ENVISION DEVELOPMENT CORP /FL/, 10-Q, 2000-12-28

ENVISION DEVELOPMENT CORP /FL/
10-Q, 2000-12-28
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<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTER ENDED OCTOBER 28, 2000

COMMISSION FILE NUMBER 001-15311

ENVISION DEVELOPMENT CORPORATION
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

Florida
--------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)

65-0981457
--------------------------------------------------------------------------------
(I.R.S. Employer Identification No.)

7341 Anaconda Avenue, Garden Grove, California 92841
--------------------------------------------------------------------------------
(Address of principal executive office)

N/A
--------------------------------------------------------------------------------
(Registrant's telephone number, including area code)

100 Nickerson Road, Marlboro, Massachusetts 01752
--------------------------------------------------------------------------------
(Former name or former address, if changed since last report)

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 twelve (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 ninety (90) days. Yes [X] No [ ]

As of December 17, 2000, Envision Development Corporation had 12,066,000
shares of common stock, $0.01 par value, outstanding.

<PAGE> 2

ENVISION DEVELOPMENT CORPORATION

FORM 10-Q

FOR THE QUARTER ENDED OCTOBER 28, 2000

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

Unaudited Condensed Consolidated Balance Sheets as of October 28, 2000 and
January 29, 2000

Unaudited Condensed Consolidated Statements of Operations for the Three and Nine
Months Ended October 28, 2000 and October 30, 1999

Unaudited Condensed Consolidated Statement of Cash Flows for the Nine Months
Ended October 28, 2000 and October 30, 1999

Unaudited Notes to Condensed Consolidated Financial Statements

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

ITEM 2. Changes in Securities and Use of Proceeds

ITEM 5. Other Information

ITEM 6. Exhibits and Reports on Form 8-K

Signatures

<PAGE> 3

CAUTIONARY STATEMENT REGARDING
FORWARD LOOKING STATEMENTS AND ASSOCIATED RISKS

This Report on Form 10-Q contains forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements include information concerning future results of operations and
financial condition and are subject to known and unknown risks, uncertainties
and other factors, some of which are beyond our control, that may cause the
actual results, performance or achievements of Envision Development Corporation
("Envision" or the "Corporation") or its industry to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Statements that contain words such
as"believes," "expects," "anticipates," "intends," "estimates," "continue,"
"should," "could," "may," "plan," "project," "predict," "will" or similar
expressions are forward-looking statements. These forward-looking statements are
based on our current expectations and are subject to a number of risks,
uncertainties and assumptions relating to our operations, financial condition
and results of operations, including, but not limited to:

o Envision has ceased operations as discussed in the
Management's Discussion and Analysis of Financial Condition
and Results of Operations section of this document.

o There are no significant operations remaining in the
Corporation due to the foreclosures and dispositions as
discussed in the Management's Discussion and Analysis of
Financial Condition and Results of Operations section of this
document.

o Based on the value of Envision's assets and outstanding
liabilities, it is unlikely that any shareholder would receive
any cash from the sale of assets under a plan of liquidation,
if such a plan were approved. The financial statements do not
include any adjustments to reflect the possible future effects
on the recoverability and classifications of assets or the
amounts and classifications of liabilities that resulted from
the Corporation's subsequent decision to cease operations.

o The ability to complete any plan of reorganization is
dependent upon the ability of the Corporation to retain key
personnel. Despite Envision's current inability to pay cash
compensation, certain employees, officers and directors have
continued to provide their services to the Corporation. There
are no assurances that these individuals will continue to
provide those services.

o Due to the lack of funds, Envision was unable to engage
accounting and legal professionals to review this document
filed by us with the Securities and Exchange Commission
("SEC"). The Corporation has an obligation to continue to
comply with the applicable reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act"), even though compliance with such reporting requirements
is economically burdensome. The Corporation may seek relief
from the SEC from the reporting requirements under the
Exchange Act. The Corporation anticipates that, if such relief
is granted, it would attempt to continue to file current
reports on Form 8-K to disclose material events along with any
other reports that the SEC might require.

o The delisting of Envision's common stock from the American
Stock Exchange may materially impair the ability of the
Corporation's stockholders to buy and sell shares.

o Certain lawsuits and proceedings have been filed against us
and others are threatened which, if determined or settled in a
manner adverse to Envision, could further adversely affect the
Corporation.

<PAGE> 4

If any of these risks or uncertainties materialize, or if any of the underlying
assumptions prove incorrect, actual results may differ significantly from
results expressed or implied in any forward-looking statements made by Envision.
These and other risks are detailed in the Annual Report on Form 10-K as of and
for the year ended January 29, 2000 and in other documents filed by Envision
with the SEC. Envision undertakes no obligation to update publicly any
forward-looking statements for any reason, even if new information becomes
available or other events occur in the future. Accordingly, for those
statements, Envision claims the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995.

Envision undertakes no obligation to revise the forward-looking statements
included in this report to reflect any future events or circumstances.
Envision's actual results, performance or achievements could differ materially
from the results expressed in, or implied by, these forward-looking statements.

2
<PAGE> 5

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

ENVISION DEVELOPMENT CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)

October 28, January 29,
2000 2000
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 15,795 $ 9,208,501
Accounts receivable 220,000 --
Prepaid expenses and other current assets 213,095 --
Net assets from discontinued operations -- 832,208
------------- -------------
Total current assets 448,890 10,040,709

Property and equipment, net 989,155 --

Intangibles -- --

Other assets 209,699 --
------------- -------------
Total assets $ 1,647,744 $ 10,040,709
============= =============

LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY

Current liabilities:
Accounts payable and accrued expenses $ 2,853,522 $ 322,900
Notes payable to stockholders 4,088,397 --
Capital lease obligations 56,120 --
------------- -------------
Total liabilities 6,998,039 322,900
------------- -------------

Commitments and contingencies -- --
------------- -------------

Stockholders' (deficit) equity:
Preferred stock, $0.01 par value, 5,000,000
shares authorized, 0 shares issued and
outstanding -- --
Common stock, $0.01 par value, 20,000,000
shares authorized, 12,066,000 and 7,500,000 shares
issued and outstanding as of October 28, 2000 and
January 29, 2000, respectively 120,660 75,000
Additional paid in capital 288,104,213 15,194,771
Deferred compensation (1,746,813) --
Accumulated deficit (291,828,355) (5,551,962)
============= =============
Total stockholders' (deficit) equity (5,350,295) 9,717,809
============= =============

Total liabilities and stockholders' equity $ 1,647,744 $ 10,040,709
============= =============

</TABLE>

The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.

3
<PAGE> 6
ENVISION DEVELOPMENT CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)

Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
October 28, 2000 October 30, 1999 October 28, 2000 October 30, 1999
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Revenue $ 293,515 $ -- $ 786,934 $ --
Operating expenses 4,285,741 -- 12,380,711 --
Legal settlement -- -- 9,850,000 --
Research and development -- -- 1,154,370 --
In-process research and development -- -- 4,119,000 --
Depreciation and amortization 13,171,842 -- 33,172,709 --
Impairment of intangibles 113,494,411 -- 235,796,819 --
------------- ------------- ------------- -----------
Total operating expenses 130,951,994 -- 296,473,609 --
------------- ------------- ------------- -----------

Loss from operations, before minority
interest, interest income (expense)
net, other income and results of
operations from discontinued
operations (130,658,479) -- (295,686,675) --
Loss on sale of stock by subsidiary -- -- (17,876,747) --
Loss on sale of assets (510,150) -- (510,150) --
Minority interest 2,351,856 -- 2,500,000 --
Interest expense, net (126,086) -- (12,188) --
Other income 262,120 -- 262,120 --
------------- ------------- ------------- -----------

Loss from operations before results of
operations from discontinued operations (128,680,739) -- (311,323,640) --
Income (loss) from discontinued operations -- (697,140) (1,083,675) (2,265,791)
(Loss) Gain on sale of discontinued
operations -- -- 26,130,922 --
------------- ------------- ------------- -----------

Net loss $(128,680,739) $ (697,140) $(286,276,393) $(2,265,791)
============= ============= ============= ===========

Basic and diluted loss per common share:

Loss from continuing operations $ (10.68) $ -- $ (29.16) $ --
(Loss) income from discontinued
operations -- (0.12) 2.35 (0.43)
------------- ------------- ------------- -----------
Net loss $ (10.68) $ (0.12) $ (26.81) $ (0.43)
============= ============= ============= ===========

Weighted average number of common shares
outstanding used in basic and diluted
calculation 12,053,978 5,879,121 10,678,026 5,269,360
============= ============= ============= ===========

</TABLE>

The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.

