<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
/X/ Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 1996
/ / Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from __________
to __________
Commission File Number 0-27788
EVOLUTIONS, INC.
(exact name of registrant as specified in its charter)
DELAWARE 22-3420712
(State of Incorporation) (I.R.S. Employer Identification No.)
65 Railroad Avenue, Ridgefield, New Jersey 07657
(Address of principal executive offices and zip code)
(201) 941-6550
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 ___
As of May 14, 1996, there were 4,171,359 shares* of Common Stock outstanding.
* Reflects the 0.033-for-1 stock split of February 1996
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
See pages F-1 through F-8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Evolutions, Inc., a Delaware corporation (the "Company") merged with Gold
Securities Corporation ("Gold"), an Idaho corporation, in February 1996 for the
purpose of changing the state of incorporation from Idaho to Delaware. The
Company trades publicly on the NASDAQ electronic bulletin board under the symbol
"EVOI" and prior to the merger traded on the NASDAQ electronic bulletin board
under the symbol "GLDS." Gold was incorporated in 1922 under the name of Kaniksu
Mining Company ("Kaniksu"). In 1981, Kaniksu merged with Gold Securities
Corporation, and adopted that company's name. In July of 1995, Gold entered into
a reverse merger with Evolutions, Inc., a company incorporated in the State of
New Jersey ("EVO-NJ"). The majority owner of EVO-NJ, PureTec Corporation
("PureTec"), a publicly held specialty plastics and plastics recycling company,
retained ownership of 75% of the outstanding common stock of the Company after
completion of the July 1995 reverse merger EVO-NJ was the only operating
subsidiary of the combined companies at the time of the July 1995 merger. For
accounting purposes, the transaction was treated as the acquisition of Gold by
EVO-NJ.
On September 27, 1995, Kidsview, Inc. ("KVI"), a wholly owned subsidiary of
the Company, purchased certain assets of Direct Connect International Inc.
("DCI") consisting primarily of a licensed line of toy animals marketed under
the trade names ZOO BORNS and TEA BUNNIES.
In February 1996, the Company acquired substantially all of the assets of
Smart Style Industries, Inc. and affiliates (collectively "SSI") in exchange for
$1,125,000 cash, a thirty-day promissory note in the amount of $500,000,
$1,000,000 in notes payable in quarterly installments with Common Stock of the
Company valued at $1,000,000, the assumption of approximately $1,200,000 of
liabilities, and warrants to purchase an additional 100,000 shares of Company
stock. An additional $1,000,000 will be payable in stock if certain operating
results are achieved over the next five years.
SSI manufactures a varied line of apparel for many age groups and is a major
manufacturer of children's raincoats and trench coats. SSI also manufactures
men's and boy's pants, shirts, jeans and outerwear. The Wee Willie(R) line of
SSI includes pants, shirts, vests and jackets for infants, toddlers, sizes 4 to
7 and sizes 8 to 14, and is known for its quality holiday wear. In conjunction
with this acquisition, the Company has also acquired a license to use the H.W.
Carter & Sons' Watch the Wear(R) label. This label has been in existence since
1859 and the line includes men's and women's work pants, jackets, shirts,
overalls and jean related items, and is marketed into retail stores that carry
popular "urban" styles.
The Company has also acquired the licence to the H.W. Carter label. Garments
manufactured by SSI under the Carter label are garments that have been
traditionally termed "work clothes," namely, jeans, overalls and jackets. The
agreement provides for a 3% royalty on all sales of the Carter label to be paid
to H.W. Carter & Sons, Inc., with a minimum annual payment of $100,000. The
initial term of the agreement is for three years with thirty-three options to
renew for additional three year periods held by the Company. Carter label sales
have constituted approximately 10% of the total SSI sales.
In February 1996, the Company effected a 0.033-for-1 reverse stock split. All
share amounts reflect this split.
Results of Operations
The following discussion and analysis should be read in conjunction with the
Financial Statements and notes thereto appearing elsewhere herein. In July 1995,
Gold and EVO-NJ consummated a reverse merger. For accounting purposes, the
transaction was treated as the acquisition of Gold by EVO-NJ. As a result, the
Company's financial statements consist of the results of operations of EVO-NJ
since its inception in 1994.
Three months ended March 31, 1996 and 1995
The Company had net revenues of $2,108,491 for the three months ended March
31, 1996 and net revenues of $97,942 for the three months ended March 31, 1995.
