UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2006
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT
For the transition period from ____ to _______
Commission File Number: 0-26415
EVOLVE ONE, INC.
(Exact name of small business issuer as specified in charter)
DELAWARE 13-3876100
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5301 North Federal Highway, Suite 120, Boca Raton, Florida 33487
(Address of principal executive offices)
(561) 989-9171
(Issuer's telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes[x] No [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes[X] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 526,120 shares at July 24, 2006
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [x]
EVOLVE ONE, INC. AND SUBSIDIARIES
FORM 10-QSB
QUARTERLY PERIOD ENDED JUNE 30, 2006
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1.Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheet as of June 30, 2006 (unaudited)....3
Condensed Consolidated Statements of Operations for the three
months and six months ended June 30, 2006 and 2005 (audited)...4
Condensed Consolidated Statements of Cash Flows for the six
months ended June 30, 2006 and 2005 (unaudited)................5
Notes to Condensed Consolidated Financial Statements.(unaudited)........6
Item 2.Management's Discussion and Analysis or Plan of Operations.............13
Item 3.Controls and Procedures................................................16
PART II - OTHER INFORMATION
Item 1.Legal Proceedings......................................................17
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds............17
Item 3.Default Upon Senior Securities.........................................17
Item 4.Submission of Matters to a Vote of Security Holders....................17
Item 5.Other Information......................................................17
Item 6.Exhibits...............................................................17
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Certain statements in this quarterly report contain or may contain
forward-looking statements that are subject to known and unknown risks,
uncertainties and other factors which may cause actual results, performance or
achievements to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. These
forward-looking statements were based on various factors and were derived
utilizing numerous assumptions and other factors that could cause our actual
results to differ materially from those in the forward-looking statements. These
factors include, but are not limited to, our ability to consummate a business
combination with an operating entity, economic, political and market conditions
and fluctuations, U.S. and global competition, and other factors. Most of these
factors are difficult to predict accurately and are generally beyond our
control.
You should consider the areas of risk described in connection with any
forward-looking statements that may be made in this quarterly report. Readers
are cautioned not to place undue reliance on these forward-looking statements
and readers should carefully review this quarterly report in its entirety.
Except for our ongoing obligations to disclose material information under the
Federal securities laws, we undertake no obligation to release publicly any
revisions to any forward-looking statements, to report events or to report the
occurrence of unanticipated events. These forward-looking statements speak only
as of the date of this quarterly report, and you should not rely on these
statements without also considering the risks and uncertainties associated with
these statements and our business.
When used in this quarterly report, the terms "Evolve One," " we,"
"our," and "us" refers to Evolve One, Inc. a Delaware corporation, and our
subsidiaries. All share and per share information contained in this annual
reports gives effect to the 100 for 1 (100:1) reverse stock split effective
June 28, 2006 and a one for eight (1:8) forward stock split effective December
3, 2004.
