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, 2002
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 - $1,454,193.
As of December 31, 2002 as restated for the reverse stock split, 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, 2002, was
approximately $317,300 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. Business..............................................................2
Item 2. Description of Properties............................................11
Item 3. Legal Proceedings....................................................12
Item 4. Submission of Matters to a Vote of Security Holders..................12
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.............12
Item 6. Management's Discussion and Analysis or Plan or Operation............13
Item 7. Financial Statements.................................................20
Item 8. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure.............................................21
Item 8A. Controls and Procedures..............................................21
PART III
Item 9. Directors, Executive officers, Promoters and Control persons
Compliance with Section 16(a) of the Exchange Act....................21
Item 10. Executive Compensation...............................................24
Item 11. Security Ownership of Certain Beneficial Owners and Management.......25
Item 12. Certain Relationships and Related Transactions.......................26
Item 13. Exhibits and Reports on Form 8-K.....................................26
Item 14. Principal Accountant Fees and Services...............................27
Signatures....................................................................29
Exhibit Index.................................................................30
PART I
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.A1DiscountPerfume.com), and International Internet Venture I, LLC
("Ventures"). The Company previously had a majority interest in The
BroadcastWeb.com, Inc. ("BroadcastWeb") (www.thebroadcastweb.com) which it sold
in 2001 (Note 7 of the financial statements herein). 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. EONE sold The BroadcastWeb as of December 2001.
STOGIESONLINE.COM, INC.
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.
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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
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, 2002, 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.
THE BROADCASTWEB.COM, INC.
BroadcastWeb is an aggregator and broadcaster of streaming media programming on
the Web with the network infrastructure to deliver or "stream" live and
on-demand audio programs over the Internet and Intranets. BroadcastWeb
(www.thebroadcastweb.com) and its five representative sites - BluesBoyMusic.com
(www.bluesboymusic.com), SoulManMusic.com (www.soulmanmusic.com),
JazzManMusic.com (www.jazzmanmusic.com), ClassicRockers (www.classicrockers.com)
and hitmusicradio.com (www.hitmusicradio.com) rely primarily on the leading
provider of streaming media products, Microsoft's Windows Media Player to
license encoders to it in order to broadcast its content and to distribute
player software. Users are able to electronically download copies of Microsoft's
Windows Media Player software free of charge from a wide variety of sources,
including BroadcastWeb and its sites. BroadcastWeb was acquired on June 14, 1999
for $18,000 cash and 300,000 shares of EONE common stock.
On December 14, 2001 EONE entered into a stock purchase agreement with NYCLE
Acquisition Corp (the "Purchaser"), EONE sold, assigned and transferred to the
Purchaser all of the companies shares of the Common Stock of The BroadcastWeb,
representing 1,350 shares or 90% of the total outstanding shares of Common Stock
of The BroadcastWeb. EONE assumed liability for the inter-company payable. The
Purchaser was not liable for any and all outstanding debt, federal, state and
local taxes, but is responsible for all vendor payables.
3
AMERICAN COMPUTER SYSTEMS
American Computer Systems ("ACS") was acquired effective September 30, 1999 for
$150,000 cash and was a wholly-owned subsidiary of EONE through March 31, 2000.
ACS is a full service provider of computer systems and services to the federal
government. ACS focuses on all phases of hardware implementation, including
system engineering, product design, software integration and networking
communications. In November 1997, ACS was awarded its first General Services
Administration (GSA) schedule contract for computer systems and peripherals.
This contract has been extended for five additional years. ACS has concentrated
its efforts on providing the Federal Government best value systems with on-site
service and support as required for both Continental United States and Outside
the Continental United States. American Computer Systems maintains a web site at
(www.acspc.com). EONE determined after several months that the business of ACS
did not meet its business plan requirements and was able to sell 80% of its
investment in ACS for $500,000 in cash, effective March 31, 2000. On September
11, 2001 the Company sold its remaining 20% interest to an ACS officer in
exchange for discharge of any liabilities of ACS.
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.
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
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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 relatively short operating 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
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.
5
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.
WE ARE DEPENDENT ON THE CONTINUED GROWTH OF ONLINE COMMERCE
The business of selling goods over the Internet is new and dynamic. Our future
net revenues and profits will be substantially dependent upon the widespread
acceptance of the Internet and online services as a medium for commerce by
consumers. Rapid growth in the use of and interest in the Internet and online
services is a recent phenomenon. This acceptance and use may not continue. Even
if the Internet is accepted, concerns about fraud, privacy and other problems
may mean that a sufficiently broad base of consumers will not adopt the Internet
as a medium of commerce. Market acceptance for recently introduced services and
products over the Internet is highly uncertain, and there are few proven
services and products.
6
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 a 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;
- the timing of payments to us and of marketing and other expenses under
existing and future contracts;
- consumer trends and popularity of some Goods;
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- 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.
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
8
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
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.
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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
- 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.
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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.
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 Evolve One, Inc.
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ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
None
PART II
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.