The increase in net revenues is attributable to the acquisitions of the toy
lines and apparel business made by the Company. Net losses for the current three
month period are $704,063, or $0.18 per share, as compared to net losses of
$43,338, or $0.03 per share for the corresponding three-month period of a year
ago.
Liquidity and Capital Resources
The Company had a working capital deficit of $396,327 at March 31, 1996, as
compared to a working capital deficit of $502,010 at December 31, 1995.
In 1995 the Company obtained most of its working capital from its parent
company. During 1995 PureTec contributed to the Company securities and cash with
a total value of $2,225,000 in exchange for 2,659,312 shares of Common Stock of
the Company, as adjusted for the 0.033-for-1 stock split.
In February and March of 1996, the Company borrowed an aggregate of
$3,000,000 from various outside sources (the "Bridge Lenders"). In exchange the
Company has issued to the Bridge Lenders notes (the "Bridge Notes") for the face
amount of the loans due in May 1996. The Bridge Notes accrue interest at the
rate of 8% per annum. In addition, the Company has issued to the Bridge Lenders
warrants to purchase up to one share of the Company's Common Stock for each
dollar loaned to the Company. An additional one-half warrant will be issued to
the Bridge Lenders for each dollar borrowed if the Bridge Notes are not paid
back within ninety days. The exercise price of the warrants is $3.50 per share
of stock purchased, as adjusted for the 0.033-for-1 stock split, and expire five
years from the date of issue. In May 1996, the Company borrowed an additional
$100,000 on terms identical to the original Bridge Lenders and used those
proceeds to repay some of the expiring Bridge Notes.
In March 1996, the Company offered a maximum of 500,000 Units, each
consisting of two shares of the Company's Common Stock, and one Stock Purchase
Warrant to acquire one share of the Company's Common Stock in exchange for
$3.50, at a purchase price of $5.00 per Unit. The Stock Purchase Warrants will
expire five years from the date of issue. At present this offering has not been
completed, and there can be no assurances that the maximum number of Units
offered will be sold.
In May 1996, the Company offered a maximum of 600,000 Units, each consisting
of two shares of the Company's Common Stock, and one Stock Purchase Warrant to
acquire one share of the Company's Common Stock in exchange for $3.50, at a
purchase price of $5.00 per Unit. The Stock Purchase Warrants will expire five
years from the date of issue. At present this offering has not been completed,
and there can be no assurances that the maximum number of Units offered will be
sold.
As of May 13, 1996, Bridge Lenders have agreed to use $1,800,000 of their
loans towards the purchase of the Units in the private placement, as described
above. An additional $150,000 has been committed directly for purchase of the
Units. The Company intends to use the proceeds of the placements to pay off the
balance of the $1,200,000 in Bridge Notes and contribute the remaining proceeds,
if any, to working capital. There can be no assurances that the placements will
be completed in their entirety.
If the Company cannot complete the placements before the Bridge Notes mature
it will be in default of the Bridge Notes. The Company has extended the
repayment date on a portion of the Bridge Notes. The Bridge Notes now have
maturity dates ranging from June 15 through August 10, 1996. The Company
currently has no other arrangements in place to fund the repayment of the notes.
At March 31, 1996, the Company had loans payable of approximately $360,000
consisting of secured notes to relatives and affiliates of Michael Nafash, CEO,
President and a Director of the Company. The notes are due on demand and bear
interest at the rate of 12%. The notes are secured by shares of PureTec common
stock held by the Company.
In February 1996, SSI entered into a financing agreement with First Factors
Corporation whereby SSI may take advances on their uncollected accounts
receivable up to a limit of 90%. SSI may overadvance on this facility by up to
$500,000. Interest accrues at the prime rate plus 1.0%. Additionally, a fee of
0.75% is due on amounts advanced. This facility is secured by the accounts
receivable of SSI and also guaranteed by the Company. At March 31, 1996 there
was $365,000 outstanding on the overadvance provision of the loan.
In April 1996, KVI entered into a financing agreement with Heller Financial,
Inc. whereby KVI may take advances on uncollected accounts receivable up to a
limit of 85%. Interest accrues on monies advanced at the prime rate plus 2%.
