1,884,689
Accounts receivable ......................................... 16,993
Marketable equity securities ................................ 406,527
Inventory ................................................... 246,513
Notes receivable ............................................ 14,945
Prepaid expenses ............................................ 118,748
-----------
Total current assets .......................................... 2,688,415
Property and equipment, net ................................... 365,980
Marketable equity securities .................................. 500,700
Other assets .................................................. 21,897
-----------
$ 3,576,992
===========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable ............................................ $ 22,376
Accrued salaries payable .................................... 50,000
Note Payable ................................................ 83,856
Accrued expenses ............................................ 12,873
-----------
Total current liabilities ..................................... 169,105
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 778,988,189 shares ............................ 7,789
Paid-in capital ............................................. 6,742,172
Accumulated deficit ......................................... (3,290,493)
Accumulated other comprehensive income ...................... (51,581)
-----------
Total stockholders' equity .................................... 3,407,887
-----------
$ 3,576,992
===========
See accompanying notes to condensed consolidated financial statements.
3
Evolve One, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
Three and Six Months ended June 30, 2002 and 2001
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
Sales and revenues .................................... $ 274,913 $ 320,054 $ 523,442 $ 615,792
Cost of sales ......................................... 181,406 252,645 353,524 485,047
------------- ------------- ------------- -------------
Gross profit .......................................... 93,507 67,409 169,918 130,745
Selling, general and administrative expense ........... 385,020 371,179 695,713 841,484
------------- ------------- ------------- -------------
Loss from operations ................................ (291,513) (303,770) (525,795) (710,739)
------------- ------------- ------------- -------------
Other income (expense):
Interest expense .................................... (2,201) (5,891) (2,201) (5,891)
Gain from sale of marketable equity securities ...... 71,377 2,300 27,852 2,300
Investment income ................................... 4,232 23,304 8,480 54,728
Unrealized (loss) on marketable securities .......... - (2,387) (3,304) (1,815)
------------- ------------- ------------- -------------
Total other income (expense) ...................... 73,408 17,326 30,827 49,322
------------- ------------- ------------- -------------
Loss before income taxes .............................. (218,105) (286,444) (494,968) (661,417)
Income tax expense (benefit) .......................... 368,000 (106,500) 470,300 (245,600)
------------- ------------- ------------- -------------
Loss from continuing operations ....................... (586,105) (179,944) (965,268) (415,817)
Loss from earnings of a discontinued division ......... - (52,931) - (106,945)
------------- ------------- ------------- -------------
Net loss .............................................. $ (586,105) $ (232,875) $ (965,268) $ (522,762)
============= ============= ============= =============
Net loss per share
Basic ............................................... $ (0.00) $ (0.00) $ (0.00) $ (0.00)
============= ============= ============= =============
Diluted ............................................. $ (0.00) $ (0.00) $ (0.00) $ (0.00)
============= ============= ============= =============
Discontinued operations ............................. $ - $ (0.00) $ - $ (0.00)
============= ============= ============= =============
Weighted average shares outstanding
Basic ............................................... 779,678,009 788,446,187 788,393,933 788,446,187
============= ============= ============= =============
Diluted .............................................. 779,678,009 788,446,187 788,393,933 788,446,187
============= ============= ============= =============
See accompanying notes to condensed consolidated financial statements.
4
Evolve One, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders' Equity
Six Months Ended June 30, 2002
(Unaudited)
Accumulated
Other
Common Stock Paid-in Accumulated Comprehensive
Shares Par Value Capital Deficit Income Total
---------- --------- ---------- ----------- ---------- -----------
Balance, January 1, 2002 ................. 88,446,187 $ 7,884 $6,819,781 $(2,325,225) $ 727,896 $ 5,230,336
Repurchase and Retirement of Common Stock (9,457,998) $ (95) $ (77,609) - - (77,704)
Comprehensive income:
Unrealized (loss) on available-
for-sale securities, net ........... - - - - $(779,477) (779,477)
Net loss ............................. - - - (965,268) - (965,268)
-----------
Total comprehensive loss ............ - - - - - (1,744,745)
----------- -------- ---------- ----------- --------- -----------
Balance, June 30, 2002 ................... 778,988,189 $ 7,789 $6,742,172 $(3,290,493) $ (51,581) $ 3,407,887
=========== ======== ========== =========== ========= ===========
See accompanying notes to condensed consolidated financial statements.