OPENING HIGH LOW CLOSING
BID BID BID BID
------- ----- ----- -------
2002 Fourth Quarter .0031 .0034 .0007 .0012
2002 Third Quarter .006 .0079 .0031 .0031
2002 Second Quarter .003 .014 .003 .006
2002 First Quarter .0095 .0095 .0025 .0034
2001 Fourth Quarter .009 .0125 .0061 .009
2001 Third Quarter .017 .019 .007 .01
2001 Second Quarter .03 .031 .01 .017
2001 First Quarter .034 .06 .022 .027
HOLDERS
As of December 31, 2002, 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.
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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, 2002.
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 8,000 $.007
------------
(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.
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,
Stogies and A1Discount Perfume. Stogies is an online distributor and retailer of
brand name premium cigars within the United States. A1Discount Perfume is a
online retailer of premium perfumes and colognes. Stogies became operational in
November 1998 and accounts for substantially all of the sales revenue.
13
CRITICAL ACCOUNTING POLICIES
The Company has identified the policies outlined below as critical to its
business operations and an understanding of its results of operations. The
listing is not intended to be a comprehensive list of all of the Company's
accounting policies. In many cases, the accounting treatment of a particular
transaction is specifically dictated by accounting principles generally accepted
in the United States, with no need for management's judgment in their
application. The impact and any associated risks related to these policies on
the Company's business operations is discussed throughout Management's
Discussion and Analysis or plan of operations where such policies affect the
Company's reported and expected financial results. For a detailed discussion on
the application of these and other accounting policies, see the Notes to
Consolidated Financial Statements. The Company's preparation of the financial
statements requires it to make estimates and assumptions that affect the
reported amount of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the Company's financial statements, and the reported
amounts of revenue and expenses during the reporting period. There can be no
assurance that actual results will not differ from those estimates.
NEW ACCOUNTING STANDARDS
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Correction".
This statement rescinds SFAS No. 4, "Reporting Gains and Losses from
Extinguishments of Debt", and an amendment of that Statement, SFAS No. 64,
"Extinguishments of Debt made to satisfy sinking-fund requirements." This
Statement also rescinds SFAS No. 44, "Accounting for Intangible Assets of Motor
Carriers." Additionally, this Statement amends SFAS No. 13, "Accounting for
Leases", to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions. This Statement also amends other existing authoritative
pronouncements to make various technical corrections, clarify meaning, or
describe their applicability under changed conditions. This Statement will be
effective for the year ended December 31, 2003 and for transactions entered into
after May 15, 2002. It does not appear that this Statement will have a material
effect on the financial position, operations or cash flows of the company.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities". This statement mollifies Emerging Issues Task
Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)". Under Issue 94-3 a liability for an exit
cost was recognized at the date of an entity's commitment to an exit plan. This
Statement requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred. SFAS No. 146 is
effective for exit or disposal activities that are initiated after December 31,
2002, with early application encouraged. It does not appear that this Statement
will have a material effect on the financial position, operations or cash flows
of the Company.
14
In November 2002, the FASB issued Financial Accounting Standard Board
Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"),
which requires a guarantor to recognize a liability for the fair value of the
obligation at the inception of the guarantee. It does not appear that this
Statement will have a material effect on the financial position, operations or
cash flows of the Company.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock Based
Compensation - Transition and Disclosure". This statement amends SFAS No. 123
(same title) and provides alternative methods of transition for voluntary change
to the fair value based method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements in
both annual and interim financial statements related to the methods of
accounting for stock-based employee compensation and the effect of the method on
reported results. The Statement also prohibits the use of the prospective method
of transition, as outlined in SFAS No. 123, when beginning to expense stock
options and change to the fair value based method in fiscal years beginning
after December 15, 2003. As required, the Company adopted the disclosure
requirements of SFAS No. 148 on December 31, 2002.
In January 2003, the FASB issued Interpretation No. 46 - "Consolidation of
Variable Interest Entities". Interpretation No. 46 requires that the assets,
liabilities and results of the activity of variable interest entities be
consolidated into the financial statements of the company that has the
controlling financial interest. Interpretation No. 46 also provides guidance for
determining whether a variable interest entity should be consolidated based on
voting interest or significant financial support provided to it. Interpretation
No. 46 became effective for us on February 1, 2003 for variable interest
entities created prior to February 1, 2003. The adoption of Interpretation No.
46 did not impact our consolidated financial statements.
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 is recorded at cost and is depreciated on a
straight-line basis over the estimated useful lives of such assets. Changes in
circumstances such as technological advances, changes to the Company's business
model or changes in the Company's capital strategy could result in the actual
useful lives differing from the Company's estimates. In those cases where the
Company determines that the useful life of property, plant and equipment should
be shortened, the Company will depreciate the net book value in excess of the
estimated salvage value over its revised remaining useful life.
15
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,
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.
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 $1,880,028 at December 31, 2002. The working capital decrease in the amount
of $1,866,424 consists primarily of decreases in cash in the amount of $789,279,
and marketable securities in the amount of $780,201, and a decrease in current
and deferred income taxes in the amount of $242,400.
During the twelve months ended December 31, 2002 stockholders' equity decreased
$2,732,741, which includes decreases in other comprehensive income in the amount
of $1,100,044, the net loss for the year of $1,535,406, and $97,291 for the
repurchase of 57,861 shares of common stock (See Other Comprehensive Income
below).
