<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 APRIL 29, 2000
COMMISSION FILE NUMBER 001-15311
ENVISION DEVELOPMENT CORPORATION
(Successor to perfumania.com, inc.)
(Exact name of registrant as specified in its charter)
Florida 65-0981457
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4 MOUNT ROYAL AVENUE, MARLBORO, MA 01752
(Address of principal executive office)
(508) 481-8303
(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 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 June 9, 2000, Envision Development Corporation had 8,792,500
shares of common stock, $0.01 par value, outstanding.
<PAGE> 2
Envision Development Corporation
(Successor to perfumania.com, inc.)
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
Consolidated Balance Sheets........................................... 3
Consolidated Statements of Operations................................. 4
Consolidated Statement of Cash Flows.................................. 5
Notes to Consolidated Financial Statements............................ 7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation........................ 12
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K...................................... 14
Signatures............................................................ 15
</TABLE>
2
<PAGE> 3
Envision Development Corporation
(Successor to perfumania.com, inc.)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
April 29, January 29,
2000 2000
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,610,321 $ 9,208,501
Restricted cash 650,000 --
Prepaid expenses and other current assets 231,381 --
Advances to affiliates 891,000 --
------------- -------------
Total current assets 5,382,702 9,208,501
Net assets from discontinued operations 2,051,836 832,208
Property and equipment, net 896,195 --
Intangible assets 101,733,864 --
------------- -------------
Total assets $ 110,064,617 $ 10,040,709
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 1,607,595 $ 322,900
Notes payable to stockholder 1,100,000
------------- -------------
Total liabilities $ 2,707,575 $ 322,900
============= =============
Commitments and contingencies -- --
------------- -------------
Stockholders' 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, 9,192,500 and 7,500,000 shares
issued and outstanding as of April 29, 2000 and
January 29, 2000, respectively 91,925 75,000
Additional paid in capital 119,197,816 15,194,771
Accumulated deficit (11,932,699) (5,551,962)
------------- -------------
Total shareholders' equity 107,357,042 9,717,809
------------- -------------
Total liabilities and shareholders' equity $ 110,064,617 $ 10,040,709
============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE> 4
Envision Development Corporation
(Successor to perfumania.com, inc.)
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
April 29, 2000 May 1, 1999
-------------- -----------
<S> <C> <C>
Net sales $ -- $ --
Cost of sales -- --
----------- -----------
Gross profit -- --
----------- -----------
Operating expenses:
General and administrative expenses 2,494,855 --
Amortization of intangible assets 2,889,445 --
----------- -----------
Total operating expenses 5,384,300
----------- -----------
Loss from operations, before interest income
and results of operaiton from discontinued
operations (5,384,300) --
Interest income, net 90,828 --
----------- -----------
Loss from operations before results of operations
from discontinued operations (5,293,472) --
Loss from discontinued operations (1,087,265) (764,657)
----------- -----------
Net loss $(6,380,737) $ (764,657)
=========== ===========
Basic and diluted loss per common share:
Loss from continuing operations $ (0.67) $ (0.00)
Loss from discontinued operations $ (0.14) $ (0.15)
----------- -----------
$ (0.81) $ (0.15)
=========== ===========
Weighted average number of common shares
outstanding used in basic and diluted
calculation 7,921,181 5,000,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE> 5
Envision Development Corporation
(Successor to perfumania.com, inc.)