4
<PAGE> 7
ENVISION DEVELOPMENT CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)

Nine Months Ended
-------------------------------------
October 29, October 30,
2000 1999
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(286,276,393) $ (2,265,791)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 33,172,709 --
In process research and development 4,119,000 --
Impairment of intangibles 235,796,819 --
Loss on legal settlement 9,850,000 --
Loss on sale of subsidiary stock 17,876,747 --
Minority interest (2,500,000) --
Loss from discontinued operations 1,083,675 2,265,791
Gain of sale of discontinued operations (26,130,922) --
Loss from sale of assets 510,150 --
Changes in operating assets and liabilities, net of
effect of acquisitions and dispositions:
Decrease in accounts receivable 289,243 --
Increase in prepaid expenses 33,117 --
Increase in other assets (32,710) --
Decrease in deferred revenue (199,007) --
Increase in accounts payable 1,911,034 --
------------- -------------
Net cash used by operating activities of continuing
operations (10,496,538) --
Net cash used by operating activities of discontinued
operations (2,320,545) (4,537,324)
------------- -------------
Net cash used by operating activities (12,817,083) (4,537,324)
------------- -------------
Cash flows from investing activities:
Purchase of property and equipment (1,039,017) --
Advances to affiliates (891,000) --
Cash acquired from acquisitions 215,164 --
------------- -------------
Net cash used in investing activities (1,714,853) --
------------- -------------
Cash flows from financing activities:
Payments on capital leases (15,744) --
Proceeds from issuance of stock 315,000 15,603,621
Issuance of subsidiary stock 12,077 --
Proceeds from notes to stockholders 5,160,000 --
Payments on notes to stockholders (132,103) --
------------- -------------
Net cash provided by financing activities 5,339,230 15,603,621
------------- -------------
Net decrease in cash and cash equivalents (9,192,706) 11,066,297
Cash and cash equivalents, beginning of period 9,208,501 100,000
------------- -------------
Cash and cash equivalents, end of period $ 15,795 $ 11,166,297

</TABLE>

The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.

5
<PAGE> 8

ENVISION DEVELOPMENT CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)

NOTE 1 - BASIS FOR PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS

The accompanying unaudited condensed consolidated financial statements of
Envision Development Corporation ("Envision" or the "Corporation") include the
accounts of Envision and its wholly and majority owned subsidiaries and have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions for Form 10-Q and Rule
10-01 of Regulation S-X. All intercompany accounts and transactions have been
eliminated. They do not include all information and notes required by generally
accepted accounting principles for complete financial statements and should be
read together with the audited financial statements and notes for the fiscal
year ended January 29, 2000 which are included in Envision's Annual Report on
Form 10-K filed with the Securities and Exchange Commission. The balance sheet
data as of January 29, 2000 was derived from audited financial statements, as
adjusted to reflect the disposition of perfumania.com, inc.
("perfumania.com")(see Note 5). The financial information furnished reflects all
adjustments, consisting only of normal recurring accruals, which are, in the
opinion of management, necessary for a fair presentation of the financial
position, results of operations and cash flows for the quarterly periods
presented. The results of operations for the periods presented are not
necessarily indicative of our future results of operations for the entire year.
Certain prior year amounts have been reclassified in accordance with generally
accepted accounting principles to conform with the current year presentation.

Envision ceased operations in November 2000 (see Note 2). Envision provided
professional services to companies wishing to utilize the Internet for
electronic commerce until the operations of the professional services
subsidiary, Envision Development Corporation, a Massachusetts corporation,
("Envision Massachusetts") were sold on October 31, 2000 (see Note 5). Envision
holds a five percent equity stake in LiQ, Inc. ("LiQ"), a developer and provider
of collaborative software. LiQ was previously a wholly-owned subsidiary of
Envision (see Note 9). Envision also holds a 57% equity stake in Interosa, Inc.
("Interosa"), a developer and provider of technologies used to secure and manage
e-mail communications. Interosa ceased operations in November 2000 to organize a
restructuring plan and to seek alternative sources of financing. A creditor
foreclosed on the Interosa assets in December 2000 (see Note 2).

These financial statements were not reviewed by an independent public accountant
and do not include any adjustments to reflect the possible future effects on the
recoverability and classifications of assets or the amounts and classifications
of liabilities that resulted from the Corporation's subsequent decision to cease
operations.

NOTE 2 - RECENT DEVELOPMENTS AND LIQUIDITY

The Corporation has limited operating history with significant operating losses
and its future capital needs and cash requirements exceed its current financial

resources. Envision has historically relied on funding to finance operations
under various financing arrangements with ZERO.NET, Inc. ("Zero.Net"), a
significant shareholder, and Dominion Income Management Corporation
("Dominion"), a related company (see Note 7). These lending sources continued to
provide loans until late November 2000 when the borrowings of the Corporation
and its subsidiaries approached $5.0 million, including interest. At this point,
further lending was terminated due to the delisting of Envision common stock
from the American Stock Exchange and the Corporation's inability to meet revenue
forecasts and other specific financial requirements of the lender. The loans
were called by the lender.

6
<PAGE> 9

foreclosed on the Interosa assets on December 12, 2000. The lender has the right
to complete a foreclosure proceeding against the assets of Envision as well. Due
to the foreclosure of Interosa and the dispositions of Envision Massachusetts
and LiQ, the Corporation has no significant operating assets.

NOTE 3 - INITIAL PUBLIC OFFERING

In September 1999, perfumania.com completed its initial public offering of its
common stock (the "Offering"), in which perfumania.com and Perfumania sold 3.5
million shares of common stock at an offering price of $7.00 per share. Of the
3.5 million shares of common stock, 2.5 million shares of common stock were sold
by perfumania.com. perfumania.com received proceeds of approximately $16.1
million, net of $1.4 million in underwriting discounts and commissions.
perfumania.com used approximately $3.3 million of the proceeds to repay advances
from Perfumania. Additionally, perfumania.com incurred approximately $512,000 in
other costs in connection with the Offering. In connection with the Offering,
perfumania.com granted common stocks warrants to the underwriters to purchase
350,000 shares of its common stock at an exercise price of $9.80 per share. The
common stock warrants can be exercised at any time for a period of five years.

NOTE 4 - ACQUISITIONS

INTEROSA, INC. (SUCCESSOR TO QUI VIVE, INC.). On April 7, 2000, Envision
completed the first stage of the acquisition of 80% of Interosa, Inc. (formerly
Qui Vive, Inc.) ("Interosa"), a developer of proprietary "Interosa" technology
which provides security features to email communications, pursuant to the terms
of an Amended and Restated Stock Acquisition Agreement, dated as of March 31,
2000, among Envision, QV Acquisition Corporation, a Delaware corporation ("QV
Acquisition"), Sundog Technologies, Inc., a Delaware corporation ("Sundog"), and
RockMountain Ventures Fund, LP ("Rock") ("Interosa Agreement"). QV Acquisition,
a wholly-owned subsidiary of Envision, acquired shares of Series A Preferred
Stock and shares of Series B Preferred Stock of Interosa from Sundog and Rock.
In consideration therefor, Envision issued shares of Envision common stock to
Sundog and Rock. The total purchase price is valued at approximately $110.0
million, consisting of 1,813,000 shares of Envision common stock. Envision
issued 1,492,500 shares of its common stock to Sundog and Rock to complete the
first stage of the acquisition. An additional 320,500 shares of Envision common
stock will be issued to Sundog and Rock to complete the second stage of the
acquisition following the approval of Envision's shareholders. The additional
shares are not subject to adjustment for subsequent fluctuations in the stock
price. The shares issued by the Corporation in connection with the Interosa
acquisition are not registered under the Securities Act of 1933 and are subject
to restrictions on transferability for a period of 18 months from the date of
issuance. The market value was calculated using the average of the closing price
of the previous ten trading days of Envision common stock prior to consummation
of the transaction. The number of shares of Envision common stock given in
exchange for such shares of Interosa capital stock was determined by
negotiations among the parties to the Interosa Agreement.