Additionally, a fee of 1% is due on amounts advanced. This facility is secured
by the accounts receivable and domestic inventory of KVI and also guaranteed by
the Company and PureTec.
Net cash used in operations for the three months ended March 31, 1996 was
$2,153,896, which reflects the expanded scope of operations of the Company. Cash
flows from financing activities, consisting of loan proceeds and capital
contributions, totaled $3,747,333.
The Company's statement of cash flows for the three months ended March 31,
1995 reflects cash used in operations of approximately $58,000 which is
principally the result of the net loss of approximately $43,000.
While the management of the Company believes it has the necessary working
capital to operate the businesses until June 1996 when the first portion of the
notes issued to the Bridge Lenders comes due, no arrangement for continued
financing is in place. It is anticipated that a portion of the proceeds of the
private placements referred to above will be used to repay indebtedness. The
Company will require additional working capital in order to continue to operate
and expand its businesses. Such additional funding may come from other public or
private financial sources, bank financing or combinations thereof. The Company
has no current arrangements with respect to any such funding.
Inflation
The Company has not been materially affected by the impact of inflation.
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
There are no known legal proceedings that would have a material effect upon
the operations of the Company.
Item 2. Changes in Securities
In February 1996, the shareholders approved, and the Company effected a
0.033-for-1 reverse stock split on all outstanding shares of the Company's
Common Stock.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
On February 2, 1996, at a special meeting of stockholders, the following
items were submitted to a vote of shareholders. As of the voting record date of
January 5, 1996, there were 18,726,189 shares, pre-split, of Common Stock
entitled to vote. A total of 12,171,292 votes were cast.
1. To authorize and approve amendments to the Company's Articles of
Incorporation to effect a 0.033 (thirty-three one hundredths) for one
reverse stock split of the Company's Common Stock and to authorize the
issuance of Preferred Stock.
Votes for: 12,171,292
Votes against: 0
2. To approve the adoption of an Agreement of Merger whereby Gold
changed its state of incorporation from Idaho to Delaware pursuant to a
"migratory merger" that merged Gold into Evolutions, Inc., a Delaware
corporation.
Votes for: 12,171,292
Votes against: 0
3. To approve the adoption of the Company's 1996 Stock Option Plan.
Votes for: 12,171,292
Votes against: 0
4. To ratify the appointment of Holtz Rubenstein & Co., LLP, as the
Company's independent auditors for the fiscal year ending December 31,
1995.
Votes for: 12,171,292
Votes against: 0
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) On March 12, 1996 the Company filed a Report on Form 8-K which included
as exhibits (i) Agreement of Sale dated February 26, 1996, among the Company,
Smart Style Acquisition Corp., Lions Acquisition Corp. and SSI, and (ii) Licence
Agreement by and between the Company and H.W. Carter & Sons, Inc., both of which
are related to the acquisition of certain assets from SSI and affiliates.
On May 9, 1996, the Company filed a Report on Form 8-K/A related to the SSI
acquisitions that included (i) complete audited financial statements for SSI for
the fiscal years ended December 31, 1995 and 1994, and (ii) pro forma financial
information for the Company and subsidiaries as of December 31, 1995.
(b) On February 22, 1996, the Company filed a Report on Form 8-K regarding
the merger of Evolutions, Inc. and Gold Securities Corporation for the purpose
of changing the state of incorporation from Idaho to Delaware and the approval
of the 0.033-for-1 reverse stock split.
EVOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1996 1995
---- ----
(unaudited) (Derived from
audited financial
statements)
----------- -----------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 245,299 $ 11,508
Due from broker 0 280,851
Investments in available-for-sale
securities 556,292 762,119
Accounts receivable, net 745,270 183,689
Inventory 2,438,786 0
Note receivable - related party 0 15,000
Prepaid expenses 46,099 0
---------- ----------
4,031,746 1,253,167
PROPERTY AND EQUIPMENT, net 1,904,620 89,147
GOODWILL, net of accumulated amortization
of $18,175 and $11,359 respectively. 1,329,446 261,262
LICENSES, net of accumulated amortization
of $85,417 and $48,810 respectively. 939,583 976,190
OTHER ASSETS 17,104 0
---------- ----------
TOTAL ASSETS $8,222,499 $2,579,766
========== ==========
F-1
<PAGE>
EVOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1996 1995
---- ----
(unaudited) (Derived from
audited financial
statements)
----------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued
expenses $1,477,404 $ 833,177
Accrued compensation 112,500 112,500
Loans payable 2,838,169 809,500
---------- ----------
TOTAL CURRENT LIABILITIES 4,428,073 1,755,177
LONG TERM DEBT 450,886 0
STOCKHOLDERS' EQUITY
Common stock, no par value
50,000,000 shares authorized;
3,599,553 shares issued at
December 31, 1995, stated at 0 3,392,035
Common stock, $.01 par value
50,000,000 shares authorized;
5,170,790 shares issued at
March 31, 1996. 51,708
Additional paid-in capital 6,315,327 0
Deficit (2,648,553) (1,944,490)
Unrealized holding loss on
securities available-for-sale (374,942) (622,956)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 3,343,540 824,589
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $8,222,499 $2,579,766
========== ==========
F-2
<PAGE>
EVOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
THREE MONTHS THREE MONTHS
MARCH 31 MARCH 31
1996 1995
---- ----
REVENUES $2,108,491 $ 97,942
COSTS AND EXPENSES:
Cost of sales 1,378,145 78,592
Selling, general and administrative 1,103,431 62,688
Amortization expense 43,423 0
---------- ----------
2,524,999 141,280
---------- ----------
OPERATING LOSS (416,508) (43,338)
OTHER
Interest expense 39,541 0
Loss on sale of securities of parent 248,014 0
---------- ----------
287,555 0
---------- ----------
NET LOSS $ (704,063) $ (43,338)
========== ==========
NET LOSS PER SHARE $ (0.18) $ (0.03)
========== ==========
Weighted average number of shares of common
stock outstanding 3,851,065 1,542,351
========== ==========
F-3
<PAGE>
EVOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
THREE MONTHS THREE MONTHS
MARCH 31 MARCH 31
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (704,063) $(43,338)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 54,079 0
Loss on sale of securities 248,013 0
Changes in noncash current assets and
liabilities, net of effects of businesses
acquired and noncash transactions:
(Increase) decrease in assets:
Accounts receivable (561,581) (28,901)
Inventory (850,614) 0
Prepaid expenses (46,099) 0
(Decrease) Increase in liabilities
Accounts payable and accrued expenses (293,631) 14,294
----------- --------
Total adjustments (1,449,833) (14,607)
----------- --------
Net cash used in operating activities (2,153,896) (57,945)
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (219,129) (5,964)
Payments for businesses acquired, net of cash
acquired and including other cash payments
associated with the acquisitions (1,625,000) 0
Decrease in due from broker 280,851 0
Proceeds from available-for-sale securities 205,736 16,989
Decrease in note receivable - officer 15,000
Increase in other assets (17,104) (950)
----------- --------
Net cash (used in) provided by investing
activities (1,359,646) 10,075
----------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment to related party (450,000)
Proceeds from additional financing 4,197,333 41,000
----------- --------
Net cash provided by financing activities 3,747,333 41,000
----------- --------
Net increase (decrease) in cash 233,791 (6,870)
Cash and cash equivalents at beginning of period 11,508 22,713
----------- --------
Cash and cash equivalents at end of period $ 245,299 $ 15,843
=========== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest 0 0
Income taxes 0 0
Non cash investing and financing activities:
Conversion of notes payable to common stock 1,800,000 0
Shares issued for business acquired 1,175,000 0
F-4
<PAGE>
EVOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(unaudited)
<TABLE>
<CAPTION>
COMMON SHARES Unrealized
----------------------------- ADDITIONAL Loss on TOTAL
Common, Common, Common PAID-IN Available-for-Sale STOCKHOLDERS'
$10 Par No Par $.01 par Amount CAPITAL (DEFICIT) Securities EQUITY
------- ------ -------- ------ ------- --------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Capitalization -