-2-
Part I - Financial Information
Item 1. Condensed Consolidated Financial Statements
EVOLVE ONE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2006
(UNAUDITED)
ASSETS
TOTAL ASSETS $ -
===============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable $ 17,889
---------------
Total Current Liabilities 17,889
===============
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY
Cumulative convertible preferred stock, $0.0001 par value,
10,000,000 shares authorized, none issued and outstanding -
Common stock, $0.0001 par value, 1,000,000,000 shares
authorized, 526,120 shares issued and outstanding 53
Additional paid in capital 8,183,398
Accumulated deficit (8,201,340)
--------------
Total Stockholders' Deficiency ( 17,889)
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ -
=================
See accompanying notes to condensed consolidated financial statements
-3-
EVOLVE ONE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
------------------------------------------------
For the Three For the Three For the Six For the Six
Months Ended Months Ended Months Ended Months Ended
June 30, 2006 June 30, 2005 June 30, 2006 June 30, 2005
----------------- ---------------- ----------------- ---------------
SALES AND REVENUE $ - $ - $ - $ -
COST OF SALES - - - -
----------------- ---------------- ----------------- ---------------
GROSS PROFIT - - - -
----------------- ---------------- ----------------- ---------------
OPERATING EXPENSES
Stock compensation expense - 188,635 - 220,051
Impairment - 130,776 - 130,776
Selling, general and administrative expenses 35,556 5,304 82,626 105,628
----------------- ---------------- ----------------- ---------------
Total Operating Expenses 35,556 324,715 82,626 456,455
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES $ (35,556) (324,715) (82,626) (456,455)
----------------- ---------------- ----------------- ---------------
Provision for Income Taxes - - - -
----------------- ---------------- ----------------- ---------------
NET LOSS FROM CONTINUING OPERATIONS (35,556) (324,715) (82,626) (456,455)
LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX - (151,649) - (317,915)
----------------- ---------------- ----------------- ---------------
NET LOSS $ (35,556) $ (476,364) $ (82,626) $ (774,370)
================= ================ ================= ===============
LOSS PER COMMON SHARE - BASIC AND DILUTED
Loss from continuing operations $ (.07) $ (1.04) $ (.16) $ (1.64)
Loss from discontinued operations - (.48) - (1.15)
----------------- ---------------- ----------------- ---------------
Net loss per share - basic and diluted $ (.07) $ (1.52) $ (.16) $ (2.79)
================= ================ ================= ===============
Weighted average number of shares outstanding
during the period - basic and diluted 526,120 312,923 526,120 278,048
================= ================ ================= ===============
See accompanying notes to condensed consolidated financial statements.
-4-
EVOLVE ONE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005
(UNAUDITED)
---------------------------------------------------
For the Six For the Six
Months Ended Months Ended
June 30, 2006 June 30, 2005
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss from discontinued operations - (456,455)
Loss from continuing operations (82,626) (317,915)
Provisions for doubtful accounts - 10,000
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization - 34,337
In-kind contribution 66,907 -
Impairment - 130,776
Stock issued for services - 220,051
Changes in operating assets and liabilities:
Increase (decrease) in:
Accounts payable 13,755 (64,731)
Other assets - 13,676
Discontinued operations, net - 51,750
------------------ ------------------
Net Cash Used In Operating Activities (1,964) (378,511)
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES - -
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock - 240,700
Proceeds from loan payable - 100,000
------------------ ------------------
Net Cash Provided By Financing Activities - 340,700
------------------ ------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,964) (37,811)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,964 176,924
------------------ ------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ - $ 139,113
================== ==================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes $ - $ -
================== ==================
Cash paid for interest expense $ - $ -
================== ==================
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES
AND FINANCING ACTIVITIES
During fiscal 2005, a stockholder converted $100,000 in loans payable to common
stock.
See accompanying notes to condensed consolidated financial statements.
-5-
EVOLVE ONE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2006
(UNAUDITED)
NOTE 1 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) ORGANIZATION
Evolve One, Inc. (the "Company" or "EONE") was incorporated in Delaware on June
21, 1994. The company was a diversified holding company that developed and
operated Internet and direct retail marketing companies. The Company's operating
subsidiaries included A1DiscountProducts.com, StogiesOnline.com, Inc.
("Stogies"), an online distributor of brand name premium cigars and accessories,
AuctionStore.com Inc. ("Auctionstore"), an eBay(R) Trading Assistant and
Internet-based seller of consigned merchandise, AuctionStore Franchise Corp.
("Franchise"), a subsidiary formed to market and service AuctionStore franchises
and International Internet Venture I, LLC (Ventures"), a company that from time
to time owned an equity interest in several companies. As of December 31, 2005,
the Company decided to discontinue the operations of all its operating
subsidiaries and has classified these operations as discontinued (See Note 4).
The financial statements included in this report have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission for interim reporting and include all adjustments (consisting only of
normal recurring adjustments) that are, in the opinion of management, necessary
for a fair presentation.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations for
interim reporting. The Company believes that the disclosures contained herein
are adequate to make the information presented not misleading. However, these
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company's Annual Report for the year ended
December 31, 2005, which is included in the Company's Form 10-KSB for the year
ended December 31, 2005. The financial data for the interim periods presented
may not necessarily reflect the results to be anticipated for the complete year.