The acquisition of Interosa has been accounted for using the purchase method of
accounting, and, accordingly, the purchase price of the Interosa acquisition was
allocated to the assets acquired and liabilities assumed based on their
estimated fair values at the acquisition date. The results of operations for
Interosa are included with those of the Corporation from the date of the
acquisition.

7
<PAGE> 10
The purchase price for the above acquisition was allocated as follows:

Fair value of net assets acquired (net liabilities assumed):

Prepaid expenses and other assets $ 176,751
Property and equipment, net 232,023
-----------
Total assets acquired 408,774
-----------

Accounts payable and accrued expenses (199,442)
Notes payable to stockholder (998,175)
-----------
Total liabilities assumed (1,197,617)
-----------
Cash acquired 80,676
-----------

Net liabilities assumed $ (708,167)
===========

The following is a reconciliation of the purchase price to the excess of the
estimated fair value of net assets acquired allocated to intangible assets:

Purchase price $110,026,436
Net liabilities assumed 708,167
------------
Amount allocated to intangible assets $110,734,603
============

Interosa, founded in 1998, was a development stage enterprise with no revenues.

Based on a preliminary independent third party appraisal, approximately $3.95
million was allocated to in-process research and development and expensed in the
accompanying condensed consolidated statement of operations. This amount was
developed by estimating the stage of development of in-process research and
development projects at the date of the acquisition, estimating incremental cash
flows generated from such projects, and discounting the net cash flows back to
their present value using a discount rate of 30%, which represents a premium to
Envision's cost of capital to take into account the uncertainty surrounding the
successful development of the purchased in-process technology. The projections
were based on management's estimates of market size and growth, expected trends
in technology, expected research and development and selling and general
administrative expenditures, and the expected timing of new product
introductions. Approximately $24.7 million of the total purchase price was
allocated to existing technology, which is being amortized over three years. The
value of the existing technology was developed based on similar assumptions
using a discount rate of 30%. Approximately $1.4 million of the purchase price
was allocated to the valuation of the assembled workforce, which is also being
amortized over three years. The value of the workforce was developed by
estimating the cost to replace each employee based on average hiring and
training costs. Approximately $50,000 of the purchase price was allocated to
domain names, which is being amortized over three years. The remaining amount of
the purchase price was allocated to goodwill, which is being amortized on a
straight-line basis over three years. The projections used in developing the
values should not be considered an accurate predictor of future performance for
several reasons, including the consideration of many factors outside the control
of the Corporation. These intangible assets are subject to review of
recoverability based on various factors including Envision's ability to generate
future revenues sufficient to warrant the intangible amounts capitalized. This
ability is subject to various risks and many factors outside the control of the
Corporation. Based upon a change in circumstances and due to the subsequent
events, including the Corporation's loss of funding and the inability to secure
alternative financing, management reviewed the recoverability of the carrying
value of the assets (see Note 6).

VP IP, INC. On April 27, 2000, the Board of Directors of Envision approved the
Amended and Restated Stock Purchase Agreement ("VP IP Agreement"), dated April
10, 2000, with VP IP, Inc. ("VP IP"), a Delaware corporation. Pursuant to the
terms of

8
<PAGE> 11

this Agreement, Envision acquired the software and URL of VP IP from the owners
of VP IP, which were William J. Patch, director and former Chief Executive
Officer of Envision, Mr. Patch's immediate family and Alex Adamopoulos, former
officer of Envision. The total purchase price is valued at approximately $12.3
million, consisting of 200,000 shares of Envision common stock. The shares
issued by the Corporation in connection with the VP IP acquisition are not
registered under the Securities Act of 1933 and are subject to restrictions on
transferability for a period of 12 months from the date of issuance. The market
value was calculated using the average of the closing price of the previous ten
trading days of Envision common stock prior to consummation of the transaction.
The number of shares of Envision common stock given in exchange for the assets
of VP IP was determined by negotiations among the parties to the VP IP
Agreement. As a part of this acquisition, Mr. Patch and Mr. Adamopoulos entered
into employment agreements with the Corporation (see Note 9).

The acquisition of VP IP is an acquisition of assets, and, accordingly, the
purchase price was preliminarily allocated to the assets acquired, primarily
goodwill. Based upon the change in circumstances due to the departures of Mr.
Patch and Mr. Adamopoulos during the second fiscal quarter, management reviewed
the recoverability of the carrying amount of the assets (see Note 6).

LIQ, INC. On May 5, 2000, the Board of Directors of Envision approved an
Agreement and Plan of Merger Among Envision, LiQ Acquisition Sub, Inc., a
Delaware corporation and a direct wholly owned subsidiary of Envision, LiQ, Inc.
("LiQ"), a Delaware corporation, and Syed Abbas Ali Shah ("LiQ Agreement"). LiQ
integrates voice-enabled communications via VoIP, document sharing, and
co-browsing over the Internet or corporate intranets. The LiQ IsoSpace platform
enables live, Web-based communications, transactions, and real-time knowledge
exchange. In consideration therefor, Envision issued 640,000 shares of its
common stock in exchange for all of the issued and outstanding shares of LiQ.
The total purchase price is valued at approximately $43.3 million. The shares
issued by the Corporation in connection with the LiQ acquisition are not
registered under the Securities Act of 1933 and are subject to restrictions on
transferability for a period of 12 months from the date of issuance. The market
value was calculated using the average of the closing price of the previous ten
trading days of Envision common stock prior to consummation of the transaction.
The number of shares of Envision common stock given in exchange for such shares
of LiQ capital stock was determined by negotiations among the parties to the LiQ
Agreement.

The acquisition of LiQ has been accounted for using the purchase method of
accounting, and, accordingly, the purchase price of the LiQ acquisition was
allocated to the assets acquired and liabilities assumed based on their
estimated fair values at the acquisition date. The results of operations for LiQ
are included with those of the Corporation from the date of the acquisition.

9
<PAGE> 12

The purchase price for the above acquisition was allocated as follows:

Fair value of net assets acquired (net liabilities assumed):

Prepaid expenses and other assets $ 123,497
Property and equipment, net 78,753
---------
Total assets acquired 202,250
---------

Accounts payable and accrued expenses (46,085)
Note payable to Envision (141,000)
Note payable to shareholders (427,261)
Other liabilities (116,611)
---------
Total liabilities assumed (730,957)
---------
Cash acquired --
---------
Net liabilities assumed $(528,707)
=========

The following is a reconciliation of the purchase price to the excess of the
estimated fair value of net assets acquired allocated to intangible assets:

Purchase price $43,316,032
Net liabilities assumed 528,707
-----------
Amount allocated to intangible assets $43,844,739
===========

LiQ, founded in 1999, was a development stage enterprise with no revenues. Based
on a preliminary independent third party appraisal, approximately $169,000 was
allocated to in-process research and development and expensed in the
accompanying condensed consolidated statement of operations. This amount was
developed by estimating the stage of development of in-process research and
development projects at the date of the acquisition, estimating incremental cash
flows generated from such projects, and discounting the net cash flows back to
their present value using a discount rate of 30%, which represents a premium to
Envision's cost of capital to take into account the uncertainty surrounding the
successful development of the purchased in-process technology. The projections
were based on management's estimates of market size and growth, expected trends
in technology, expected research and development and selling and general
administrative expenditures, and the expected timing of new product
introductions. Approximately $6.7 million of the total purchase price was
allocated to existing technology, which is being amortized over three years. The
value of the existing technology was developed based on similar assumptions
using a discount rate of 30%. Approximately $800,000 of the purchase price was
allocated to the valuation of the workforce, which is also being amortized over
three years. The value of the workforce was developed by estimating the cost to
replace each employee based on average hiring and training costs. Approximately
$100,000 of the purchase price was allocated to domain names, which is being
amortized over three years. The remaining amount of the purchase price was
allocated to goodwill, which is being amortized on a straight-line basis over
three years. The projections used in developing the values should not be
considered an accurate predictor of future performance for several reasons,
including the consideration of many factors outside the control of the
Corporation. These intangible assets are subject to review of recoverability
based on various factors including Envision's ability to generate future
revenues sufficient to warrant the intangible amounts capitalized. Based upon a
change in circumstances and due to the subsequent events, including the
Corporation's loss of funding and the inability to secure alternative financing,
management reviewed the recoverability of the carrying value of the assets (see
Note 6). In December 2000, a significant portion of the investment in LiQ was
returned to the original shareholders as a part of a legal settlement (see Note
9).