January 21, 1994 200 - - $ 2,000 $ 23,000 $ - $ - $ 25,000
Issuance of stock to parent 800 - - 8,000 842,000 - - 850,000
Unrealized holding loss on
available-for-sale
securities - - - - - - (70,394) (70,394)
Net loss - - - - - (341,538) - (341,538)
------ ----------- ---------- ----------- ----------- ----------- --------- -----------
Balance, December 31, 1994 1,000 - - 10,000 865,000 (341,538) (70,394) 463,068
Issuance of stock to parent 850 - - 8,500 1,916,500 - - 1,925,000
Surrender of stock (200) - - (2,000) 2,000 - - -
Capital contribution - - - - 300,000 - 300,000
Merger with Gold
Securities, Inc. (1,650) 3,550,053 - 3,300,535 (3,083,500) - - 217,035
Issuance of stock in
connection with asset
acquisition - 49,500 - 75,000 - - - 75,000
Unrealized holding loss on - - - - - - -
available-for-sale
securities - - - - - - (552,562) (552,562)
Net loss - - - - - (1,602,952) - (1,602,952)
------ ----------- ---------- ----------- ----------- ----------- --------- -----------
Balance, December 31, 1995 - 3,599,553 - 3,392,035 - (1,944,490) (622,956) 824,589
Adjustment for reverse
split 6,231
Merger with Evolution's,
Inc. a Delaware Company - (3,605,790) 3,605,790 (3,355,977) 3,355,977 - - -
Issuance of common shares
in connection with
acquisitions - - 845,000 8,450 1,166,550 - - 1,175,000
Private placements - - 720,000 7,200 1,792,800 - - 1,800,000
Recognized loss on
available-for-sale
securities 248,014 248,014
Net loss - - - - - (704,063) - (704,063)
------ ----------- ---------- ----------- ----------- ----------- --------- -----------
Balance, March 31, 1996 - - 5,170,790 $ 51,708 $ 6,315,327 $(2,648,553) $(374,942) $ 3,343,540
====== =========== ========== =========== =========== =========== ========= ===========
</TABLE>
F-5
<PAGE>
EVOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
MARCH 31 1996
1. The balance sheet as of March 31, 1996 and the statements of operations
and statements of cash flows for the three months ended March 31, 1996 and
March 31, 1995 have been prepared by the Company without audit. In the
opinion of management, all adjustments (which include only normally
recurring adjustments) necessary to present fairly the financial position,
results of operations and cash flows at March 31, 1996 and March 31, 1995
and for all periods presented have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. It is suggested that these
financial statements be read in conjunction with the audited financial
statements of Evolutions, Inc. and subsidiaries for the year ended
December 31, 1995. The results of operations for the periods ended March
31, 1996 and March 31, 1995 are not necessarily indicative of the
operating results for the full year.
2. Inventories consist of the following:
March 31,1996 December 31, 1995
------------- -----------------
Raw Materials $1,385,614 $ -
Work-in-process 267,775 -
Finished goods 785,397 -
---------- -----------
$2,438,786 $ -
========== ===========
3. Income Taxes:
At March 31, 1996, the Company has a 100% valuation allowance against the
deferred income tax asset related to net operating loss carryforwards
($1,915,000).
4. Industry Segments:
The company operates in two industry segments, clothing and toys.
Information concerning the Company's business segments for the three
months ended March 31, 1996 in as follows:
Clothing Toys Consolidated
-------- ---- ------------
Revenues 1,021,375 1,087,116 2,108,491
Operating loss (200,711) (189,715) (390,426)
Identifiable assets 3,512,030 1,649,802 5,161,832
Depreciation and amortization 10,656 43,423 54,079
Capital expenditures 14,707 204,422 219,129
The Company's line of toy animals is manufactured in Asia.
F-6
<PAGE>
EVOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
MARCH 31 1996
5. Shareholder vote:
On February 2, 1996 the Company's shareholders voted to authorize the
following:
(i) To amend the Company's Articles of Incorporation to authorize the
issuance of up to 5,000,00 shares of Preferred Stock. The terms and rights
of the Preferred Shares will be determined by the Board of Directors at
the time of issuance.
(ii) The adoption of an Agreement of Merger whereby the Company will
change its state of incorporation from Idaho to Delaware.
(iii) The adoption of the 1996 Stock Option Plan (the "1996 Plan"). The
1996 Plan provides for the granting of options to purchase not more than
500,000 shares of common stock to officers, key employees and others who
render services to the Company. Options may be granted in the form of
incentive stock options or options which do not qualify for treatment as
incentive stock options. Pursuant to the Plan, and at the Board's
discretion, the options expire up to ten years from the date of grant, and
the exercise price will be determined by the Board.