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
April 29, 2000 May 1, 1999
-------------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(6,380,737) $ (764,657)
Adjustments to reconcile net loss to net cash
used in operating activities of continuing operations:
Loss from discontinued operations 1,087,265 764,657
Depreciation and amortization 2,889,445 --
Changes in operating assets and liabilities, net of
acquisitions:
Increase in prepaid expenses and other current assets (54,630) --
Increase in accounts payables and accrued expenses 1,091,866 --
----------- -----------
Net cash used in operating activities of continuing operations (1,366,791) --
Net cash used in operating activities of discontinued operations (2,306,893) (765,465)
----------- -----------
Net cash used in operating activities (3,673,684) 808
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (664,172) --
Advances to affiliates (891,000) --
----------- -----------
Net cash used in continuing operations --
Net cash used in discontinued operations -- --
----------- -----------
Net cash used in investing activities (1,555,172) --
----------- -----------
Cash flows from financing activities:
Increase in restricted cash (650,000) --
Proceeds from note payable to stockholder 200,000 --
----------- -----------
Net cash used in continuing operations (450,000) --
Net cash provided by discontinued operations -- --
----------- -----------
Net cash used in financing activities (450,000) --
----------- -----------
(Decrease) increase in cash and cash equivalents (5,594,193) 808
Cash and cash equivalents, beginning of period 9,208,501 100,000
----------- -----------
Cash and cash equivalents, end of period $ 3,614,308 $ 100,808
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE> 6
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:
All of the consideration for Qui Vive, Inc. and VP IP, Inc. included
the issuance of shares of Envision Development Corporation's common stock. See
Note 4 in the accompanying Notes to Consolidated Financial Statements.
The accompanying notes are an integral part of these
consolidated financial statements.
6
<PAGE> 7
Envision Development Corporation
(Successor to perfumania.com, inc.)
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1 - BASIS FOR PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements of
Envision Development Corporation ("Envision" or the "Company") 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. 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 8), but it does not include all of the disclosures
required by generally accepted accounting principles. 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 principals to conform with the current year
presentation.
On January 7, 1999, perfumania.com was created as a wholly-owned
subsidiary of Perfumania, Inc. ("Perfumania") is a wholly-owned subsidiary
of E Com Ventures, Inc. perfumania.com operates an online store that specializes
in the sale of fragrances, fragrance related products and bath and body products
on a retail and wholesale basis. perfumania.com launched its online store in
February 1999. On September 29, 1999, perfumania.com completed its initial
public offering (see Note 3).
On January 11, 2000, a change in control of perfumania.com occurred
when Alta Limited ("Alta") exercised an option to purchase 2,000,000 shares of
common stock of perfumania.com from Perfumania at a price of $6.00 per share
pursuant to an Option Agreement, dated December 10, 1999, among the Affiliate,
Alta and the optionees who are signatories thereto. In connection with such
exercise, Alta nominated two directors to the Board of Directors of
perfumania.com and an additional four directors were added by the Board of
Directors effective upon the expiration of the waiting requirements of Rule
14f-1 under the Securities Exchange Act of 1934, as amended. Under the Option
Agreement, Alta has a second option (see Note 8) to purchase 500,000 shares of
common stock of Envision at a price of $8.00 per share on or prior to the
earlier to occur of December 31, 2000 or various other events, as defined in the
Option Agreement.
On February 10, 2000, Envision was formed in the State of Florida. The
Company entered into a plan of merger with perfumania.com and EDC Sub, Inc., a
Florida corporation and wholly-owned subsidiary of the Company on February 10,
2000. The plan of merger provided for, among other things, the merger of EDC
Sub, Inc. with perfumania.com, with perfumania.com as the surviving corporation.
As a result, perfumania.com became a direct wholly-owned subsidiary of the
Company.
In addition, each share of common stock, par value $0.01 per share, of
perfumania.com issued and outstanding before the reorganization was converted
into and exchanged for one share of common stock, par value $0.01 per share, of
the Company. Consequently, shareholders of perfumania.com became shareholders of
the Company and ceased to be shareholders of perfumania.com. Pursuant to Florida
Statutes, shareholder approval of this reorganization was not required, and the
reorganization was tax-free for Federal income tax purposes to perfumania.com's
shareholders.
7
<PAGE> 8
NOTE 2 - LIQUIDITY
The Company has a history of significant operating losses and its
future capital needs may exceed its current financial resources. The Company
also anticipates continuing operating losses in the future and presently is
unable to predict when it may become profitable, if at all. As a result of the
foregoing, a significant stockholder of the Company has committed to fund the
Company's operations and cash requirements through June 30, 2001.
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 3,500,000 shares of common stock at an offering price of $7.00 per share.