Certain reclassifications of the amounts presented for the comparative period
have been made to conform to the current presentation.
(B) ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
(C) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, Auctionstore.com, Inc., Stogies Online, Inc.,
International Internet Venture I, LLC, and Auctionstore Franchise Corp. All
significant intercompany balances and transactions have been eliminated in
consolidation.
-6-
EVOLVE ONE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2006
(UNAUDITED)
(D) CASH AND CASH EQUIVALENTS
For purposes of the cash flow statements, the Company considers all highly
liquid investments with original maturities of three months or less at the time
of purchase to be cash equivalents.
(E) 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 three months and six
months ended June 30, 2006 and 2005 excludes 851,460 and 728,960 stock options
and warrants, respectively. These shares were excluded because their effect was
anti-dilutive.
(F) REVENUE RECOGNITION
Revenue from sales of cigars, perfume and cologne, and auction items over the
Internet, is recognized upon shipment. Provision is made at the time the related
revenue is recognized for estimated product returns.
(G) INCOME TAXES
The Company accounts for income taxes under the Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("Statement 109").
Under Statement 109, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under
Statement 109, the effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date.
(H) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of accounts payable approximates 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.
(I) 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.
-7-
EVOLVE ONE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2006
(UNAUDITED)
(J) STOCK COMPENSATION EXPENSE
In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS
No. 123(R), "Share-Based Payment," which replaces SFAS No. 123 and supersedes
APB Opinion No. 25. Under SFAS No. 123(R), companies are required to measure the
compensation costs of share-based compensation arrangements based on the
grant-date fair value and recognize the costs in the financial statements over
the period during which employees are required to provide services. Share-based
compensation arrangements include stock options, restricted share plans,
performance-based awards, share appreciation rights and employee share purchase
plans. In March 2005 the SEC issued Staff Accounting Bulletin No. 107 (SAB 107).
SAB 107 expresses views of the staff regarding the interaction between SFAS No.
123(R) and certain SEC rules and regulations and provides the staff's views
regarding the valuation of share-based payment arrangements for public
companies. SFAS No. 123(R) permits public companies to adopt its requirements
using one of two methods. On April 14, 2005, the SEC adopted a new rule amending
the compliance dates for SFAS 123R. Companies may elect to apply this statement
either prospectively, or on a modified version of retrospective application
under which financial statements for prior periods are adjusted on a basis
consistent with the pro forma disclosures required for those periods under SFAS
123. Effective January 1, 2006, the Company has fully adopted the provisions of
SFAS No. 123(R) and related interpretations as provided by SAB 107. As such,
compensation cost is measured on the date of grant at their fair value. Such
compensation amounts, if any, are amortized over the respective vesting periods
of the option grant. The Company applies this statement prospectively.
(K) RECLASSIFICATIONS
The Company has reclassified a correction of the par value applied to common
stock to additional paid-in capital on its Condensed Consolidated Balance Sheet
as of June 30, 2006 (unaudited).
(L) RECENT ACCOUNTING PRONOUNCEMENTS
SFAS 155, Accounting for Certain Hybrid Financial Instruments and SFAS 156,
Accounting for Servicing of Financial Assets were recently issued. SFAS 155 and
156 have no current applicability to the Company and have no effect on the
financial statements.
NOTE 2 CAPITAL STOCK
(A) CONTRIBUTION TO CAPITAL OF LIABILITIES TO DIRECTORS/SHAREHOLDERS
For the six months ended June 30, 2006, the Company recorded an in kind
contribution of $7,500 for services contributed by its former President and
$7,500 for services contributed by its current President and sole Director. In
addition a related party paid $51,907 of expenses on behalf of the Company.
-8-
EVOLVE ONE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2006
(UNAUDITED)
NOTE 2 CAPITAL STOCK (CONTINUED)
(B) PREFERRED STOCK
The Company has 10,000,000 shares of cumulative convertible preferred stock (par
value $.0001) authorized at June 30, 2006. The Board has the authority to issue
the shares in one or more series and to fix the designation, preferences, powers
and other rights, as it deems appropriate. At June 30, 2006 there were no shares
issued or outstanding.