6. Business Acquisitions:
On February 26, 1996, the Company acquired certain assets of Smart Style
Industries, Inc. and Affiliates (the "Seller"), a North Carolina-based
clothing manufacturer. Consideration consisted of (i) $1,125,000 cash,
(ii) a $500,000 30 day promissory note, (iii) the assumption of
liabilities approximating $1,200,000, and (iv) a $1,000,000 promissory
note, bearing interest at 10% per annum beginning on August 1, 1996.
Principal under the $1,000,000 note is payable in shares of the Company's
common stock in four quarterly installments commencing August 1, 1996. The
Company also issued warrants to purchase 100,000 shares of common stock.
In addition, the Seller is entitled to an additional $1,000,000 in common
stock over a period of five years, if certain earnings tests are met.
In connection with the purchase, the Company entered into a license
agreement for the rights to use certain trademarks.
In addition, the Company entered into a five year employment agreement
with an officer of the Seller which provides for minimum annual salary of
$150,000. The employee was also issued 20,000 shares of common stock.
F-7
<PAGE>
EVOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
MARCH 31 1996
7. Bridge Financing:
In February and March 1996, the Company borrowed an aggregate of
$3,000,000 under Bridge Units. Each Bridge Unit consists of one $50,000
Bridge Note ("Note") and one warrant to purchase 50,000 common shares
(75,000 if the note is repaid after 90 days) at an exercise price of $3.50
per share. Each Note bears interest at 8% per annum, and principal and
interest are payable on the earlier of (i) 90 days after the loan date or
(ii) the first day after the date of closing for any offering of the
Company's securities or the closing of any private placement. As of May
13, 1996, $1,800,000 of the financing under the Bridge Notes have been
converted into the private placement. The Company has received an
extension of the due date of Bridge Notes expiring in May, 1996.
In May 1996, the Company borrowed an additional $100,000 under the Bridge
Units. The proceeds were used to repay $100,000 of notes due in May 1996.
8. Private Placement:
In March 1996, the Company commenced a private placement of its
securities. The placement is to consist of 500,000 Units at a purchase
price of $5.00 per Unit. Each Unit consists of two shares of common stock
and one warrant to purchase a share of common stock at an exercise price
of $3.50. As of May 13, 1996, the Company has received $1,950,000 of
funds. Of the funds received, $1,800,000 are from conversions of Bridge
Notes into the private placement and the balance are direct investments
into the private placement.
9. Financing Activities:
In February 1996, the Company's apparel subsidiary, Smart Style
Acquisition Corp., (SSA) entered into a financing agreement with First
Factors Corporation whereby SSA may take advances on their uncollected
accounts receivable up to a limit of 90%. SSA may overadvance on this
facility by up to $500,000. Interest accrues at the prime rate plus 1%.
Additionally, a fee of 0.75% is due on amounts advanced. The facility can
be canceled by either party on 30 days notice. This facility is
collateralized by the accounts receivable of SSA and guaranteed by the
Company.
In April 1996, the Company's toy subsidiary, Kidsview, Inc. (KVI) entered
into a financing agreement with Heller Financial, Inc. whereby KVI may
take advances on uncollected accounts receivable up to a limit of 85%.
Interest accrues on moneys advanced at the prime rate plus 2%.
Additionally, a fee of 1% is due on amounts advanced. This facility is
collateralized by the accounts receivable and domestic inventory of KVI
and also guaranteed by the Company and Puretec International, Inc.
F-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EVOLUTIONS, INC.
By: /s/ Michael Nafash
___________________________
Michael Nafash
President and Chief Financial Officer
Date: May 17, 1996
8
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 245,299
<SECURITIES> 556,292
<RECEIVABLES> 745,270
<ALLOWANCES> 0
<INVENTORY> 2,438,786
<CURRENT-ASSETS> 4,031,746
<PP&E> 1,904,620
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,222,499
<CURRENT-LIABILITIES> 4,428,073
<BONDS> 0
0
0
<COMMON> 51,708
<OTHER-SE> 3,291,832
<TOTAL-LIABILITY-AND-EQUITY> 8,222,499
<SALES> 2,108,491
<TOTAL-REVENUES> 2,108,491
<CGS> 1,,378,145
<TOTAL-COSTS> 2,524,999
<OTHER-EXPENSES> 248,014
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,541
<INCOME-PRETAX> (704,063)
<INCOME-TAX> 0
<INCOME-CONTINUING> (704,063)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (704,063)
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.18
</TABLE>