Of the 3,500,000 shares of common stock, 2,500,000 shares of common stock were
sold by perfumania.com. perfumania.com received proceeds of approximately
$16,100,000, net of $1,400,000 in underwriting discounts and commissions.
perfumania.com used approximately $3,344,000 of the proceeds to repay advances
from Perfumania. Additionally, perfumania.com incurred approximately $496,000 in
other costs in connection with the Offering. In connection with the Offering,
perfumania.com granted common stocks warrant to the underwriters to purchase
350,000 shares of 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
On April 7, 2000, Envision completed the first stage of the acquisition
of 80% of Qui Vive, Inc. ("Qvtech"), 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"). QV
Acquisition, a wholly-owned subsidiary of Envision, acquired shares of Series A
Preferred Stock and shares of Series B Preferred Stock of Qvtech 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 $93,522,470,
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 shares issued
by the Company in connection with the Qvtech 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 value
of Envision's shares included in the purchase price was recorded net of an
estimated 15% market value discount to reflect the restrictions on the
transferability. 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 Qvtech capital stock was determined by
negotiations among the parties to the Agreement.
On April 27, 2000, the Board of Directors of Envision approved the
Amended and Restated Stock Purchase Agreement, dated April 10, 2000, with VP IP,
Inc. ("VP IP"), a Delaware corporation. Pursuant to the terms of this Agreement,
Envision acquired the software and URL of VP IP from the owners of VP IP, which
were Mr. William J. Patch, director and Chief Executive Officer of Envision, Mr.
Patch's immediate
8
<PAGE> 9
family and Alex Adamopoulos, an officer of Envision. The total purchase price
is valued at $10,497,500, consisting of 200,000 shares of Envision common stock.
The shares issued by the Company 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
value of Envision's shares included in the purchase price were recorded net of
an estimated 15% market value discount to reflect the restrictions on the
transferability. 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 Agreement. As a part of this acquisition, Mr. Patch and Mr.
Adamopoulos entered into employment agreements with the Company (see Note 7).
The acquisition of Qvtech has been accounted for using the purchase
method of accounting, and, accordingly, the purchase price of the Qvtech
acquisition was preliminarily allocated to the assets acquired and liabilities
assumed based on their estimated fair values at the acquisition date. The
results of operations for Qvtech are included with those of the Company from the
date of the acquisition. The acquisition of VP IP is an acquisition of assets,
and, accordingly, the purchase price was preliminarily allocated to the assets
acquired.
The purchase price for the above acquisitions 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 (192,809)
Notes payable to stockholder (900,000)
-----------
Total liabilities assumed (1,092,809)
-----------
Net non-cash liabilities assumed (684,035)
Cash acquired --
-----------
Net liabilities assumed $ (603,359)
===========
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 $104,019,970
Net liabilities assumed 603,359
-----------
Amount allocated to intangible
assets $104,623,329
===========
In connection with the acquisitions of Qvtech and VP IP, $104,623,329
was assigned to intangible assets. The amount assigned to intangible assets is
preliminary and is subject to adjustment upon finalization of the purchase
accounting. The finalization of the purchase accounting for Qvtech and VP IP may
result in a significant portion of the aggregate purchase price being identified
as in-process research and development, which will be charged to operations
during the second quarter of fiscal year 2001 when the amounts are determined.
Various factors are being considered in determining the amount of the purchase
price to be allocated to in-process research and development such as, estimating
the stage of development of each in-process research and development project at
the date of acquisition, estimating cash flows resulting from the expected
revenues generated from such projects and discounting the net cash flows, in
addition to other assumptions. The estimate of the cash flows resulting from the
expected revenues generated from the projects is dependent upon a number of risk
factors and uncertainties, including the rate of market acceptance of the
projects, rapid technological changes, the financial resources of our customers
and the low barriers to entry for potential competitors, some of which have
access to greater resources than
9
<PAGE> 10
the Company. The remaining identified intangibles, including the value of
purchased technology and other intangibles, are will be amortized on a
straight-line basis over a period of three years.