10
<PAGE> 13

ENVISION DEVELOPMENT CORPORATION, A MASSACHUSETTS CORPORATION. On May 16, 2000,
Envision acquired Envision Development Corporation, a Massachusetts corporation
with the same name as the Corporation ("Envision Massachusetts"), pursuant to
the terms of the First Amended and Restated Agreement and Plan of Merger, dated
March 10, 2000, as amended by Amendment No. 1, dated May 12, 2000, Among
Envision Development Corporation, a Florida corporation, perfumania.com, inc., a
Florida corporation, Envision Acquisition Corporation ("EAC"), a Massachusetts
corporation, Envision Development Corporation, a Massachusetts corporation, and
the Stockholders of Envision Development Corporation, a Massachusetts
corporation ("Envision Massachusetts Agreement"). Envision Massachusetts merged
with and into EAC, a wholly owned subsidiary of the Corporation, with Envision
Massachusetts surviving as a wholly-owned subsidiary of the Corporation.
Envision Massachusetts is a professional services organization providing web
site development and consulting services. Pursuant to Amendment No. 2 to the
Envision Massachusetts agreement, the conversion ratio for the number of shares
of Envision Massachusetts common stock to be converted into shares of Envision
common stock was reduced to 1.91815 from 1.97711. Based on the amended
conversion ratio, all the issued and outstanding common stock of Envision
Massachusetts was converted into 1,467,953 shares of common stock, par value
$0.01, of Envision, and all the issued and outstanding options for common stock
of Envision Massachusetts were converted into 368,107 options for common stock
of Envision with a weighted average exercise price of $14.40. The total purchase
price is valued at approximately $102.6 million. The shares issued by the
Corporation in connection with the Envision Massachusetts acquisition are not
registered under the Securities Act of 1933 and are subject to restrictions on
transferability for a period of 12 months from the date of issuance. The market
value was calculated using the average of the closing price of the previous ten
trading days of Envision common stock prior to consummation of the transaction.
The number of shares of Envision common stock given in exchange for such shares
of Envision Massachusetts common stock was determined by negotiations among the
parties to the Envision Massachusetts Agreement.

The acquisition of Envision Massachusetts has been accounted for using the
purchase method of accounting, and, accordingly, the purchase price of the
Envision Massachusetts acquisition was allocated to the assets acquired and
liabilities assumed based on their estimated fair values at the acquisition
date. The results of operations for Envision Massachusetts are included with
those of the Corporation from the date of the acquisition.

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<PAGE> 14
The purchase price for the above acquisition was allocated as follows:

Fair value of net assets acquired (net liabilities assumed):

Accounts receivable $ 509,243
Property and equipment, net 436,259
Other assets 123,953
-----------
Total assets acquired 1,069,455
-----------

Value of stock options assumed (21,000,000)
Accounts payable and accrued expenses (430,773)
Note payable to Envision (750,000)
Other liabilities (382,469)
-----------
Total liabilities assumed (22,563,242)
-----------

Cash acquired 134,488
-----------

Net liabilities assumed $(21,359,299)
===========

The following is a reconciliation of the purchase price to the excess of the
estimated fair value of net assets acquired allocated to intangible assets:

Purchase price $ 102,582,600
Net liabilities assumed 21,359,299
------------
Amount allocated to intangible assets $ 123,941,899
============

The remaining amount of the purchase price was allocated to goodwill which is
being amortized on a straight-line basis over ten years. These intangible assets
are subject to review of recoverability based on various factors including
Envision's ability to generate future revenues sufficient to warrant the
intangible amounts capitalized. This ability is subject to various risks and
many factors outside the control of the Corporation. Based upon the change in
circumstances due to the events of the departures of certain management
personnel and employees during the second fiscal quarter and revised revenue
estimates for the current and future periods, management reviewed the
recoverability of the carrying amount of the assets(see Note 6).

On October 31, 2000, as part of Envision's strategy to reduce its burn rate,
Envision sold the majority of the assets and transferred its customer
obligations acquired from Envision Mass to a former employee of Envision (see
Note 5).

NOTE 5 - DISPOSITIONS

PERFUMANIA.COM. On May 10, 2000, Envision sold its wholly-owned subsidiary,
perfumania.com, to E Com Ventures, Inc. ("E Com Ventures"), formerly known as
Perfumania, Inc., pursuant to the terms of a Stock Purchase Agreement, dated
April 29, 2000, among Envision, Zero.Net and E Com Ventures. Envision sold all
the common stock of perfumania.com in exchange for 400,000 shares of common
stock of Envision from E Com Ventures. The 400,000 shares of Envision common
stock were valued at approximately $28.2 million. The market value was
calculated using the average of the closing price of the previous ten trading
days of Envision common stock prior to consummation of the transaction. The
400,000 shares of Envision common stock were retired subsequent to the
acquisition. As part of the transaction, Zero.Net acquired 100,000 shares of
common stock of Envision from E Com Ventures for $2,500,000. The disposition is
accounted for as a discontinued operation, and accordingly, amounts in the
accompanying condensed consolidated financial statements and related notes for
all periods shown have been restated to reflect discontinued operations
accounting. Summarized results of the discontinued business are shown separately
as

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<PAGE> 15

discontinued operations in the accompanying condensed consolidated financial
statements. The net assets from discontinued operations are primarily comprised
of inventory, net of liabilities. Revenue for the six months ended July 29, 2000
and July 31, 1999 approximated $1.0 million and $390,000, respectively.

ENVISION MASSACHUSETTS. On October 31, 2000, Envision disposed of a majority of
the assets of its wholly-owned subsidiary, Envision Massachusetts, pursuant to
the terms of a letter agreement (the "Letter Agreement"), dated October 31,
2000, by and among Business Solutions Outpost Corporation, ("BSOC"), and
Envision. Under this Letter Agreement, Envision disposed of certain computer
equipment and was released from all of its client contract obligations and
certain significant employment obligations, leases and other third party
commitments. The acquirer, Robert R. Haskell II, President of BSOC, is the
former Vice President of Sales for Envision. As a result of this transaction,
Envision recorded a loss on the disposition of approximately $10.5 million,
including a $10.0 million impairment of the remaining goodwill associated with
the Envision Massachusetts acquisition.

NOTE 6 - INTANGIBLES, NET

As described in Note 4, the Corporation acquired Interosa, VP IP, LiQ and
Envision Massachusetts during April 2000 and May 2000. The acquisitions have
been accounted for using the purchase method of accounting, and, accordingly,
the purchase price of the acquisitions was allocated to the assets acquired and
liabilities assumed based on their estimated fair values at the acquisition date
including among others, existing technology, workforce, domain names, etc. The
remaining amount of the purchase price following the allocation was allocated to
goodwill and will be amortized on a straight-line basis over three to ten years.
The Corporation assesses long-lived assets for impairment under the Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed of" ("SFAS 121"). Under
SFAS 121, goodwill associated with assets acquired in a purchase business
combination is included in impairment evaluations when events or circumstances
exist that indicate the carrying amount of those assets may not be recoverable.
This evaluation of recoverability is based on the undiscounted estimated future
cash flows of the business acquired over the remaining amortization period.
Should the review indicate that the goodwill is not recoverable, the carrying
value of the goodwill would be reduced by the estimated shortfall of the
estimated future cash flows on a discounted basis.