5
Evolve One, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 2002 and 2001
(Unaudited)
2002 2001
Cash flows from operating activities
Net earnings (loss) ............................................ $ (965,268) $ (522,762)
Less: (Loss) from discontinued operations, net ................ - (106,945)
----------- -----------
(Loss) from continuing operations ............................. (965,268) (415,817)
Adjustments to reconcile (loss) from continued operations to net
cash (used in) operating activities:
Depreciation and amortization ................................ 82,408 110,627
Gain on marketable investment securities ..................... (27,852) (2,300)
Unrealized (gain) loss on marketable investment securities ... 3,304 1,815
Proceeds from sale of marketable investment securities ....... - 5,642
Deferred income taxes ........................................ 470,300 (245,600)
Net change in operating assets of a discontinued operation ... - (81,390)
Decrease (increase) in assets:
Accounts receivable ........................................ 18,131 28,317
Inventory .................................................. 22,287 201,680
Other assets ............................................... 56,794 36,731
Increase (decrease) in liabilities:
Accounts payable ........................................... (23,558) (70,573)
Accrued expenses ........................................... 58,071 (34,947)
----------- -----------
Net cash (used in) operating activities ........................ (305,383) (465,815)
----------- -----------
Cash flows from investing activities
Capital expenditures ......................................... (5,180) (107,219)
Proceeds from sale of marketable investment securities ....... 177,801 -
----------- -----------
Net cash (used in) investing activities ........................ 172,621 (107,219)
----------- -----------
Cash flows from financing activities
Repurchase of treasury stock ................................. (77,704) -
Loan repayment ............................................... (74,107) (29,693)
----------- -----------
Net cash (used in) financing activities ........................ (151,811) (29,693)
----------- -----------
Net cash (used in) continuing operations ....................... (284,573) (602,727)
Net cash used in discontinued operations ....................... - (106,945)
Net (decrease) in cash and cash equivalents .................... (284,573) (709,672)
Cash and cash equivalents, beginning of period ................. 2,169,262 3,393,582
----------- -----------
Cash and cash equivalents, end of period ....................... $ 1,884,689 $ 2,683,910
=========== ===========
See accompanying notes to condensed consolidated financial statements.
Continued
6
Evolve One, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 2002 and 2001
(Unaudited)
(Continued)
2002 2001
Supplemental Cash Flow Information
Cash paid for:
Interest ..................................................... $ 2,201 $ 5,891
Income taxes ................................................. $ - $ -
Supplemental Schedule of Noncash Investing
and Financing Activities
Insurance Financing ............................................ $ 157,963 $ 91,054
See accompanying notes to condensed consolidated financial statements.
7
Evolve One, Inc.
Notes to Consolidated Financial Statements
A. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Evolve One, Inc. (the "Company" or "EONE") is a diversified holding Company that
develops and operates Internet and direct retail marketing companies. The EONE
Group includes wholly-owned subsidiaries, StogiesOnline.com, Inc. ("Stogies")
(www.CigarCigar.com), A1Discount Perfume, Inc. (www.A1DiscountProducts.com), and
International Internet Venture I, LLC ("Ventures"). The Company previously had
majority interests in The BroadcastWeb.com, Inc. ("BroadcastWeb")
(www.thebroadcastweb.com) sold in 2001(Note F) and Mr. Cigar, Inc. ("Cigar").
EONE, through its Venture division, owns an equity interest in several
companies, some of which are classified as trading securities and some of which
are classified as available-for-sale securities. EONE was incorporated in
Delaware on June 21, 1994.
Stogies became an online distributor and retailer of brand name premium cigars
within the United States on November 18, 1998. Stogies' products consist of
premium cigars, factory brand name seconds and mass market cigars, which are
distributed online to retail and wholesale customers.