16
RESULTS OF OPERATIONS
SALES AND COST OF SALES
Internet and retail sales for the Stogies segment, for the twelve months ended
December 31, 2002 compared to the same period in 2001 increased $99,980 from
$1,296,008 to $1,395,988. Since employing the Microsoft/Great Plains eEnterprise
system the Company's Stogies segment improved its gross profit percentage of
approximately 20.1% during the twelve months ended December 31, 2001 to 34.5%
during the twelve months ended December 31, 2002, resulting in a consolidated
increase of 72% ($200,763) in gross profit for the twelve months ending December
31, 2002 compared to December 31, 2001. The increase in gross profit percentage
is due to better promotions, and a decreased concentration on wholesale sales.
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 A1discountperfume.com is a
competitor of other discount as well as full price online retailers of perfume
and cologne, as well as exercise and yoga equipment. For the twelve months ended
December 31, 2002 compared to the same period in 2001, sales increased $42,690
from $15,515 to $58,205. For the current year A1Discount Perfume, Inc. had a
gross profit percentage of 34.9%. The site employs the Microsoft / Great Plains
eEnterprise system the Company purchased which permits customers to benefit by
having direct access to up-to-the-minute information about inventory, pricing,
"hot deals" as well as order information. The eEnterprise system allows
A1DiscountProducts.com to inexpensively reach customers anywhere, around the
clock.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased $122,504 from $1,662,527
in the twelve months ended December 31, 2001 to $1,540,023 in the twelve month
period ended December 31, 2002. The decrease in selling, general and
administrative expense for the twelve months ended December 31, 2002 consists
primarily of decreases in: salaries and wages - ($54,246); advertising -
($37,631); commissions - ($7,665);depreciation - ($64,021) and postage
-($11,163) and increases in - insurance - $35,934 - and bad debt - $23,088,
legal and professional $21,191 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 $100,000 in accrued officer
salaries as per an employment contract signed in January 2002. Advertising
decreased due to more efficient placement and use of internal advertising. The
increase in insurance cost is due in part to the directors and officers
liability insurance premium increasing, as well as an additional property
insurance policy starting in February 2001. The increase in bad debt is
primarily due to the write off of the note receivable from IBD Vending
($14,945), and the write off of uncollectable wholesale accounts receivable on
the Stogies division. Depreciation changed due to the accelerated methods used
to determine depreciation.
17
MARKETABLE INVESTMENT SECURITIES
The Company sold marketable equity securities and realized a loss of ($12,058)
during the twelve month period ended December 31, 2002 and a 2,300 gain during
the twelve month period ended December 31, 2001.
The Company recorded unrealized losses in the amount of ($4,956) during the
twelve month period ended December 31, 2002 and unrealized losses in the amount
of ($74,500) 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 $14,524 and $78,669 from interest and dividends in the
twelve month period ended December 31, 2002 and 2001, respectively. The decrease
is due primarily to lower interest rates and lower balances in interest bearing
money market accounts in 2002.
INCOME TAXES
The Company had a income tax benefit of $53,506 for the twelve month period
ended December 31, 2001 resulting primarily from the net operating loss
incurred. The deferred tax expense of $439,200 (see other comprehensive income
below) for the twelve months ended December 31, 2002 consists primarily of a
change in the deferred tax valuation allowance.
DISCONTINUED OPERATIONS
On December 14, 2001, the Company entered into a stock purchase agreement with
NYCLE Acquisition Corp to sell its 90% investment in BroadcastWeb. The 2001
financial statements of the Company reflect the net loss from this discontinued
operation of ($204,606) and a loss on disposal of ($177,643).
OTHER COMPREHENSIVE INCOME
During the year ended December 31, 2002, the Company recorded a decrease in its
net unrealized gain from available-for-sale securities in the amount of
$1,100,044. The decrease consisted of a decline in market value of $1,581,244
plus a reclassification adjustment of $42,000 and a decrease in the related
deferred tax liability of $439,200. 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 $197,050 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.
18
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, 2002
and 2001 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, 2002, rather then being included in the accompanying
balance sheet as $505,000 (current $197,000; long-term $308,000) 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.
19
ITEM 7. FINANCIAL STATEMENTS
The Consolidated Financial Statements of Evolve One, Inc., and Subsidiaries, for
the years ended December 31, 2002 and 2001, together with the report thereon of
Goldstein Lewin & Co. dated June 17, 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-7-22
20
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, 2002, 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, 2002. 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 audit 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 audit
provides 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, 2002 and
2001, 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, 2002, and the results of their
operations and their cash flows for the two years in the period ended December
31, 2002 in conformity with U.S. generally accepted accounting principles.
GOLDSTEIN LEWIN & CO.