Subsequent to the acquisitions of VP IP and Envision Massachusetts, the
Corporation experienced significant changes related to the Envision
Massachusetts and VP IP operations. Specifically, four executive officers of the
Corporation, including William Patch and Alex Adampoulos, Chief Executive
Officer and Executive Vice President, respectively, and a significant portion of
the original Envision Massachusetts employees, primarily executives, management
and administrative staff, either resigned or were terminated in the second
fiscal quarter. Following the acquisition, executives of the original Envision
Massachusetts were no longer involved in the operations. These executives had
previously been involved in the day-to-day operations, including customer
relations. Envision intensified its focus on the improvement of the operating
performance of Envision Massachusetts. This focus led to revised estimates of
future sales and future operating cash flows and several Envision Massachusetts
employees were terminated to reduce operating expenses. The Corporation also
cancelled the lease for the new corporate headquarters (see Note 9) due to
revised projections of the number of employees and operating cash flows. These
initial terminations, coupled with the change in management subsequent to the
acquisition and the lease termination, were substantially disruptive to the
remaining employees and to some of the customer relationships. Sales and
operating cash flows were further revised and a new organizational structure was
established to implement the strategic changes recommended by the Board of
Directors of the Corporation. This new structure further reduced the number of
employees through terminations and resignations. Mr. Patch and Mr. Adampoulos
left the Corporation during this period. Mr. Patch and Mr. Adamopoulos were an
integral part of the Envision Massachusetts acquisition as they negotiated the
transaction and spent a significant portion of their time at the Corporation
overseeing the Envision Massachusetts operations. Furthermore, Mr. Patch and Mr.
Adamopoulos developed the VP IP software, URL and business plan and were an
essential part of the planned implementation of the VP IP business plan. There
is no alternative future use for the the VP IP software, URL or business plan.

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<PAGE> 16

As described in Note 2, the Envision's lender terminated the Corporations' lines
of credit in November 2000 and called its loans. Management's efforts to obtain
alternative sources of financing have not been successful.

As a result of the significance of the aforementioned events and circumstances,
management began an evaluation of the recoverability of the intangible assets of
Envision Massachusetts, VP IP, Interosa and LiQ. Management concluded from the
results of these evaluations that a significant impairment of intangible assets
had occurred, as consequence impairment charges of $113.5 million and $122.3
million were recorded during the three months periods ended October 29, 2000 and
July 29, 2000, respectively.

Considerable management judgment is necessary to estimate the fair value.
Accordingly, actual results could vary significantly from management's
estimates.

NOTE 7 - RELATED PARTY TRANSACTIONS

On April 27, 2000, the Board of Directors of Envision approved the Amended and
Restated Stock Purchase Agreement, dated April 10, 2000, with the owners of VP

IP, which were Mr. William J. Patch, director and former Chief Executive Officer
of Envision, Mr. Patch's immediate family and Alex Adamopoulos, former officer
of Envision (see Note 4).

On May 10, 2000, Envision sold perfumania.com (see Note 5).

Prior to the acquisition by Envision, Interosa entered into three notes payable
for $300,000 each with Zero.Net, a significant stockholder of Envision, on
February 28, 2000, March 15, 2000 and March 30, 2000. A fourth note payable for
$200,000 was entered into with Zero.Net in April 2000. Each note payable is due
on demand and bears interest at LIBOR plus 350 basis points. The interest is due
bi-annually commencing in the third fiscal quarter of 2001. On June 28, 2000,
this total outstanding debt amount, plus interest and additional cash totaling
$2.5 million, was converted into 1,432,662 shares of Series C Interosa preferred
stock. This represents all of the issued and outstanding Series C preferred
stock of Interosa, a subsidiary of Envision. The Series C Interosa preferred
stock is convertible into common stock of Interosa and has voting rights. As a
result of the issuance of the Series C preferred stock, the Corporation's
interest in Interosa has been reduced from 82.0% to 57.3%. Envision has recorded
a loss of $17.9 million on the sale of subsidiary stock related to the issuance
of these shares.

On June 29, 2000, LiQ entered into a promissory note in the amount of $200,000
with Zero.Net, a significant shareholder of Envision. The note shall bear
interest at the prime rate as quoted in the Wall Street Journal. The full
balance of the loan amount is due any time after December 29, 2000 upon demand.
The interest is payable on March 30 and September 30 of each year, commencing on
September 30, 2000, and upon the repayment of the principal amount of the note.
In the event of a default, the note is secured by a security agreement dated
June 29, 2000 for all property of LiQ, including, but not limited to, all
tangible and intangible assets. There is no prepayment penalty.

On August 10, 2000, Interosa entered into a promissory note in the amount of
$640,000 with Zero.Net. The full balance of the loan amount, together with
accrued interest from the date of the note, is due no later than August 10,
2001. Interest shall accrue on the unpaid principal balance at a rate per annum
equal to the prime rate, as quoted within the Wall Street Journal, plus two
percent. In connection with the note, Interosa issued warrants to acquire an
aggregate amount of 183,381 shares of Series C Interosa stock at a cost of $0.01
per share. In the event of a default, the note is secured by a security
agreement dated August 10, 2000 for all property of Interosa, including, but not
limited to, all tangible and intangible assets. There is no prepayment penalty.

On September 8, 2000, Envision entered into a promissory note in the amount of
$540,000 with Dominion Income Management Corp, ("Dominion"), a related company
to Envision. The full balance of the loan amount is due upon demand, or if no
demand before August 31, 2001, together with interest from the date for this
note on the unpaid balance. The note shall bear interest at the prime rate as
quoted in the Wall

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<PAGE> 17

Street Journal computed on the basis of the actual number of days elapsed and a
calendar year of 365 days. In the event of a default, the balance shall be
accelerated without further notice, and interest shall accrue thereon at the
rate of 18% per annum until paid in full. The note is secured by a security
agreement dated September 8, 2000 for all property of Envision, including, but
not limited to, all tangible and intangible assets. There is no prepayment
penalty.

On September 11, 2000, Envision entered into a promissory note in the amount of
$650,000 with Dominion. The full balance of the loan amount is due upon demand,
or if no demand before September 11, 2001, together with interest from the date
for this note on the unpaid balance. The note shall bear interest at the prime
rate as quoted in the Wall Street Journal computed on the basis of the actual
number of days elapsed and a calendar year of 365 days. In the event of a
default, the balance shall be accelerated without further notice, and interest
shall accrue thereon at the rate of 18% per annum until paid in full. The note
is secured by the aforementioned security agreement dated September 8, 2000 for
all property of Envision, including, but not limited to, all tangible and
intangible assets. There is no prepayment penalty.

On September 11, 2000, Envision entered into a promissory note in the amount of
$170,000 with Zero.net. This amount was advanced on July 29, 2000. On September
20 and October 5, 2000, Envision entered into promissory notes in the amount of
$600,000 and $300,000, respectively, with Dominion. The notes are due upon
demand, or if no demand before September 11, 2001, together with interest from
the date for this note on the unpaid balance. The notes shall bear interest at
the prime rate as quoted in The Wall Street Journal computed on the basis of the
actual number of days elapsed and a calendar year of 365 days. In the event of a
default, the balance shall be accelerated without further notice, and interest
shall accrue thereon at the rate of 18% per annum until paid in full. The notes
are secured by a security agreement dated September 11, 2000 for all property of
Envision including but not limited to all tangible and intangible assets. There
is no prepayment penalty.

On September 29, 2000, Interosa entered into a promissory note in the amount of
$460,000 with Dominion. The full balance of the loan amount is due upon demand,
or if no demand before September 29, 2001, together with interest from the date
for this note on the unpaid balance. The note shall bear interest at the prime
rate as quoted in the Wall Street Journal computed on the basis of the actual
number of days elapsed and a calendar year of 365 days. In the event of a
default, the balance shall be accelerated without further notice, and interest
shall accrue thereon at the rate of 18% per annum until paid in full. The note
is secured by a security agreement for all property of Interosa, including, but
not limited to, all tangible and intangible assets. There is no prepayment
penalty. Payment was demanded on November 30, 2000 and the collateral
repossessed on December 12, 2000.