On September 28, 2001, the Company created a new Subsidiary named
A1DiscountPerfume Inc. and in October 2001, launched a new e-commerce site
specializing in men's and women's fragrances. The site named
A1DiscountProducts.com is located at http://www.A1DiscountProducts.com. The site
is a competitor of other discount as well as full price online retailers of
Perfume and Cologne, and has recently expanded into yoga products, office
accessories, and cigar accessories. The site employs the Microsoft / Great
Plains eEnterprise system the Company purchased last year and permits customers
to benefit by having direct access to up-to-the-minute information about
inventory, pricing, "hot deals" as well as order information. The eEnterprise
system allows A1DiscountProducts.com to inexpensively reach customers anywhere,
around the clock.
The financial statements included in this report have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission for interim reporting and include all adjustments (consisting only of
normal recurring adjustments) that are, in the opinion of management, necessary
for a fair presentation. These financial statements have not been audited.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations for
interim reporting. The Company believes that the disclosures contained herein
are adequate to make the information presented not misleading. However, these
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company's Annual Report for the year ended
December 31, 2001, which is included in the Company's Form 10-KSB for the year
ended December 31, 2001. The financial data for the interim periods presented
may not necessarily reflect the results to be anticipated for the complete year.
Certain reclassifications of the amounts presented for the comparative period
have been made to conform to the current presentation.
8
New accounting standards
In July 2001, FASB issued SFAS No. 141, "Business Combinations." SFAS No. 141
requires the purchase method of accounting for business combinations initiated
after June 30, 2001 and eliminates the pooling-of-interests method. We believe
that the adoption of SFAS No. 141 will not have a significant impact on our
financial statements.
In July 2001, FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets",
which is effective for fiscal years beginning after December 15, 2001. SFAS No.
142 requires, among other things, the discontinuance of goodwill amortization.
In addition, the standard includes provisions upon adoption for the
reclassification of certain existing recognized intangibles such as goodwill,
reassessment of the useful lives of existing recognized intangibles,
reclassification of certain intangibles out of previously reported goodwill and
the testing for impairment of existing goodwill and other intangibles. In June
2001, the Emerging Issues Task Force ("EITF") issued EITF Issue No. 00-25,
"Vendor Income Statement Characterization of Consideration Paid to a Reseller of
the Vendor's Products." EITF Issue No. 00-25 addresses whether consideration
from a vendor to a reseller is (a) an adjustment of the selling prices of the
vendor's products and, therefore, should be deducted from revenue when
recognized in the vendor's income statement or (b) a cost incurred by the vendor
for assets or services received from the reseller and, therefore, should be
included as a cost or expense when recognized in the vendor's income statement.
The Company adopted EITF Issue No. 00-25 effective January 1, 2002. The adoption
of EITF Issue No. 00-25 did not have a material impact on the Company's
financial statements.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations" , which provides the accounting requirements for retirement
obligations associated with tangible long-lived assets. This Statement requires
entities to record the fair value of a liability for an asset retirement
obligation in the period in which it occurred. This Statement is effective for
our 2003 fiscal year, and early adoption is permitted. The adoption of SFAS 143
is not expected to have a material impact on our consolidated results of
operations, financial position or cash flows.
In October 2001, the FASB issued SFAS No. 144, " Accounting for the Impairment
or Disposal of Long Lived Assets", which excludes from the definition of
long-lived assets goodwill and other intangibles that are not amortized in
accordance with SFAS 142. SFAS 144 requires that long-lived assets to be
disposed of by sale be measured at the lower of carrying amount or fair value
less cost to sell, whether reported in continuing operations or in discontinued
operations. SFAS 144 also expands the reporting of discontinued operations to
include components of an entity that have been or will be disposed of rather
than limiting such discontinuance to a segment of a business. This Statement is
effective for our 2003 fiscal year, and early adoption is permitted. We are
currently evaluating the impact of SFAS 144 to determine the effect, if any, it
may have on our consolidated results of operations, financial position or cash
flows.
9
B. MARKETABLE INVESTMENT SECURITIES
SFAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities,"
requires that all applicable investments be classified as trading securities,
available-for-sale securities or held-to-maturity securities. The Company has
classified certain of its investments as trading securities, which are reported
at fair value, which is defined to be the last closing price for the listed
securities. The unrealized gains and losses, which the Company recognizes from
its trading securities, are included in earnings. The Company also has
investments classified as available-for-sale, which are also required to be
reported at fair value, with unrealized gains and losses excluded from earnings
and reported as a separate component of stockholders' equity (net of the effect
of income taxes). Fair value is also defined to be the last closing price for
the listed security. Due to the size of certain of the Company's investments and
their limited trading volume, there can be no assurance that the Company will
realize the value which is required to be used by SFAS No. 115.