Boca Raton, Florida
June 17, 2004
F-1
EVOLVE ONE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2002
Assets
Current assets
Cash and cash equivalents ..................................... $ 1,370,983
Accounts receivable ........................................... 40,755
Marketable equity securities .................................. 258,107
Inventory ..................................................... 335,607
Other current assets .......................................... 76,932
-----------
Total current assets ...................................... 2,082,384
Property and equipment, net ..................................... 298,507
Marketable equity securities .................................... 308,000
Other assets .................................................... 11,060
-----------
$ 2,699,951
===========
Liabilities and stockholders' equity
Current liabilities
Accounts payable .............................................. $ 99,748
Accrued liabilities ........................................... 102,608
-----------
Total current liabilities ................................. 202,356
-----------
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 ........................................... (3,860,631)
Accumulated other comprehensive income (loss) ................. (372,148)
-----------
Total stockholders' equity ................................ 2,497,595
-----------
$ 2,699,951
===========
See Notes to the Consolidated Financial Statements.
F-2
EVOLVE ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2002 AND 2001
2002 2001
---- ----
Sales and revenue .................................. $ 1,454,193 $ 1,311,523
Cost of sales ...................................... 1,008,484 1,066,577
----------- -----------
Gross profit ....................................... 445,709 244,946
Selling, general and administrative expense ........ 1,540,023 1,662,527
----------- -----------
Loss from operations ............................. (1,094,314) (1,417,581)
----------- -----------
Other income (expense):
Gain (loss) from sale of marketable equity
securities ...................................... (12,058) 2,300
Gain on the sale of property and equipment ....... 5,436 68
Investment income ................................ 14,524 78,669
Interest expense ................................. (4,838) (7,745)
Equity in net (loss) of affiliated company ....... - (76,291)
Unrealized gain (loss) on marketable equity
securities ...................................... (4,956) (74,500)
----------- -----------
Total other income (expense) ................... (1,892) (77,499)
----------- -----------
Earnings (loss) before income taxes ................ (1,096,206) (1,495,080)
Income tax expense (benefit) ....................... 439,200 (53,506)
----------- -----------
Earnings (loss) from continuing operations ......... (1,535,406) (1,441,574)
----------- -----------
Loss from earnings of a discontinued division ...... - (204,606)
Loss on disposal of division, (less applicable
income tax benefit of $107,100) .................. - (177,643)
----------- -----------
- (382,249)
----------- -----------
Net earnings (loss) ................................ $(1,535,406) $(1,823,823)
=========== ===========
Net earnings (loss) per share
Basic ............................................ $ (0.49) $ (0.46)
=========== ===========
Diluted .......................................... $ (0.49) $ (0.46)
=========== ===========
Discontinued operations .......................... $ - $ (0.12)
=========== ===========
Weighted average number of common shares outstanding
Basic ............................................ 3,129,763 3,153,785
=========== ===========
Diluted .......................................... 3,129,763 3,153,785
=========== ===========
See Notes to the Consolidated Financial Statements.
F-3
EVOLVE ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2002 AND 2001
Accumulated
Other
Common Stock Paid-in Accumulated Comprehensive
Shares Par Value Capital Deficit Income Total
------------ --------- ----------- ----------- ----------- ------------
Balance, January 1, 2001 .............. 788,446,187 $ 7,884 $ 6,819,781 $ (501,402) $ 9,242,296 $ 15,568,559
------------
Effect of January 2003 250:1 reverse
stock split including fractional share
adjustments .......................... (785,292,022) (7,853) 7,853 - - -
------------ ------- ----------- ----------- ----------- ------------
Balance, January 1, 2001, as restated . 3,154,165 31 6,827,634 (501,402) 9,242,296 15,568,559
Comprehensive income (loss):
Unrealized (loss) on available- ... - - - - - -
for-sale securities, net ........ - - - - (8,514,400) (8,514,400)
Net loss .......................... - - - (1,823,823) - (1,823,823)
------------
Total comprehensive income (loss) - - - - - (10,338,223)
------------ ------- ----------- ----------- ----------- ------------
Balance, December 31, 2001 ............ 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
============ ======= =========== =========== =========== ============
See Notes to the Consolidated Financial Statements.
F-4
EVOLVE ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2002 AND 2001
2002 2001
---- ----
Cash flows from operating activities
Net (loss) ......................................... $(1,535,406) $(1,823,823)
Loss from discontinued operation ................... - 382,249
----------- -----------
(Loss) from continuing operations .................. (1,535,406) (1,441,574)
Adjustments to reconcile net (loss) from
continuing operations to net cash (used in)
operating activities:
Depreciation and amortization .................... 165,561 230,944
(Gain) on sale of property and equipment ......... (5,436) (68)
(Gain) loss on marketable equity securities ...... 12,058 (2,300)
Unrealized loss on marketable equity securities .. 4,956 74,500
Proceeds from sale of marketable equity
securities ...................................... - 5,642
Deferred income taxes ............................ 439,200 (54,800)
Net change in operating assets of discontinued
operations ...................................... - (80,790)
Decrease (increase) in assets:
Accounts receivable ............................ (5,631) 29,824
Inventory ...................................... (66,807) 314,624
Other assets ................................... 124,376 117,317
Increase (decrease) in liabilities:
Accounts payable ............................... 53,763 (43,670)
Accrued expenses ............................... 97,806 (33,896)
----------- -----------
Net cash (used in) operating activities ............ (715,560) (884,247)
----------- -----------
Cash flows from investing activities
Capital expenditures ............................. (22,908) (117,545)
Purchase of marketable equity securities ......... - (9,000)
Loss from sale of equity investment .............. - 76,291
Proceeds from sale of property and equipment ..... 7,500 -
Proceeds from sale of marketable equity
securities ...................................... 187,943 5,841
----------- -----------
Net cash provided by (used in) investing activities 172,535 (44,413)
----------- -----------
Continued
See Notes to the Consolidated Financial Statements.