On October 31, 2000, Interosa entered into a promissory note in the amount of
$250,000 with Dominion. The full balance of the loan amount is due upon demand,
or if no demand before October 31, 2001, together with interest from the date
for this note on the unpaid balance. The note shall bear interest at the prime
rate as quoted in the Wall Street Journal computed on the basis of the actual
number of days elapsed and a calendar year of 365 days. In the event of a
default, the balance shall be accelerated without further notice, and interest
shall accrue thereon at the rate of 18% per annum until paid in full. The note
is secured by a security agreement for all property of Interosa, including, but
not limited to, all tangible and intangible assets. There is no prepayment
penalty. Payment was demanded on November 30, 2000 and the collateral
repossessed on December 12, 2000.

Pursuant to the acquisition of LiQ, Envision assumed two LiQ shareholder loans
totaling approximately $527,000. The loans have no repayment terms or stated
interest rate. Envision repaid approximately $132,000 during the second fiscal
quarter.

NOTE 8 - EARNINGS PER SHARE

Basic loss per common share is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding.
Diluted loss per common share is computed by dividing the loss available to
common

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<PAGE> 18

shareholders by the weighted average number of common shares outstanding
including the dilutive effect of stock options and warrants using the treasury
stock method.

Potentially dilutive shares for the three and nine months ended October 28, 2000
and October 30, 1999 have not been included in the diluted loss per share
because their effects would be anti-dilutive due to the losses incurred by
Envision. Accordingly, diluted loss per common share is the same as basic loss
per common share for the periods presented.

NOTE 9 - COMMITMENTS AND CONTINGENCIES

EMPLOYMENT AGREEMENTS. Envision entered into employment agreements with four of
its executive officers for a three-year period. Among the provisions of the
employment agreements, the executive officers will receive aggregate salaries of
$715,000, aggregate annual and sign-on bonuses of $722,500 and stock options to
buy 1,346,547 shares of common stock at an exercise price ranging from $22.00 to
$26.13 per share. William Patch and Alex Adamopoulos, two of the four executive
officers, are no longer with the Corporation (see Legal Proceedings - William
Patch, Alex Adamopoulos and Jill Haselman). The remaining officers of the
corporation have deferred all compensation since November 2000.

LEASE AGREEMENT. On April 20, 2000, the Board of Directors approved a lease for
the new corporate headquarters in Bridgewater, Massachusetts. The lease was
intended to commence on August 1, 2000 for a term of seven years with minimum
lease payments of approximately $529,000 annually for years one to five and
approximately $568,000 annually for years six and seven. In connection with the
lease and the construction of leasehold improvements, the Corporation was
required to provide a stand-by letter of credit in the amount of $650,000. The
Corporation cancelled this lease in July 2000. Pursuant to a mutually agreed
upon settlement with the landlord, the Corporation paid a cancellation penalty
of $150,000 and was released from the stand-by letter of credit in August 2000.
The unpaid amount has been included in the accompanying condensed consolidated
balance sheet as restricted cash. The cancellation penalty is included in
operating expenses in the accompanying condensed consolidated statement of
operations.

LEGAL PROCEEDINGS - BIZ2NET. On May 24, 2000 Envision received notice of a
complaint filed by Biz2Net Corporation ("Biz2Net" or "Plaintiff") in the
Superior Court, County of Worcester, Commonwealth of Massachusetts, naming
Envision, certain of its officers, directors and others, as defendants.

In its complaint, Biz2Net, among other things, sought injunctive relief and
damages based on its allegations that certain of the defendants hired former
Biz2Net personnel in violation of contracts, misappropriated Biz2Net's business
plan and other proprietary and confidential information and took corporate
opportunities away from Biz2Net.

On May 31, 2000, a hearing was held in the Worcester County Superior Court, and
the Judge denied the Plaintiff's request for injunctive relief.

On August 22, 2000, Envision and Biz2Net agreed upon the form of a Settlement
Agreement and Release ("Settlement Agreement"), having reached agreement in
principle to resolve the dispute. No party to the lawsuit admitted or denied
liability. The Settlement Agreement is and will remain confidential but for
certain exceptions provided for in the agreement. Pursuant to the Settlement
Agreement, Envision shall transfer 800,000 shares of Envision common stock to
Biz2Net. The shares issued by the Corporation in connection with the Biz2Net
settlement will not be registered under the Securities Act of 1933 and are
subject to restrictions on transferability for a period of 12 months from the
date of issuance. During the restriction period, the shares may not be voted
except in matters that would dilute Biz2Net's ownership percentage.

As of July 29, 2000, Envision had accrued an estimate of the settlement based on
the transfer of 800,000 shares of Envision common stock to Biz2Net. The accrual
was subsequently adjusted to reflect the market price of the stock using the
average of the closing price of the previous ten trading days of Envision common
stock prior to August 22, 2000, the date on which the terms of the Settlement
Agreement were agreed

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<PAGE> 19

to in principal, and is reflected in the accompanying condensed consolidated
financial statements.

LEGAL PROCEEDINGS - LIQ, INC. On July 26, 2000, Envision Development Corporation
("Envision") filed for declaratory judgment in the Superior Court, County of
Middlesex, Commonwealth of Massachusetts against Syed Abbas Ali Shah and Ronald
Keusch as shareholders of LiQ, Inc. ("LiQ") to have declared valid and
enforceable the merger agreement or contract between Envision and LiQ. LiQ
merged with Envision on May 8, 2000 pursuant to an Agreement and Plan of Merger
(the "Merger Agreement") dated May 5, 2000 between Envision, LiQ and Mr. Shah.
Mr. Shah was appointed to the Board of Directors of Envision pursuant to the
Merger Agreement. Mr. Shah resigned from the Board of Directors of Envision
prior to the filing of the aforementioned complaint. Mr. Shah and Mr. Keusch
have been suspended as officers as LiQ. On September 1, 2000, the defendants
removed the case to the United States District Court for the District of
Massachusetts.

On July 27, 2000, Envision received notice of a complaint filed by Mr. Shah, Mr.
Keusch and Alan Nathan ("Plaintiffs") in the United States District Court,
Southern District of New York, naming Envision and Andrew L. Evans as
defendants. Plaintiffs are shareholders of Envision. The complaint was filed
under seal by the plantiffs. In its complaint, LiQ, among other things, sought
to rescind the merger between LiQ and Envision (see Note 4). On August 24, 2000,
Envision moved to dismiss the matter on subject matter jurisdiction grounds.

On December 5, 2000, a settlement was reached by all parties. Per the
settlement, the Plantiffs shall transfer to Envision all of the shares of
Envision common stock received as consideration in connection with the merger of
Envision and LiQ. Envision will transfer 950 of the 1,000 shares of LiQ common
stock to the Plantiffs and retain 50 shares of LiQ common stock which will
represent a five percent ownership of LiQ. The defendants will also pay $200,000
to the Plantiffs. The Plantiffs also assumed approximately $300,000 in accounts
payable from Envision. Per the Settlement Agreement, each former LiQ shareholder
is not required to exchange their Envision common stock for LiQ common stock and
may elect to retain their Envision common stock.

LEGAL PROCEEDINGS - WILLIAM PATCH, ALEX ADAMOPOULOS AND JILL HASELMAN. On
September 11, 2000, Envision received notice of a complaint filed by William
Patch, Alex Adamopoulos and Jill Haselman, former executive officers of
Envision, ("Plantiffs") in the Superior Court, County of Middlesex, Commonwealth
of Massachusetts naming Envision Development Corporation, Dean Willard, Michael
Amideo, Andrew Evans and Zero.Net as defendants. In their complaint, the
Plantiffs, among other things, allege that Envision breached the employment
contracts of each defendant and seek severance benefits. Envision believes that
William Patch, Alex Adamopoulos, and Jill Haselman were terminated for cause.
The ultimate outcome of the litigation cannot be ascertained at this time.

LEGAL PROCEEDINGS. The Corporation is also involved in legal proceedings and
litigation arising from the normal course of business. Losses with respect to
these legal proceedings could be material to the Corporation's financial
position.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the condensed
consolidated financial statements and related notes herein included. This
discussion contains forward-looking statements that reflect our plans,
estimates, and beliefs and that involve risks and uncertainties (see Cautionary
Statements Regarding Forward Looking Statements). Our actual results may differ
materially from those anticipated in these forward-looking statements.