The amortized cost of investment securities as shown in the accompanying balance
sheet and their estimated market value at June 30, 2002 are as follows:
2002
----
Trading securities:
Cost ...................................................... $ 10,572
Unrealized (loss) ......................................... (7,268)
---------
3,304
---------
Available-for-sale securities:
Cost ...................................................... 986,604
Unrealized (loss) ......................................... (82,681)
---------
903,923
---------
907,227
Marketable investment securities classified as current ........... 406,527
---------
Marketable investment securities classified as non-current ....... $ 500,700
=========
Gains (losses) from trading securities that were included in earnings for the
six months ended June 30, 2002 and 2001 were as follows:
2002 2001
---- ----
Realized gain ......................... $ 27,852 $ 2,300
======== =======
Unrealized ............................ $ (3,304) $(1,815)
======== =======
10
The change in unrealized losses from available-for-sale securities included as a
component of equity for the six months ended June 30, 2002 were as follows:
2002
----
Unrealized (loss) ............................................ $(1,249,777)
Deferred income tax benefit .................................. 470,300
-----------
Change in accumulated other comprehensive (loss) ............. $ (779,477)
===========
The Company's investment in available-for-sale securities includes 10,200,000
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
$158,854 and a closing value on June 30, 2002 of $816,000 ($.08 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 6,259,000 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 twelve months.
C. OTHER COMPREHENSIVE INCOME
The following represents a reconciliation of other comprehensive income for the
six months ended June 30, 2002:
Accumulated other comprehensive income at 12/31/01:
$ 727,896
Unrealized loss from marketable securities $(1,291,777)
Reclassification adjustment 42,000
-----------
Net unrealized loss from marketable securities (1,249,777)
Deferred income tax benefit 470,300
-----------
Net accumulated other comprehensive income $ (51,581)
===========
11
D. INCOME TAXES
The components of income tax expense for continuing operations are as follows
for the six months ended June 30, 2002 and 2001:
2002 2001
---- ----
Current tax expense (benefit):
Federal ....................................... $ - $ -
State ......................................... - -
-------- ---------
- -
Deferred tax expense (benefit) ................... 470,300 (245,600)
-------- ---------
Total income tax expense (benefit) ............ $470,300 $(245,600)
======== =========
Total income tax expense (benefit) applicable to earnings (loss) from continuing
operations before income taxes is reconciled with the "normally expected"
federal income tax expense (benefit) as follows for the six months ended June
30, 2002 and 2001:
2002 2001
---- ----
"Normally expected" income tax expense (benefit) ..... $(151,700) $(218,900)
Increase (decrease) in taxes resulting from:
State income taxes, net of Federal income
Tax benefit ........................................ (14,800) (30,200)
Nondeductible meals and other ........................ 500 3,500
Change in valuation allowance ........................ 636,300 -
--------- ---------
$ 470,300 $(245,600)
========= =========
12
The deferred income tax liabilities (assets) at June 30, 2002 are comprised of
the following:
Current Noncurrent
Unrealized loss on trading securities ............... $ (2,700) $ -
Unrealized gain on available-for-sale securities .... (13,900) (17,200)
Net operating loss .................................. (1,124,400) -
Asset basis ......................................... - 2,400
----------- --------
Total deferred income tax liabilities (assets) ... (1,141,000) (14,800)
Valuation allowance .............................. 1,141,000 14,800
----------- --------
Net deferred income tax liabilities (assets) ........ $ - $ -*
=========== ========
* Included in Other Comprehensive Income
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 six months June 30, 2002 was $636,300. Management utilizes
tax planning strategies and projected future taxable income in assessing these
assets.