F-5
EVOLVE ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2002 AND 2001
(Continued)
2002 2001
---- ----
Cash flows from financing activities
Repurchase of treasury stock ..................... $ (97,291) $ -
Loan repayment ................................... (157,963) (91,054)
----------- -----------
Net cash (used in) financing activities ............ (255,254) (91,054)
----------- -----------
Net cash (used in) continuing operations ........... (798,279) (1,019,714)
Net cash (used in) discontinued operations ......... - (204,606)
----------- -----------
Net (decrease) in cash and cash equivalents ........ (798,279) (1,224,320)
Cash and cash equivalents, beginning of period ..... 2,169,262 3,393,582
----------- -----------
Cash and cash equivalents, end of period ........... $ 1,370,983 $ 2,169,262
=========== ===========
Supplemental cash flow information
Cash paid for interest ............................. $ 4,838 $ 7,745
=========== ===========
Supplemental schedule of noncash investing and
financing activities
Insurance financing ................................ $ 157,963 $ 91,054
=========== ===========
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
DiscountPerfume") (www.A1DiscountProducts.com), and International Internet
Venture I, LLC ("Ventures"). The Company previously had a majority interest in
The BroadcastWeb.com, Inc. ("BroadcastWeb") (www.thebroadcastweb.com) which it
sold in 2001(Note 7). EONE, through its Ventures division, owns an equity
interest in several companies, some of which are classified as trading
securities and some of which are classified as available-for-sale securities.
EONE was incorporated in Delaware on June 21, 1994.
Stogies became an online distributor and retailer of brand name premium cigars
within the United States on November 18, 1998. Stogies' products consist of
premium cigars, factory brand name seconds and mass market cigars, which are
distributed online to retail and wholesale customers.
On September 28, 2001, the Company created a new subsidiary named A1Discount
Perfume, Inc. and in October 2001, launched a new e-commerce site specializing
in men's and women's fragrances. The site named A1DiscountProducts.com is a
competitor of other discount as well as full price online retailers of perfume
and cologne, and has recently expanded into yoga products, office accessories,
and cigar accessories. The site employs the Microsoft / Great Plains eEnterprise
system which permits customers to benefit by having direct access to
up-to-the-minute information about inventory, pricing, "hot deals" as well as
order information. The eEnterprise system allows A1 Discount Perfume to
inexpensively reach customers anywhere, around the clock.
Certain reclassifications of the amounts presented for the comparative period
have been made to conform to the current presentation.
NEW ACCOUNTING STANDARDS
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Correction".
This statement rescinds SFAS No. 4, "Reporting Gains and Losses from
Extinguishments of Debt", and an amendment of that Statement, SFAS No. 64,
"Extinguishments of Debt made to satisfy sinking-fund requirements." This
Statement also rescinds SFAS No. 44, "Accounting for Intangible Assets of Motor
Carriers." Additionally, this Statement amends SFAS No. 13, "Accounting for
Leases", to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions. This Statement also amends other existing authoritative
pronouncements to make various technical corrections, clarify
F-7
EVOLVE ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
meaning, or describe their applicability under changed conditions. This
Statement will be effective for the year ended December 31, 2003 and for
transactions entered into after May 15, 2002. It does not appear that this
Statement will have a material effect on the financial position, operations or
cash flows of the company.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities". This statement mollifies Emerging Issues Task
Force (EITF) Issue NO. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)". Under Issue 94-3 a liability for an exit
cost was recognized at the date of an entity's commitment to an exit plan. This
Statement requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred. SFAS No. 146 is
effective for exit or disposal activities that are initiated after December 31,
2002, with early application encouraged. It does not appear that this Statement
will have a material effect on the financial position, operations or cash flows
of the Company.
In November 2002, the FASB issued Financial Accounting Standard Board
Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"),
which requires a guarantor to recognize a liability for the fair value of the
obligation at the inception of the guarantee. It does not appear that this
Statement will have a material effect on the financial position, operations or
cash flows of the Company.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock Based
Compensation - Transition and Disclosure". This statement amends SFAS No. 123
(same title) and provides alternative methods of transition for voluntary change
to the fair value based method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements in
both annual and interim financial statements related to the methods of
accounting for stock-based employee compensation and the effect of the method on
reported results. The Statement also prohibits the use of the prospective method
of transition, as outlined in SFAS No. 123, when beginning to expense stock
options and change to the fair value based method in fiscal years beginning
after December 15, 2003. As required, the Company adopted the disclosure
requirements of SFAS No. 148 on December 31, 2002.