(C) REVERSE STOCK SPLIT
On May 25, 2006, the Company's stockholders approved a 100 for 1 reverse stock
split for its common stock, effective on the close of business on June 28, 2006.
As a result, stockholders of record at the close of business on June 28, 2006,
received one share of common stock for every 100 shares held. Common stock,
additional paid-in capital and share and per share data for prior periods have
been restated to reflect the reverse stock split as if it had occurred at the
beginning of the earliest period presented.
NOTE 3 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 1,000,000 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. These options were granted in accordance with
employment agreements. 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 through December 31, 2005 and has
adopted the provisions of SFAS 123(R) as of January 1, 2006. 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 prior to
January 1, 2006. During 2005, the Company amended its stock option Plan to
increase the number of shares covered by the Plan from 8,000,000 shares (giving
effect to the 1:8 forward stock split effective December 3, 2004) to 100,000,000
shares of common stock. The Company has not issued any stock options in 2006 and
all options issued prior to December 31, 2005 have been fully vested.
A summary of the status of the Company's stock options as of June 30, 2006 and
the changes during the quarter ended June 30, 2006 is presented below:
-9-
EVOLVE ONE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2006
(UNAUDITED)
NOTE 3 STOCK OPTIONS (CONTINUED)
Weighted
Shares Average Price
Ending Balance, December 31, 2005 851,460 $28.50
Options granted - -
Options exercised - -
Options cancelled - -
---------- --------
Ending Balance, June 30, 2006 851,460 $28.50
=========== ========
Options exercisable at period end 851,460
==========
Weighted average fair value of options
granted to employees during the year - $ -
========== =======
As of June 30, 2006
Options Outstanding Options Exercisable
-------------------- -------------------
Number
Average Weighted Weighted Number Weighted
Outstanding at Remaining Average Exercisable Average
Range of June 30, Contractual Exercise at June Exercise
Exercise Price 2006 Life Price 30, 2006 Price
---------------------------------------------------------------------------------------------
$.0125 - $56.25 851,460 6.89 $28.50 851,460 $28.50
As of June 30, 2005
Number
Average Weighted Weighted Number Weighted
Outstanding at Remaining Average Exercisable Average
Range of June 30, Contractual Exercise at June Exercise
Exercise Price 2005 Life Price 30, 2005 Price
---------------------------------------------------------------------------------------------
$.0125 - $56.25 728,960 7.55 $29.00 728,960 $29.00
During the six months ended June 30, 2005, the Company granted 70,000,000 stock
options to employees. The Company applies APB Opinion No. 25 and related
interpretations in accounting for stock options issued to employees. Had
compensation cost been determined based on the fair market value at the grant
date, consistent with SFAS 123, the Company's net income (loss) would have
changed to the pro-forma amounts indicated below.
-10-
EVOLVE ONE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2006
(UNAUDITED)
-----------------------------------------------------
NOTE 3 STOCK OPTIONS (CONTINUED)
For the Six Months
Ended June 30, 2005
Net loss available to
common stockholders As Reported $( 774,370)
Pro Forma $( 8,996,023)
Basic and diluted loss
per share As Reported $ (3.00)
Pro Forma $ (32.00)
NOTE 4 DISCONTINUED OPERATIONS
As of December 31, 2005, the Company had discontinued all operations in all of
its subsidiaries. Accordingly, all prior year amounts have been reclassified to
conform to this presentation.