E. DISCONTINUED OPERATIONS
On December 14, 2001 the Company entered into a Stock Purchase agreement with
NYCLE Acquisition Corp (the Purchaser) to sell the Company's interest in the
BroadcastWeb (an aggregator and broadcaster of streaming media programming on
the Web). The Company sold, transferred and assigned to the Purchaser all of its
shares of the Common Stock of the BroadcastWeb representing 1,350 shares of the
1,500 shares of the Common Stock of the BroadcastWeb. The Company assumed
liability for the intercompany payable, the Purchaser shall not be responsible
for any outstanding debt, federal, state, and local taxes, but is responsible
for all vendor payables.
Pursuant to Accounting Principles Board Opinion No. 30, "Reporting the Results
of Operations - Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and Transactions"
("APB 30"), the Consolidated Financial Statements of EONE have been reclassified
to reflect the sale of The BroadcastWeb. Accordingly, the revenues costs and
expenses, assets and liabilities, and cash flows of The BroadcastWeb have been
segregated in the Consolidated Statements of Income, Consolidated Balance Sheets
and Consolidated Statements of Cash Flows. The net operating results, net assets
and net cash flows of this business have been reported as "Discontinued
Operations."
Following is summarized financial information for the discontinued operations
during the six months ended June 30, 2001, including expenses associated with
the divestiture:
13
2001
----
Net sales - BroadcastWeb .................................... $ 7,127
=========
Loss from operations before income taxes .................... $(171,045)
Income tax benefit .......................................... 64,100
---------
Net loss from discontinued operations ....................... $(106,945)
=========
Net earnings (loss) per common share:
Basic ....................................................... $ 0.00
=========
Diluted ..................................................... $ 0.00
=========
F. STOCK REPURCHASE
The Company has been authorized and empowered to acquire in the open market up
to one million dollars of common stock of the Corporation 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 six month
period ended June 30, 2002 a total of 9,457,998 shares of its common stock for
$77,704. The repurchased shares are held in treasury and have been treated as
constructively retired.
G. SEGMENT INFORMATION
The Company reports segments based upon the management approach, which
designates the internal reporting that is used by management for making
operating decisions and assessing performance.
For the six months ended June 30, 2002, the Company operated in the following
segments, none of which have intersegment revenues:
Ventures Stogies Corporate A1Discount Consolidated
Perfume
-------- ------- --------- ---------- ------------
Revenue ....... $ - $ 511,242 $ - $ 12,200 $ 523,442
Operating
Loss .......... (30,220) (148,397) (342,189) (4,989) (525,795)
Other income
(expense) ..... 25,203 - 5,624 - 30,827
Loss
from
continuing
operations .... (5,017) (148,397) (336,565) (4,989) (494,968)
Assets ........ 1,130,455 787,534 1,629,458 29,545 3,576,992
14
For the six months ended June 30, 2001, the Company operated in the following
segments, none of which have intersegment revenues:
Ventures Stogies Corporate Broadcast Web Consolidated
(Discontinued)
-------- --------- --------- ------------- ------------
Revenue ...... $ - $ 615,792 $ - $ - $ 615,792
Operating
Loss ......... (33,977) (336,481) (340,281) - (710,739)
Other income
(expense) .... 2,159 - 47,164 - 49,323
Loss
from
continuing
operations ... (21,418) (209,981) (184,418) - (415,817)
Assets ....... 4,368,501 1,674,520 2,636,328 301,280 8,980,629
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.
The Stogies segment is an online distributor and retailer of brand name premium
cigars within the United States. Stogies revenue includes wholesale sales to
cigar stores, as well as, retail sales to internet customers.
The A1Discount segment is an online distributor and retailer of brand name
premium colognes, perfumes and exercise and yoga equipment within the United
States. A1Discount revenue includes retail sales to internet customers.
Corporate assets consist of the majority of the cash and certain notes
receivable. Interest expense will be allocated to the other segments to the
extent it exceeds interest income.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
From time to time, the Company may publish forward-looking statements relative
to such matters as anticipated financial performance, business prospects,
technological developments and similar matters. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for forward-looking
statements. All statements other than statements of historical fact included in
this section or elsewhere in this 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 Exchange Act of 1934. 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, trends in
15
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's continuing operations consist of two Internet based businesses.