In January 2003, the FASB issued Interpretation No. 46 - "Consolidation of
Variable Interest Entities". Interpretation No. 46 requires that the assets,
liabilities and results of the activity of variable interest entities be
consolidated into the financial statements of the company that has the
controlling financial interest. Interpretation No. 46 also provides guidance for
determining whether a variable interest entity should be consolidated based on
voting interest or significant financial support provided to it. Interpretation
No. 46 became effective for us on February 1, 2003 for variable interest
entities created prior to February 1, 2003. The adoption of Interpretation No.
46 did not impact our consolidated financial statements.
F-8
EVOLVE ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 inter-company 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.
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.
F-9
EVOLVE ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2002 and 2001 amounted to $164,190 and $202,211,
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.
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 year ending December 31,
2002, excludes 8,000 common shares issuable pursuant to outstanding options.
These shares were excluded because their affect was anti-dilutive.
F-10
EVOLVE ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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, 2002 and 2001 amounted to $100,144 and
$137,776, respectively.
SHIPPING AND HANDLING
The Company's shipping and handling costs are included under Cost of Sales.
F-11
EVOLVE ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
NOTE 2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 2002:
Lives
In Years
--------
Furniture .......................... $ 48,310 7
Equipment .......................... 720,556 5
Leasehold Improvements ............. 67,337 10
--------
836,203
Less: Accumulated Depreciation .... 537,696
--------
$298,507
========
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-12
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, 2002 are as follows:
2002
----
Trading securities:
Cost .................................................... $ 10,572
Unrealized (loss) ....................................... (8,921)
---------
1,651
Available-for-sale securities:
Cost .................................................... 936,604
Unrealized loss ......................................... (372,148)
---------
564,456
566,107
Marketable equity securities classified as current ............... 258,107
---------
Marketable equity securities classified as non-current ........... $ 308,000
=========
Gains (losses) from trading securities that were included in earnings for the
years ended December 31, 2002 and 2001 were as follows:
2002 2001
---- ----
Realized gain (loss) ..................... $(12,058) $ 2,300
======== ========
Unrealized (loss) ........................ $ (4,956) $(74,500)
======== ========
The change in unrealized losses from available-for-sale securities included as a
component of equity for the year ended December 31, 2002 were as follows:
2002
----
Unrealized (loss) ............................................ $(1,539,244)
Deferred income tax benefit .................................. 439,200
-----------
Change in accumulated other comprehensive (loss) ............. $(1,100,044)
===========
F-13
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, 2002 of $505,000 ($.05 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, 2002
and 2001 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, 2002, rather then being included in the accompanying
balance sheet as $505,000 (current $197,000; long-term $308,000) 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, 2002:
Accumulated other comprehensive income at 12/31/01: . $ 727,896
Unrealized (loss) from marketable equity securities . $(1,581,244)
Reclassification adjustment ......................... 42,000
-----------
Net unrealized (loss) from marketable equity
securities ......................................... (1,539,244)
Deferred income tax benefit ......................... 439,200
-----------
Accumulated other comprehensive (loss) .............. $ (372,148)
===========
F-14
EVOLVE ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company has entered into two non-cancelable leases in Boca Raton, Florida.
The leases provide for base monthly rentals of $7,114 plus the Company's
proportionate share of certain expenses with 5% annual increases through June
30, 2003.
Minimum future obligations over the term of the leases are as follows:
YEAR ENDED DECEMBER 31,
-----------------------
2003 $ 44,102
Rent expense for the years ended December 31, 2002 and 2001 aggregated $87,021
and $83,459 respectively.
LITIGATION
The Company is periodically involved in legal actions and claims that arise as a
result of events that occur in the normal course of operations. The ultimate
resolution of these actions is not expected to have a material adverse effect on
the Company's financial position.
NOTE 6. INCOME TAXES
The components of income tax expense for continuing operations are as follows
for the year ended December 31, 2002 and 2001:
2002 2001
---- ----
Current tax expense (benefit):
Federal ........................................ $ - $ 1,294
State .......................................... - -
-------- --------
- 1,294
Deferred tax expense (benefit) .................... 439,200 (54,800)
-------- --------
Total income tax expense (benefit) ............. $439,200 $(53,506)
======== ========
F-15
EVOLVE ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 year ended December 31,
2002 and 2001:
2002 2001
---- ----
"Normally expected" income tax expense (benefit) ... $ (372,700) $(508,006)
Increase (decrease) in taxes resulting from:
State income taxes, net of Federal income
tax benefit ...................................... (39,800) (53,300)
Other .............................................. (292,600) (11,700)
Change in valuation allowance ...................... 1,144,300 519,500
----------- ---------
$ 439,200 $ (53,506)
=========== =========
The deferred income tax liabilities (assets) at December 31, 2002 are comprised
of the following:
CURRENT NONCURRENT
------- ----------
Unrealized loss on trading securities ............... $ (3,400) $ -
Unrealized loss on available-for-sale securities .... (63,600) (76,300)
Net operating loss .................................. (1,227,700) -
Capital loss ........................................ (294,800) -
Asset basis ......................................... - 2,000
----------- --------
Total deferred income tax liabilities (assets) ... (1,589,500) (74,300)
Valuation allowance .............................. 1,589,500 74,300
----------- --------
Net deferred income tax liabilities (assets) ........ $ - $ -
=========== ========
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, 2002 and 2001 was $1,144,300
and $519,500 respectively. Management utilizes tax planning strategies and
projected future taxable income in assessing these assets.