Discontinued operations for the three and six months ended June 30, 2005 are as
follows:
For the Three For the Six
Months Ended Months Ended
June 30, 2005 June 30, 2005
------------------ ------------------
Sales $ 11,458 $ 103,775
Cost of goods sold (8,067) (73,174)
Operating expenses (155,040) (348,516)
------------------ ------------------
Income (loss) from discontinued
operations $ (151,649) $ (317,915)
================== ==================
NOTE 5 GOING CONCERN
As reflected in the accompanying consolidated financial statements, at June 30,
2006 the Company had a net loss of $82,626, a working capital deficiency of
$17,889, has had recurring losses since inception and has an accumulated deficit
of $8,201,340. This raises substantial doubt about its ability to continue as a
going concern. As described in Note 6 below, on April 28, 2006 a change of
control of the Company occurred. The new controlling stockholders intend to
identify and close a business combination between the Company and an operating
company which these controlling stockholders believe will enable the Company to
continue as a going concern. The Company is dependent on success of the
Company's new controlling stockholders to identify and close a business
combination with an operating company which has sufficient additional capital to
pay the Company's operating expenses and other obligations if it is to continue
as a going concern. There are no assurances that the Company's controlling
stockholders will be successful. The financial statements do not include any
adjustments that might be necessary if the Company is unable to continue as a
going concern.
-11-
EVOLVE ONE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2006
(UNAUDITED)
NOTE 6 CHANGE OF CONTROL
On April 28, 2006, the Company and certain of its stockholders, including Dr.
Irwin Horowitz, the CEO and principal stockholder of the Company, along with his
affiliated company, Diversifax, Inc., entered into a Stock Purchase Agreement
with Progress Partners, Inc. and Messrs. Yewen Xi and David Stein. Among the
principal stockholders of the Company who participated in the transaction, in
addition to Dr. Horowitz and Diversifax, Inc. were OnSpan Networking, Inc. and
its affiliates, Messrs. Herb Tabin, and Gary Schultheis, who are also former
officers and directors of the Company, and Mr. Robert Sands, a former director
of the Company. Pursuant to the agreement a total of 415,571 shares were
acquired for a total purchase price of $371,661. In addition, the purchasers
also reimbursed Diversifax, Inc. for expenses incurred on behalf of the Company
in the amount of $53,339. The purchasers further agreed to discharge certain
expenses incurred by the Company in connection with the completion of the
Company's annual report. Progress Partners, Inc. and Mr. Yewen Xi each acquired
166,228 shares, and Mr. David Stein acquired 83,114 shares of common stock from
the selling stockholders. As of the time of the agreement, there were 524,513
shares of common stock issued and outstanding, exclusive of options and
warrants. The purchasers acquired approximately 79% of the issued and
outstanding common stock, exclusive of any shares underlying outstanding options
and warrants.
-12-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following analysis of our results of operations and financial
condition should be read in conjunction with the accompanying consolidated
financial statements for the three months and six months ended June 30, 2006 and
notes thereto appearing elsewhere in this quarterly report.
Overview
During the fiscal year ended December 31, 2005 our operations consisted
of two Internet-based businesses, StogiesOnline.com and AuctionStore.com.
StogiesOnline.com was an online distributor and retailer of brand name premium
cigars. AuctionStore.com was an eBay(R) Trading Assistant and Internet-based
seller of consigned merchandise whose primary medium of sales is eBay(R). While
we reported sales from these operations of $114,904 for the nine months ended
September 30, 2005, as a result of competition in the marketplace and a lack of
sufficient working capital, during October 2005 we determined that our business
model was unprofitable and decided to discontinue the balance of our operations.
We intend to seek to acquire assets or shares of an entity actively engaged in
business which generates revenues, in exchange for our securities. Our ability
to continue as a going concern is dependent on our ability to identify and close
a business combination with an operating entity. We cannot assure you that we
will be able to close a transaction which is inevitably beneficial to our
stockholders. In addition, as it is likely that if we enter into a business
combination the structure of the transaction will be such that the approval of
our stockholders is not necessary before the transaction is closed. As such, our
stockholders are relying entirely upon the judgment of our management in
structuring a transaction which provides some benefit to our stockholders.