Stogies is an online distributor and retailer of brand name premium cigars
within the United States. A1Discount Perfume is a online retailer of premium
perfumes and colognes.
Stogies became operational in November 1998 and it accounts for substantially
all of the sales revenue. The following discussion and analysis has been
restated to reflect the discontinued operation of The BroadcastWeb Inc.
CRITICAL ACCOUNTING POLICIES
We have identified the policies outlined below as critical to our business
operations and an understanding of our results of operations. The listing is not
intended to be a comprehensive list of all of our accounting policies. In many
cases, the accounting treatment of a particular transaction is specifically
dictated by accounting principles generally accepted in the United States, with
no need for management's judgment in their application. The impact and any
associated risks related to these policies on our business operations is
discussed throughout Management's Discussion and Analysis of Financial Condition
and Results of Operations where such policies affect our reported and expected
financial results. For a detailed discussion on the application of these and
other accounting policies, see the Notes to Consolidated Financial Statements.
Our preparation of the financial statements requires us to make estimates and
assumptions that affect the reported amount of assets and liabilities,
disclosure of contingent assets and liabilities at the date of our financial
statements, and the reported amounts of revenue and expenses during the
reporting period. There can be no assurance that actual results will not differ
from those estimates.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost and is depreciated on a
straight-line basis over the estimated useful lives of such assets. Changes in
circumstances such as technological advances, changes to the Company's business
model or changes in the Company's capital strategy could result in the actual
useful lives differing from the Company's estimates. In those cases where the
Company determines that the useful life of property, plant and equipment should
be shortened, the Company would 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.
16
INVESTMENTS
Investments are classified as either available-for-sale or trading securities
and are held for resale in anticipation of short-term market movements or until
such securities are registered or are otherwise unrestricted. At June 30, 2002,
investments consisted entirely of common stock held for resale. Trading account
assets, consisting of marketable equity securities, are stated at fair value.
Unrealized gains or losses on trading securities are recognized in the statement
of operations on a monthly basis based on changes in the fair value of the
security as quoted on national or inter-dealer stock exchanges. Net unrealized
losses related to investments held for trading as of June 30, 2002, aggregated
($3,304).
Available-for-sale assets, which are also required to be reported at fair value,
with unrealized gains and losses excluded from earnings are reported as a
separate component of stockholders' equity (net of the effect of income taxes).
Liquidity and Capital Resources
The Company decreased its working capital from $3,746,452 at December 31, 2001
to $2,519,310 at June 30, 2002. The working capital decrease in the amount of
$1,227,142 consists primarily of decreases in cash in the amount of $284,573,
and marketable securities in the amount of $631,781,and a decrease in current
and deferred income taxes in the amount of $242,400.
During the six months ended June 30, 2002 stockholders' equity decreased
$1,822,449, which includes decreases in other comprehensive income in the amount
of $779,477, the net loss for the year of $965,268, and $77,704 for the
repurchase of 9,457,998 shares of common stock. (See Other Comprehensive Income
below)
Results of Operations
Sales and Cost of Sales
During the three and six months ended June 30, 2002, sales decreased from
$320,054 and 615,792 for 2001 to $274,913 and 523,442 respectively for the
current period. The decline in sales is attributed to a number of factors,
including the slowing economy which has resulted in a reduction in consumer
spending and the Company's efforts to concentrate more on internet and retail
sales and less on wholesale sales. Internet and retail sales for the period have
increased 16% due to an effort to expand its potential customer market. The
Company added Wine Accessories, (including Wine Books, Wine Corkscrews, Wine
Decanters and Wine Racks) and Cigar Accessories (including Cigar Ashtrays, Cigar
Books, Cigar Cutters, Cigar Humidors and Cigar Lighters) to its list of products
carried on its StogiesOnline.com, Inc. CigarCigar.com
(http://www.CigarCigar.com), website. Since employing the Microsoft / Great
Plains eEnterprise system the Company's StogiesOnline.com, Inc. Stogies improved
its gross profit percentage of approximately 21.2% during the six months ended
June 30, 2001 to 32.5% during the six months ended June 30, 2002, resulting in a
consolidated increase of 30% ($39,173) in gross profit for the six months ending
June 30, 2002 compared to June 30, 2001.