F-16
EVOLVE ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has net operating loss carryforwards as of December 31, 2002,
approximating $3,263,000 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 1,070,000
-----------
$ 3,263,000
===========
The Company has net capital loss carryforwards as of December 31, 2002,
approximating $784,000 for federal and state income tax purposes, which expire
as follows:
AVAILABLE
YEAR OF ORIGINATION EXPIRING LOSS CARRYFORWARD
------------------- -------- -----------------
2001 2006 $ 777,000
2002 2007 7,000
-----------
$ 784,000
===========
F-17
EVOLVE ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. DISCONTINUED OPERATIONS
In December 1999, the Company reached an agreement to sell 80% of its wholly
owned subsidiary ACS to an ACS officer for $500,000. On September 11, 2001 the
Company sold its remaining 20% interest to an ACS officer in exchange for
discharge of any liabilities of ACS.
On December 14, 2001 the Company entered into a stock purchase agreement with
NYCLE Acquisition Corp ("the Purchaser") to sell the Company's interest in
BroadcastWeb (an aggregator and broadcaster of streaming media programming on
the Web). The Company sold, transferred and assigned to the Purchaser all of its
shares of the common stock of BroadcastWeb, representing 1,350 shares of the
1,500 outstanding shares of the common stock of BroadcastWeb. Pursuant to the
stock purchase agreement, the Company assumed liability for the outstanding
inter-company payable, the Purchaser is not responsible for any outstanding
debt, federal, state, and local taxes but is responsible for all vendor
payables.
Following is summarized financial information for the discontinued operations
during the twelve months ended December 31, 2001, including expenses associated
with the divestiture:
2001
----
Net sales - ACS ................................................ $ -
Net sales - BroadcastWeb ....................................... 8,430
---------
Net sales - Total .............................................. $ 8,430
=========
Net loss from discontinued operations - ACS .................... $ -
Net loss from discontinued operations - BroadcastWeb ........... (204,606)
---------
Net loss from discontinued operations .......................... (204,606)
---------
Loss on sale- net of income taxes of ($107,100) BroadcastWeb ... (177,643)
Gain on sale - net of income taxes of ($73,400) ACS
Net gain (loss) on sale ........................................ (177,643)
---------
Net (loss) from discontinued operations ........................ $(382,249)
=========
Net earnings (loss) per common share:
Basic .......................................................... $ 0.00
=========
Diluted ........................................................ $ 0.00
=========
F-18
EVOLVE ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. 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.
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 than 10% of the Company's common stock for which the exercise price
must be at least 110% of such fair market value. Non-statutory options must
provide for an exercise price of not less than 85% of the fair market value. The
Plan was approved by the shareholders at a meeting on November 11, 1999.
The Company applied Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized for the incentive stock options granted to employees under
its stock option plan in its statements of operations. During 2002, the Company
granted nonqualified options outside of the Plan to Directors to purchase 8,000
shares of common stock. The stock options, expiring January 3, 2007, have an
exercise price of $.007 per share and vest immediately. The Company did not
grant any options during the year ended December 31, 2001.
F-19
EVOLVE ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the status of the Company's stock options as of December 31, 2002
and the changes during the years ended December 31, 2002 and 2001 is presented
below:
WEIGHTED
AVERAGE
SHARES PRICE
------ -----
Beginning Balance, January 1, 2001 ......... - $ -
Options granted ............................ - -
Options exercised .......................... - -
Options cancelled .......................... - -
----- -----
Ending Balance, December 31, 2001 .......... - $ -
----- -----
Options granted ............................ 8,000 $.007
Options exercised .......................... - -
Options cancelled .......................... - -
----- -----
Ending Balance, December 31, 2002 .......... 8,000 $.007
===== =====
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 ................................ 4.93%
Expected Dividend Yield ................................ 0%
Expected Option Life ................................... 5 years
Expected Stock Price Volatility ........................ 138%
F-20
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, 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)
Loss from
continuing
operations . (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
For the twelve months ended December 31, 2001, the Company operated in the
following segments, none of which have inter-segment revenues:
A1DISCOUNT
VENTURES STOGIES CORPORATE PERFUME CONSOLIDATED
-------- ------- --------- ------- ------------
Revenue $ - $1,296,008 $ - $ 15,515 $ 1,311,523
Operating
Loss ....... (49,115) (658,122) (699,803) (10,541) (1,417,581)
Other income
(expense) .. (145,454) 68 67,887 - (77,499)
Loss from
continuing
operations . (65,169) (413,453) (956,410) (6,542) (1,441,574)
Assets ..... $2,161,708 773,321 $ 2,589,022 (528) 5,523,523
F-21
EVOLVE ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 primarily of cash. Interest expense is allocated to the
other segments to the extent it exceeds interest income.
NOTE 11. SUBSEQUENT EVENTS
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.
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-22
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.
PART III
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 for 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. Mr. Schultheis attended the State University of New York at
Farmingdale in 1984. 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, Inc.