Results of Operations
Six months ended June 30, 2006 as compared to the six months ended June 30, 2005
Six months ended Six months ended Increase/ Increase/
June 30, 2006 June 30, 2005 (Decrease) (Decrease)
(unaudited) (unaudited) $ 2006 vs 2005 % 2006 vs 2005
-----------------------------------------------------------------------------------
Operating expenses:
Stock compensation expenses 0 220,051 (220,051) (100)%
Impairment 0 130,776 (130,776) (100)%
- -------
Selling, general and
administrative 82,626 105,628 ( 23,002) (21.8)%
------ -------
Total operating expenses $ 82,626 $456,455 $ (373,829) (81.9)%
-----------------------------------------------------------------------------------
Loss from continuing operations ( 82,626) (456,455) (373,829) (81.9)%
Loss from discontinued operations 0 (317,915) (317,915) (100)%
===================================================================================
Net loss $(82,626) $(774,370) $(691,744) (89.3)%
===================================================================================
We did not report any revenues for either the six months ended June 30,
2006 or 2005. Total operating expenses for the six months ended June 30, 2006
were $82,626, a decrease of $373,829, or approximately 82%, from the six months
ended June 30, 2005. Included in total operating expenses for the six months
ended June 30, 2006 were:
-13-
* Stock compensation expense of $0 as compared to $220,551 for the six
months ended June 30, 2005. Stock compensation expense during the six months
ended June 30, 2005 represented the value of shares of our common stock which we
had issued to Diversifax Inc., a company controlled by our former CEO, as
compensation for management and other administrative services. We did not have
comparable expenses in the six months ended June 30, 2006 and do not anticipate
incurring similar expenses during the balance of fiscal 2006,
* We did not have any impairment expense for the six months ended June
30 ,2006 as compared top $130,776 for the six months ended June 30, 2005. The
expense in fiscal 2005 represented the impairment of certain of our leasehold
improvements as we abandoned our lease, and
* Selling, general and administrative expenses, which includes
salaries, rent and other overhead expenses, professional fees and similar
general operating expenses, was $82,626 for six months ended June 30, 2006, a
decrease of $23,002, or approximately 22%, from the comparable period in fiscal
2005. Including in SG&A expenses for the six months ended June 30, 2006 are
compensation expense of $7,500 which represents an in kind contribution of
services by our current President. While Mr. Siegel serves in his position
without compensation, under generally accepted accounting principles we are
required to recognize an expense equal to the value of his services. SG&A
expenses for the six months ended June 30, 2006 also includes $51,907 of
expenses paid on our behalf by our controlling stockholders following the change
of control in April 2006. A significant portion of this decrease is attributable
to reduced overhead expenses and administrative costs.
As described elsewhere herein, during fiscal 2005 we discontinued
the operations of our subsidiaries. In April 2006 a change of control of our
company occurred in which our then CEO, a company related to him, and certain
other of our stockholders sold shares of our common stock owned by them which
represented approximately 79% of our issued and outstanding common stock to two
individuals and an entity in a private transaction. On May 25, 2006, Mr. Alvin
Siegel was elected as director and President of our company. Mr. Siegel is the
principal and has voting and dispositive control over the securities owned by
Progress Partners, Inc., a 31.75% shareholder of our company which acquired
those shares in the change of control transaction in April 2006. A decision will
be made by the purchasers in the proximate future with regard to potential
acquisitions and business opportunities. Until such time as we enter into a
business combination will we not generate any revenues.
Liquidity and Capital Resources
Liquidity is the ability of a company to generate funds to support its
current and future operations, satisfy its obligations and otherwise operate on
an ongoing basis. At June 30, 2006 we had no cash on hand and a working capital
deficit of $17,889. Net cash used in operating activities for the six months
ended June 30, 2006 was $1,964 as compared to net cash used in operating
activities of $378,511 for the six months ended June 30, 2005. This decrease in
net cash used in operating activities in the six months ended June 30, 2006 as
compared to the six months ended June 30, 2005 reflects the discontinuation of
our operations during the later part of fiscal 2005.