RECENT DEVELOPMENTS

On October 25, 2000, Envision was notified by the American Stock Exchange
("Exchange") that the Exchange intended to file an application with the SEC to
delist our shares from the Exchange. On November 6, 2000, the Corporation's
common stock ceased trading on the Exchange. The delisting was a result of our
failure to meet certain Exchange requirements for continued listing.

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<PAGE> 20

On October 31, 2000, Envision disposed of a majority of the assets of its
wholly-owned subsidiary, Envision Massachusetts, pursuant to the terms of a
letter agreement (the "Letter Agreement"), dated October 31, 2000, by and among
Business Solutions Outpost Corporation, ("BSOC"), and Envision. Under this
Letter Agreement, Envision disposed of certain computer equipment and was
released from all of its client contract obligations and certain other
liabilities, including employee liabilities, leases and other third party
commitments. The acquirer, Robert R. Haskell II, President of BSOC, is the
former Vice President of Sales for Envision Massachusetts. As a result of this
transaction, Envision recorded a loss on the disposition of Envision
Massachusetts of approximately $10.5 million, including a $10.0 million
impairment of the remaining goodwill associated with the Envision Massachusetts
acquisition.

The Corporation has limited operating history with significant operating losses
and its future capital needs and cash requirements exceed its current financial
resources. Envision has historically relied on funding to finance operations
under various financing arrangements with ZERO.NET, Inc. ("Zero.Net"), a
significant shareholder, and Dominion Income Management Corporation
("Dominion"), a related company (see Note 7). These lending sources continued to
provide loans until late November 2000 when the borrowings of the Corporation
and its subsidiaries approached $5.0 million, including interest. At this point,
further lending was terminated due to the delisting of Envision common stock
from the American Stock Exchange and the Corporation's inability to meet revenue
forecasts and specific financial requirements of the lender. The loans were
called by the lender.

Efforts to establish alternative financing sources were unsuccessful. Certain
lenders who had previously financed operations of the Corporation's subsidiary,
Interosa, declined to support the borrowing requirements of the business earlier
in the year. The inability of the Corporation to obtain additional financing
moved the Corporation's Board of Directors to direct management to cease
operations in November 2000. The Board of Directors at Interosa took similar
action and directed that management team to cease operations in November 2000.
The lender to Interosa foreclosed on the Interosa assets on December 12, 2000.
The lender has the right to complete a foreclosure proceeding against the assets
of Envision as well. Due to the foreclosure of Interosa and the dispositions of
Envision Massachusetts and LiQ, the Corporation has no significant operating
assets.

On December 5, 2000, a Settlement Agreement and Release ("Settlement Agreement")
was reached by all parties of the LiQ legal proceedings (see Note 9) which
resulted in the effective transfer of 95% of Envision's investment in LiQ to the
Plantiffs and the assumption of approximately $300,000 in accounts payable by
the Plantiffs. The defendants will also pay $200,000 to the Plantiffs.

FACTORS THAT MAY AFFECT FUTURE RESULTS

Forward-looking statements in this document and those made from time to time by
the Corporation through its senior management are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements concerning the expected future revenues or earnings
or concerning projected plans, performance, product development, product
release, as well as other estimates related to future operations are necessarily
only estimates of future results and there can be no assurance that actual
results will not materially differ from expectations. Factors that could cause
actual results to differ materially from results anticipated in forward-looking
statements are discussed in Cautionary Statement Regarding Forward Looking
Statements.

RESULTS OF OPERATIONS

The sale of perfumania.com has been accounted for as a discontinued operation in
accordance with Accounting Principles Board Opinion No. 30, "Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions". Accordingly, results from continuing operations for the current
and prior periods exclude the impact of the perfumania.com business. The net
results for the prior periods are reflected in the loss from discontinued
operations and for the current periods as gain (loss) from and gain on the sale
of discontinued operations.

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<PAGE> 21

REVENUE. Revenues of approximately $294,000 and $787,000 for the three and nine
months ended October 28, 2000, respectively, represent fees generated from
professional services performed by Envision Massachusetts during the second and
third quarters. Envision provides services on a time and material basis and
fixed-price, fixed time-frame basis. When services are provided on a time and
materials basis, revenue is recognized as costs are incurred. When services are
provided on a fixed-price, fixed-timeframe basis, an internally developed
process to estimate and propose fixed prices for such projects is used. The
estimation process accounts for standard billing rates particular to each
project, the technology environment and application type to be applied, and the
project's timetable and overall technical complexity. An Envision management
member must approve all fixed-price proposals. For these contracts, revenue is
recognized using a percentage-of-completion method primarily based on costs
incurred. Provisions for estimated losses on uncompleted contracts are made on a
contract by contract basis and such provisions are recognized in the period in
which the losses are determined.

Financial results from professional services may fluctuate from quarter to
quarter based on such factors as the number, complexity, size, scope and lead
time of projects. More specifically, these fluctuations can result from the
contractual terms and degree of completion of such projects, any delays incurred
in connection with projects, employee utilization rates, the adequacy of
provisions for losses, the accuracy of estimates of resources required to
complete ongoing projects and general economic conditions. In addition, revenue
from a large client may constitute a significant portion of total revenue in a
particular quarter.

On October 31, 2000, Envision disposed of a majority of the assets of Envision
Massachusetts, the subsidiary which generated the revenue from professional
services. In relation to the disposition, Envision was released from all of its
client contract obligations and certain liabilities relating to employees,
leases, and certain commitments to third parties.

OPERATING EXPENSES. Operating expenses consist primarily of payroll and related
expenses, severance, professional fees, facilities costs and other general
corporate expenses. Operating expenses approximated $4.3 million and $12.4
million for the three and nine months ended October 28, 2000, respectively.

LEGAL SETTLEMENT. Legal settlement consists of the fair market value of shares
issued to Biz2Net in connection with the settlement agreement (see Note 9).

RESEARCH AND DEVELOPMENT. Research and development for nine months ended October
28, 2000 was $1.2 million. This is primarily comprised of research and
development expenses for the Interosa and LiQ products.

IN-PROCESS RESEARCH AND DEVELOPMENT. Based on independent third party appraisals
of Interosa and LiQ, approximately $4.1 million of the purchase price was
allocated to in-process research and development. This amount was developed by
estimating the stage of development of in-process research and development
projects at the date of the acquisition, estimating incremental cash flows
generated from such projects, and discounting the net cash flows back to their
present value using a discount rate of 30%, which represents a premium to the
Corporation's cost of capital to take into account the uncertainty surrounding
the successful development of the purchased in-process technology. The
projections were based on management's estimates of market size and growth,
expected trends in technology, expected research and development and selling and
general administrative expenditures, and the expected timing of new product
introductions.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization, primarily
amortization of intangible assets, for the three and nine months ended October
28, 2000 was $13.2 million and $33.2 million, respectively. Intangible assets
are amortized on a straight-line basis over three to ten years. These intangible
assets are subject to review of recoverability based on various factors
including Envision's ability to generate future revenues sufficient to warrant
the intangible amounts capitalized. The value of the intangible assets was
impaired during the second and third fiscal quarters.

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IMPAIRMENT OF INTANGIBLES. As a result of the significance of the events and
circumstances described in Note 6 to the condensed consolidated financial
statements, management began an evaluation of the recoverability of the assets
of Interosa, LiQ, Envision Massachusetts and VP IP. Management concluded from
the results of these evaluations that a significant impairment of intangible
assets had occurred based on the methodology described in Note 6. An impairment
charge was required because the estimated fair value was less than the carrying
value of the assets. Impairment charges approximating $113.5 million and $225.8
million were recorded during the three and nine months ended October 28, 2000,
respectively.

OTHER INCOME. Other income of approximately $262,000 for the three months ended
October 28, 2000 primarily relates to the disposition of the lease for the
corporate headquarters in Marlboro, Massachusetts.

DISCONTINUED OPERATIONS. Losses from discontinued operations approximated $1.1
million for the nine months ended October 28, 2000 compared to a loss of
approximately $2.3 million for the same period in 1999.