Presented below is the unaudited selected pro forma financial
information for the three month period ended April 29, 2000 as if the
acquisition of Qvtech had occurred at the beginning of the period. The unaudited
proforma financial information for the three month period ended May 1, 1999 is
not presented due to the discontinued operation. The unaudited pro forma
financial information is provided for informational purposes only and should not
be construed to be indicative of the Company's consolidated results of
operations had the acquisition been consummated on the dates assumed and do not
project the Company's results of operations for any future period:
Three months ended
-------------------
April 29, 2000
--------------
Net revenues $ --
Loss from continuing operations $(12,274,283)
Loss per share $ (1.32)
Weighted average number of
shares 9,333,000
NOTE 5 - 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 VP IP
(see Note 4).
Qvtech entered into three notes payable for $300,000 each with
ZERO.NET. Inc. ("ZERO.NET"), a significant stockholder of Envision, prior to the
acquisition 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.
Due from Affiliate includes amounts payable from companies for which
the acquisitions have not been completed as of the end of the period, primarily
LiQ, Inc. ("LiQ") and Envision Development Corporation, an unrelated
Massachusetts corporation ("Envision Massachusetts") with the same name as the
Company (see Note 8).
NOTE 6 - 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 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 months ended April 29, 2000
and for the three months ended May 1, 1999 have not been included in the diluted
loss per share because their effects would be anti-dilutive due to the loss
incurred by Envision. Accordingly, diluted loss per common share is the same as
basic loss per common share for the periods presented.
NOTE 7 - 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.
10
<PAGE> 11
LEASE AGREEMENT. On April 20, 2000, the Board of Directors approved a
lease for the new corporate headquarters in Bridgewater, Massachusetts. The
lease commences on August 1, 2000 for a term of seven years. The minimum lease
payments are 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 Company was required
to provide a stand-by letter of credit in the amount of $650,000. Such amount
has been included in the accompanying consolidated balance sheet as
restricted cash.
LEGAL PROCEEDINGS. On May 24, 2000 Envision received notice of a
complaint filed by Biz2Net Corporation ("Biz2Net" or "Plantiff") 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.
Furthermore, Envision believes that the allegations are without merit and will
vigorously defend this action.
NOTE 8 - SUBSEQUENT EVENTS
LIQ ACQUISITION. On May 5, 2000, the Board of Directors of Envision
approved an Agreement and Plan of Merger with LiQ, a Delaware corporation.
Envision issued 640,000 shares of its common stock in exchange for all of the
issued and outstanding shares of LiQ. The transaction will be accounted for as a
purchase. 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.
PERFUMANIA.COM DISPOSITION. 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. 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 transaction requires approval by Envision's
shareholders. The disposition is accounted for as a discontinued operation in
the accompanying comdensed consolidated financial statements. Management expects
to recognize a gain on the disposal of the discontinued operation in the second
quarter.
ENVISION MASSACHUSETTS ACQUISITION. On May 16, 2000, Envision acquired
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 the Envision, Envision Acquisition Corporation
("EAC"), Envision Massachusetts and certain stockholders of Envision
Massachusetts.
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. All the issued and outstanding
common stock of Envision Massachusetts was converted into 1,513,072 shares of
common stock, par value $0.01, of the Envision, and all the issued and
outstanding options for common stock of Envision Massachusetts were converted
into 373,421 options for common stock of the Envision.
11
<PAGE> 12
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. Our actual
results may differ materially from those anticipated in these forward-looking
statements.
OVERVIEW
Envision was created on February 10, 2000, through a plan of merger
with perfumania.com and EDC Sub, Inc., a wholly-owned subsidiary of the Company.
The plan of merger provided for, among other things, the merger of EDC Sub, Inc.
with perfumania.com, with perfumania.com as the surviving corporation. As a
result, perfumania.com became a direct wholly-owned subsidiary of the Company.
perfumania.com, inc. was sold on May 10, 2000; therefore, the operations of
perfumania.com have been included in the accompanying condensed consolidated
statement of operations as discontinuing operations.
RESULTS OF OPERATIONS
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses consist of payroll and related expenses for executive, accounting and
administrative personnel, recruiting, professional fees and other general
corporate expenses. General and administrative expenses totaled $2,242,329 for
the three months ended April 29, 2000. Envision anticipates that its general and
administrative expenses will continue to increase significantly as the Company
adds newly acquired subsidiaries and as existing subsidiaries continue to grow
and expand their administrative staffs and infrastructures.