On September 28, 2001, the Company created a new Subsidiary named
A1DiscountPerfume Inc. and in October 2001, launched a new e-commerce site
specializing in men's and women's fragrances. The site named
A1DiscountProducts.com is located at http://www.A1DiscountProducts.com. The site
is to
17
be a competitor of other discount as well as full price online retailers of
Perfume and Cologne, as well as exercise and yoga equipment. The site employs
the Microsoft / Great Plains eEnterprise system the Company purchased last year
and will permit customers to benefit by having direct access to up-to-the-minute
information about inventory, pricing, "hot deals" as well as order information.
The eEnterprise system allows A1DiscountProducts.com to inexpensively reach
customers anywhere, around the clock.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased $145,771 to $695,713 in
the six month period ended June 30, 2002 as compared to the same period of the
prior year. This decrease in selling, general and administrative expense
consists primarily of decreases in: salaries and wages - ($58,120); advertising
- ($55,010); consulting - ($20,706); legal and professional - ($7,965); and
postage -($11,799) and increases in - insurance - $25,832 and bad debt -
$13,565. The decrease in salaries and wages includes a decrease due to the
resignation of a Corporate officer, the reduction of staff in the Stogies
division including one wholesale representative, one computer personnel and four
administrative staff, offset by $50,000 in accrued officer salaries as per
employment contact signed January 2002. Advertising decreased due to more
efficient placement and use of internal advertising. Consulting decreased due to
bringing the public relations position in house. The increase in insurance cost
is due in part to the Directors and Officers liability insurance premium
increasing, as well as an additional property insurance policy starting in
February 2001.
Marketable Investment Securities
The Company sold marketable equity securities and recognized realized gain of
$27,852 during the six month period ended June 30, 2002 and $2,300 during the
six month period ended June 30, 2001.
The Company recorded unrealized losses in the amount of ($3,304) during the six
month period ended June 30, 2002 and unrealized losses in the amount of ($1,815)
during the same period of the prior year. Available-for-sale securities are
described in Other Comprehensive Income (below).
Other Income
The Company had income of $8,480 and $54,728 from interest and dividends in the
six month periods ended June 30, 2002 and 2001, respectively. The decrease is
due primarily to lower interest rates and lower balances in interest bearing
money market accounts in 2002.
Income Taxes
The Company's 2001 income tax benefit of $245,600 resulted primarily from the
net operating loss incurred. In 2002, the deferred tax expense consists
primarily of a change in the deferred tax valuation allowance.
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Discontinued Operations
On December 14, 2001, the Company entered into a Stock Purchase agreement with
NYCLE Acquisition Corp to sell its 90% investment in The BroadcastWeb Inc. The
2001 discontinued operations have been restated to segregate the net loss of The
BroadcastWeb of ($106,945) for the six months ended June 30, 2001.
Other Comprehensive Income
During the six months ended June 30, 2002, the Company recorded a decrease in
its net unrealized gain from available-for-sale securities in the amount of
$779,477. The decrease consisted of a decline in market value of $1,244,527 plus
a reclassification adjustment of $5,250 and a decrease in related deferred tax
liability $470,300. Available-for-sale securities consists primarily of SGD
Limited Holdings (SGD) a holding Company principally engaged in acquiring and
developing jewelry related businesses. Our 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 10,200,000 shares held by
the Company 3,941,000 shares valued at $315,280 have been classified as current.
The securities of SGD significantly decreased in value over the past year as a
reflection of the overall market conditions. Due to the size of the Company's
investment and the limited trading volume of SGD as well as other
available-for-sale securities, there can be no assurance that the Company will
realize the value assigned, under Statement of Accounting Standards #115
(Accounting for Certain Investments in Debt and Equity Securities), to these
securities.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
99.1 Certification of Chief Executive Officer
99.2 Certification of Chief Financial Officer
(b) Reports on Form 8-K - None during the current quarter.
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SIGNATURES
In accordance with Section 13 or 15(d) 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: August 14, 2002 By: /s/ Gary Schultheis
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Gary Schultheis,
President and Principal
Financial and Accounting Officer
Date: August 14, 2002 By: /s/ Marissa Dermer
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Marissa Dermer,
Controller