At June 30, 2006 we had an accumulated deficit of $8,201,340. The
report from our independent registered public accounting firm on our audited
financial statements at December 31, 2005 contains an explanatory paragraph
regarding doubt as to our ability to continue as a going concern as a result of
our significant recurring losses from operations since inception and our
accumulated deficit. As discussed earlier in this report, in October 2005 we
discontinued our operations and are now seeking to acquire assets or shares of
an entity actively engaged in business which generates revenues, in exchange for
our securities. We cannot predict when, if ever, we will be successful in this
venture and, accordingly, we may be required to cease operations at any time. We
do not have sufficient working capital to pay our operating costs for the next
12 months and we will require additional funds to pay our legal, accounting and
other fees associated with our company and its filing obligations under federal
securities laws, as well as to pay our other accounts payable generated in the
ordinary course of our business. We have no commitments from any party to
provide such funds to us. If we are unable to obtain additional capital as
necessary until such time as we are able to conclude a business combination, we
will be unable to satisfy our obligations and otherwise continue to meet our
reporting obligations under federal securities laws. In that event, our stock
would no longer be quoted on the OTC Bulletin Board and our ability to
consummate a business combination with upon terms and conditions which would be
beneficial to our existing stockholders would be adversely affected.
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Critical Accounting Policies
Our financial statements and accompanying notes are prepared in
accordance with generally accepted accounting principles in the United States.
Preparing financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenue and
expenses. These estimates and assumptions are affected by management's
applications of accounting policies. Critical accounting policies for our
company include the following:
In December 2004, the Financial Accounting Standards Board (FASB)
issued SFAS No. 123(R), "Share-Based Payment," which replaces SFAS No. 123 and
supersedes APB Opinion No. 25. Under SFAS No. 123(R), companies are required to
measure the compensation costs of share-based compensation arrangements based on
the grant-date fair value and recognize the costs in the financial statements
over the period during which employees are required to provide services.
Share-based compensation arrangements include stock options, restricted share
plans, performance-based awards, share appreciation rights and employee share
purchase plans. In March 2005 the SEC issued Staff Accounting Bulletin No. 107
(SAB 107). SAB 107 expresses views of the staff regarding the interaction
between SFAS No. 123(R) and certain SEC rules and regulations and provides the
staff's views regarding the valuation of share-based payment arrangements for
public companies. SFAS No. 123(R) permits public companies to adopt its
requirements using one of two methods. On April 14, 2005, the SEC adopted a new
rule amending the compliance dates for SFAS 123R. Companies may elect to apply
this statement either prospectively, or on a modified version of retrospective
application under which financial statements for prior periods are adjusted on a
basis consistent with the pro forma disclosures required for those periods under
SFAS 123. Effective January 1, 2006, the Company has fully adopted the
provisions of SFAS No. 123(R) and related interpretations as provided by SAB
107. As such, compensation cost is measured on the date of grant at their fair
value. Such compensation amounts, if any, are amortized over the respective
vesting periods of the option grant. The Company applies this statement
prospectively.
New Accounting Standards
In November 2004, the Financial Accounting Standards Board ("FASB")
issued SFAS 151, Inventory Costs--An Amendment Of ARB No. 43, Chapter 4. The
Statement Amends The Guidance Of ARB No. 43, Chapter 4, Inventory Pricing, by
clarifying that abnormal amounts of idle facility expense, freight, handling
costs, and wasted materials (spoilage) should be recognized as current-period
charges and by requiring the allocation of fixed production overheads to
inventory based on the normal capacity of the production facilities. It does not
appear that this Statement will have a material effect on our financial
position, operations or cash flows when it becomes effective in 2006.
In December 2004, the FASB issued SFAS 153, "Exchanges of Non-monetary
Assets, an amendment of APB 29, Accounting for Non-monetary Transactions." The
amendments made by SFAS 153 are based on the principle that exchanges of
non-monetary assets should be measured based on the fair value of the assets
exchanged. Further, the amendments eliminate the narrow exception for
non-monetary exchanges of similar productive assets and replace it with a
broader exception for exchanges of non-monetary assets that do not have
commercial substance. Previously, APB 29 required that the accounting for an
exchange of a productive asset for a similar productive asset or an equivalent
interest in the same or similar productive asset should be based on the recorded
amount of the asset relinquished. APB 29 provided an exception to its basic
measurement principle (fair value) for exchanges of similar productive assets.