NET LOSS. As a result of the factors discussed above, primarily relating to
impairment charges, depreciation and amortization and litigation charges, the
net loss approximated $128.7 million and $286.3 million for the three and nine
months ended October 28, 2000, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Envision's principal capital requirements are for working capital purposes,
including payroll and general operating expenses.

At October 28, 2000, the Corporation had negative working capital of $5.4
million compared to working capital of $8.9 million (excluding assets from
discontinuing operations of $832,000) at January 29, 2000. The decrease in
working capital was due mainly to the decrease in cash used for operating
expenses along with increase in accounts payable and accrued expenses and notes
payable to stockholders. The results also reflect the consolidation of the
acquisitions.

During the nine months ended October 28, 2000, the Corporation used
approximately $12.8 million in our operating activities. This was mainly the
result of losses from continuing operations of $311.3 million offset by
impairment and amortization of goodwill, losses on Biz2Net litigation, loss on
sale of stock by subsidiary, an increase in accounts payables and accrued
expenses and the gain on the sale of discontinued operations.

Net cash used in investing activities approximated $1.7 million for the nine
months ended October 28, 2000. These expenditures are primarily related to the
purchase of computer hardware and software to support the operations and
advances to affiliates.

Net cash provided by financing activities approximated $5.3 million for the nine
months ended October 28, 2000 was primarily provided by lenders (see Note 7).

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that management team to cease operations in November 2000. The lender to
Interosa foreclosed on the Interosa assets on December 12, 2000. The lender has
the right to complete a foreclosure proceeding against the assets of Envision as
well. Due to the foreclosure of Interosa and the dispositions of Envision
Massachusetts and LiQ, the Corporation has no significant operating assets.

YEAR 2000 READINESS

Envision has not experienced any material problems with the network
infrastructure, software, hardware and computer systems relating to the
inability to recognize appropriate dates related to the year 2000. Envision is
not aware of any Year 2000 problem with customers, suppliers or vendors.
Accordingly, Envision does not anticipate incurring material expenses or
experiencing any material operational disruptions as result of any Year 2000
issues.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1999, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 137, which delays the effective date of
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities"("SFAS 133"). Among other provisions, SFAS
133 establishes accounting and reporting standards for derivative instruments
and for hedging activities. It also requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS 133 is effective for
financial statements for fiscal years beginning after June 15, 2000. Management
has not determined the effect, if any, of adopting SFAS 133.

In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements". SAB
101 provides guidance for revenue recognition under certain circumstances. The
accounting and disclosures prescribed by SAB 101 will be effective for the
fourth quarter of 2000. Management has not determined the effect, if any, of
adopting SAB 101.

FASB recently issued FASB Interpretation No. 44 ("FIN 44"), "Accounting for
Certain Transactions Involving Stock Compensation: An Interpretation of APB
Opinion No. 25". FIN 44 provides guidance regarding the scope of APB Opinion No.
25, "Accounting for Stock Issued to Employees", and its application to certain
transactions. FIN 44 is effective on July 1, 2000. It applies on a prospective
basis to events occurring after that date, except for certain transactions
involving options granted to nonemployees, repriced fixed options and
modifications to add reload option features. The adoption had a material effect
on the Corporation's current consolidated financial statements for the
acquisition of Envision Massachusetts and it may impact future accounting
regarding stock option transactions.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Envision is exposed to interest rate risk in the normal course of business.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information set forth in Note 9, "Commitments and Contingencies" of the
condensed consolidated financial statements included in Part I of this report is
incorporated by reference into Part II of this report.

ITEM 2. CHANGES IN SECURITIES AND USES OF PROCEEDS

The information regarding the issuances of shares set forth in Note 4,
"Acquisitions", and Note 9, "Commitments and Contingencies", of the condensed
consolidated financial statements included in Part I of this report is
incorporated by reference into Part II of this report.

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ITEM 5. OTHER INFORMATION

The information set forth in "Recent Developments" under Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in Part I of this report is incorporated by reference into Part II of
this report.

The information set forth in Note 2, "Recent Developments and Liquidity", Note
5, "Dispositions", Note 7, "Related Party Transactions" and Note 9, "Commitments
and Contingencies" of the condensed consolidated financial statements included
in Part I of this report is incorporated by reference into Part II of this
report.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) The following exhibits are filed as a part of this report:

27.1 Financial Data Schedule

99.1 Press release, dated November 29, 2000, announcing the decision to
temporarily cease operations

99.2 Press release, dated November 27, 2000, announcing the loss of funding

99.3 Press release, dated November 6, 2000, announcing the delistment from
the American Stock Exchange

99.4 Press release, dated October 25, 2000, announcing the commencement of
delisting procedures by the American Stock Exchange

(b) Reports on Form 8-K

On November 15, 2000, Envision filed a Current Report on Form 8-K dated October
31, 2000, to report certain information under Item 2, Acquisition or Disposition
of Assets, regarding the disposition of Envision Massachusetts.

On November 6, 2000, Envision filed a Current Report on Form 8-K dated November
6, 2000, to report certain information under Item 5, Other Events, to describe
legal proceedings.

On October 31, 2000, Envision filed a Current Report on Form 8-K dated October
31,

2000, to report certain information under Item 5, Other Events, to announce the
resignations of Alan Rudd and Sunny Vanderbeck.

On October 26, 2000, Envision filed a Current Report on Form 8-K dated October
25, 2000, to report certain information under Item 5, Other Events, to attach a

press release describing the intention of the American Stock Exchange to file an
application with the SEC to delist the Corporation's shares from the exchange.

On August 9, 2000, Envision filed a Current Report on Form 8-K dated August 9,
2000, to report certain information under Item 5, Other Events, to attach a
press release describing a corporate reorganization.

On June 29, 2000, Envision filed a Current Report on Form 8-K dated June 23,
2000, to report certain information under Item 6, Resignation of a Director, to
announce the resignation of Jake Weinstock.

On June 2, 2000, Envision filed a Current Report on Form 8-K dated May 24, 2000,
to report certain information under Item 5, Other Events, regarding the Biz2Net
litigation.

On May 30, 2000, Envision filed a Current Report on Form 8-K dated May 16, 2000,
to report certain information under Item 2, Acquisition or Disposition of
Assets, regarding its acquisition of Envision Development Corporation, a
Massachusetts corporation. On July 31, 2000, Amendment No. 1 to such Current
Report on Form 8-K was filed by Envision.

On May 25, 2000, Envision filed a Current Report on Form 8-K dated May 10, 2000,
to report certain information under Item 2, Acquisition or Disposition of
Assets, regarding the disposition of perfumania.com, inc.

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On May 22, 2000, Envision filed a Current Report on Form 8-K dated May 5, 2000,
to report certain information under Item 2, Acquisition or Disposition of
Assets, regarding its acquisition of LiQ, Inc., a Delaware corporation. On July
19, 2000, Amendment No. 1 to such Current Report on Form 8-K was filed by
Envision.

On May 3, 2000, Envision filed a Current Report on Form 8-K dated May 2, 2000,
to report certain information under Item 4, Change in Registrant's Certifying
Accountant, regarding the appointment of Grant Thornton LLP as the principal
accountants.

On May 3, 2000, Envision filed a Current Report on Form 8-K dated April 27,
2000, to report certain information under Item 2, Acquisition or Disposition of
Assets, regarding its acquisition of VP IP, Inc. On July 7, 2000, Amendment No.
1 to such Current Report on Form 8-K was filed by Envision.

On April 24, 2000, Envision filed a Current Report on Form 8-K dated April 7,
2000, to report certain information under Item 2, Acquisition or Disposition of
Assets, regarding its acquisition of Interosa, Inc. On June 21, 2000, Amendment
No. 1 to such Current Report on Form 8-K was filed by Envision.

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ENVISION DEVELOPMENT CORPORATION

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused the report to be signed on its behalf by the
undersigned, thereunto duly authorized.

ENVISION DEVELOPMENT CORPORATION
Registrant

December 23, 2000 /s/ Dean M. Willard
-----------------------------------
Dean M. Willard
Chairman of the Board of Directors