21
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
OnSpan Networking, Inc., a related party, 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 controller for the Company. 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. From 1990
to 1997, Ms. Dermer was a manager of David Berdon and Company LLP, a leading
public accounting firm headquartered in New York City. Ms. Dermer graduated in
1990 from the State University of New York at Albany with a degree in
Business/Accounting. Ms. Dermer is the Treasurer, Chief Financial Officer and a
Director of OnSpan Networking, Inc., a related party.
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,
Incorporated, 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.
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;
22
- 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.
Our Code of Business Conduct and Ethics is filed herewith with the Securities
and Exchange Commission as Exhibit 14 to this annual report. We will provide a
copy of the Code of Business Conduct and Ethics to any person without charge,
upon request. Requests can be sent to: Evolve One, Inc., 6413 Congress Avenue,
Suite 230, Boca Raton, FL 33487
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
NONE.
SEC COMMUNICATIONS
In a letter dated September 5, 2002, the staff of the Southeast Regional Office
(the "Staff") of the Securities and Exchange Commission ("SEC") informed EONE
that the Staff intends to recommend that the SEC pursue a federal injunctive
action against EONE for violations of the antifraud provisions of the federal
securities laws. Since receiving the letter, which did not explain the basis for
the Staff's recommendation, EONE has met with the Staff twice to discuss the
matter, and has been informed that the potential charges relate to two press
releases issued by EONE in March 2000. The Staff indicated
23
that EONE may submit a written statement explaining why it believes the SEC
should not accept the Staff's recommendation. EONE had determined not to submit
such a statement at this time. EONE also was informed that the Staff intends to
recommend similar charges against EONE's principal shareholders, Gary Schultheis
and Herbert Tabin, based on the same press releases and transactions in the
securities of other companies.
Also see Note 11 to the Financial Statements.
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 $100,000, for
the three fiscal years ended December 31, 2002. The Company has no long-term
compensation plans.
NAME AND FISCAL OTHER ALL
PRINCIPAL YEAR ANNUAL OTHER
POSITION ENDED SALARY ($) BONUS ($) COMPENSATION COMPENSATION
-------- ----- ---------- --------- ------------ ------------
Gary Schultheis 12/31/02 $ 105,572 $ - N/A N/A
12/31/01 $ 105,572 $ - N/A N/A
12/31/00 $ 99,706 $ 36,124 N/A N/A
Herbert Tabin 12/31/02 $ 105,572 $ - N/A N/A
12/31/01 $ 105,052 $ - N/A N/A
12/31/00 $ 99,216 $ 36,124 N/A N/A
In 2002 the Company accrued $100,000 in salaries in accordance with the
employment agreement signed January 3, 2002 with its President and Director of
Marketing, see Employment Contracts below.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (NUMBER) FISCAL YEAR ($/SHARE) DATE
---- ---------------- ----------- --------- ----
Gary Schultheis 4,000 50% .007 1/3/07
Herbert Tabin 4,000 50% .007 1/3/07
24
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 each, which will 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, 2002, 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, 2002, there were 3,104,304 (1) shares as restated of the Company's
common stock outstanding.
NAME AND ADDRESS AMOUNT AND NATURE
TITLE OF BENEFICIAL OF BENEFICIAL % OF
OF CLASS OWNER OWNER CLASS
-------- ----- ----- -----
Common Gary Schultheis (2) 1,024,137 32.99%
6413 Congress Ave, Suite 240
Boca Raton, FL 33487
Common Herbert Tabin (3) 1,022,499 32.93%
6413 Congress Ave, Suite 240
Boca Raton, FL 33487
Common All directors and executive 2,046,636 65.92%
officers as a group (two persons)
25
(1) This amount includes options to acquire an aggregate of 8,000 common shares
of stock at an exercise price of $.007 per share.
(2) This amount includes options to acquire 4,000 common shares of stock at an
exercise price of $.007 per share.
(3) This amount includes options to acquire 4,000 common shares of stock at an
exercise price of $.007 per share.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
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 November18, 2002
21 Subsidiaries of Evolve One, Inc.
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
26
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, 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.
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, 2001 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, 2001 were $68,367.
AUDIT RELATED FEES
For the fiscal years ended December 31, 2002 and 2001, 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, 2002 and 2001 the aggregate fees billed
for tax compliance, tax advice and tax planning, include the preparation of
federal and state corporate income tax returns. The aggregate tax fees billed to
Evolve One by Goldstein Lewin & Co. for the fiscal years ended December 31, 2002
and 2001 were approximately $5,500 and 4,245, 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, 2002 and 2001.
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
27
* 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.
28
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: August 27,2004 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: August 27, 2004 By: /s/ Gary Schultheis
-------------------
Gary Schultheis,
Director
Date: August 27, 2004 By: /s/ Herbert Tabin
------------------
Herbert Tabin,
Director
Date: August 27, 2004 By: /s/ Martin Scott
----------------
Martin Scott,
Director
29
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
14 Evolve One, Inc. Code of Business Conduct
and Ethics Adopted by the Board of Directors
On November 18, 2002
21 Subsidiaries of Evolve One, Inc.
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
30