The FASB believes that exception required that some non-monetary exchanges,
although commercially substantive, be recorded on a carryover basis. By focusing
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the exception on exchanges that lack commercial substance, the FASB believes
SFAS 153 produces financial reporting that more faithfully represents the
economics of the transactions. SFAS 153 was effective for non-monetary asset
exchanges occurring in fiscal periods beginning after June 15, 2005. Earlier
application is permitted for non-monetary asset exchanges occurring in fiscal
period beginning after the date of issuance. The provisions of this Statement
shall be applied prospectively. We do not believe that SFAS 153 will have a
material impact on our consolidated financial statements.
SFAS No. 154 ("SFAS 154"), Accounting Changes and Error Corrections, was issued
in May 2005 and replaces APB Opinion No. 20 and SFAS No. 3 ("SFAS 3"). SFAS No.
154 requires retrospective application for voluntary changes in accounting
principle in most instances and is required to be applied to all accounting
changes made in fiscal years beginning after December 15, 2005. The Company has
fully adopted SFAS No. 154 is not expected to have a material impact on the
Company's consolidated financial condition or results of operations.
SFAS 155, Accounting for Certain Hybrid Financial Instruments and SFAS 156,
Accounting for Servicing of Financial Assets were recently issued. SFAS 155 and
156 have no current applicability to the Company and have no effect on the
financial statements.
ITEM 3. CONTROLS AND PROCEDURES
In September 2005 we restated our Condensed Consolidated Balance Sheet
at December 31, 2004 and Condensed Consolidated Statement of Operations,
Condensed Consolidated Statement of Stockholders' Equity and Condensed
Consolidated Statement of Cash Flows for the years ended December 31, 2004 and
2003 . In September 2005 we also restated our Condensed Consolidated Balance
Sheet (unaudited) at March 31, 2005. These restatements were made to reflect a
change in certain marketable securities to recognize the other-than-temporary
impairment on these marketable equity securities in 2002. The restatements
resulted from comments from the staff of the Securities and Exchange Commission.
Because of this accounting error, our management, which included our
former Chief Executive Officer who also served as our principal financial and
accounting officer, had previously determined that a deficiency in our internal
controls existed related to the accounting for unrealized gain from marketable
securities. Specifically, we did not have adequate controls over the
presentation of unrealized gain from marketable securities. Accordingly,
management determined that this control deficiency constituted a material
weakness. A material weakness is a control deficiency, or combination of control
deficiencies, that results is a more than remote likelihood that a material
misstatement of the annual or interim financial statements will not be prevented
or detected. Subsequent to these restatements our management believes that we
have taken the steps necessary to eliminate this material weakness. As described
elsewhere herein we have subsequently discontinued our operations and now have
one person, our current President, responsible for all accounting functions
within our company. As a result, there is an inherent weakness in our internal
controls at June 30, 2006 which will continue until such time as we expand our
employee base and maintain a sufficient complement of personnel with an
appropriate level of accounting knowledge, experience and training in the
application of generally accepted accounting principles which is commensurate
with our financial reporting requirements.
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Our President, who also serves as our principal financial and
accounting officer, conducted an evaluation of the effectiveness of our
disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated
under the Securities Exchange Act of 1934, as amended) as of a date (the
"Evaluation Date") as of the end of the period covered by the report. Based upon
that evaluation, our President has concluded that our disclosure controls and
procedures are effective in gathering, analyzing and disclosing information
needed to satisfy our disclosure obligations under the Exchange Act. Other than
the changes discussed above, based upon the foregoing evaluation there have been
no change in our internal control over financial reporting that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
PART II. OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
Exhibit No. Description
31.1 Rule 13a-14(a)/15d-14(a) certification of President
31.2 Rule 13a-14(a)/15d-14(a) certification of principal accounting
officer
32.1 Section 1350 certification
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SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant has duly caused this report to be signed on its behalf by the
undersigned as duly authorized.
July 31, 2006 EVOLVE ONE, INC.
By: /s/ Alvin Siegel
Alvin Siegel, President, principal executive
officer and principal accounting officer