AMORTIZATION OF INTANGIBLE ASSETS. The amortization of intangible
assets reflects the recorded intangible assets related to the acquisitions of
QVtech and VP IP. Envision is in the process of finalizing the purchase
accounting for these acquisitions and expects to complete the purchase
accounting during the second quarter of fiscal year 2001. The finalization of
the purchase accounting for QVtech and VP IP may result in a significant portion
of the aggregate purchase price being identified as in-process research and
development, which will be charged to operations during the second quarter of
fiscal year 2001 when the amounts are determined. Various factors are being
considered in determining the amount of the purchase price to be allocated to
in-process research and development such as, estimating the stage of development
of each in-process research and development project at the date of acquisition,
estimating cash flows resulting from the expected revenues generated from such
projects and discounting the net cash flows, in addition to other assumptions.
The estimate of the cash flows resulting from the expected revenues generated
from the projects is dependent upon a number of risk factors and uncertainties,
including the rate of market acceptance of the projects, rapid technological
changes, the financial resources of our customers and the low barriers to entry
for potential competitors, some of which have access to greater resources than
the Company. Envision also anticipates that its amortization of intangible
assets will continue to increase as the Company continues to acquire new
companies in the future. 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.
NET LOSS. As a result of the factors discussed above, primarily
relating to general and administrative expenses and the amortization of
intangible assets, the net loss from continuing operations totaled $4,609,631
for the three months ended April 29, 2000. Losses from discontinuing operations
amounted to $1,087,265 for the three months ended April 29, 2000, compared to
$764,657 for the same period in 1999. The increased loss from discontinuing
operations was mainly due to higher marketing and advertising incurred during
the three months ended April 29, 2000.
LIQUIDITY AND CAPITAL RESOURCES
Our principal capital requirements are for working capital purposes,
including payroll and general operating expenses.
12
<PAGE> 13
At April 29, 2000, we had working capital of $2,675,127 (excluding
assets from discontinuing operations of $2,051,836), compared to working capital
of $8,885,601 (excluding assets from discontinuing operations of $832,208) at
January 29, 2000. The decrease in working capital was due mainly to the decrease
in cash along with increase in accounts payable and accrued expenses and notes
payable to stockholder which also reflects the consolidation of Qvtech, during
the three months ended April 29, 2000.
During the three months ended April 29, 2000, we used $1,282,128 in our
operating activities of continuing operations and $2,306,893 our operating
activities of discontinuing operations. This was mainly the result of losses
from continuing operations of $4,609,631 offset by an increase in accounts
payables and accrued expenses, and losses from discontinuing operations of
$1,087,265 and increases in assets from discontinuing operations of $1,219,628.
We used $1,555,172 in investing activities for the three months ended
April 29, 2000. These expenditures are primarily related to the purchase of
computer hardware and software to support the operations and expected growth,
and $691,000 of advances to affiliates, which are companies for which the
acquisition has not been completed as of April 29, 2000.
Net cash used in financing activities of $450,000 for the three months
ended April 29, 2000 was related to a fully collateralized stand-by letter of
credit issued to the developer of the new headquarter facilities of the company
in Bridgewater, Massachusetts.
Our long-term capital requirements beyond this period will depend on
numerous factors, including, but not limited to, the following:
o The rate of market acceptance of the our products;
o The ability to integrate acquired companies;
o The cost of increase personnel to support Envision's expected
growth; and
o The level of expenditures for general and administrative
expenses.
If our revenues are insufficient to fund the activities in the short or
long term, we would need to raise additional funds by incurring debt or through
public or private offerings of our stock. We may not be able to do either on
terms favorable to us, if at all.
The Company has a history of significant operating losses and its
future capital needs may exceed its current financial resources. The Company
also anticipates continuing operating losses in the future and presently is
unable to predict when it may become profitable, if at all. As a result of the
foregoing, a significant stockholder of the Company has committed to fund the
Company's operations and cash requirements through May 31, 2001.
YEAR 2000 READINESS
Envision have 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.
13
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
On April 27, 2000, Envision filed a Current Report on Form 8-K dated
April 20, 2000, to report certain information under Item 5, Other Events and
Item 6, Resignation of Director.
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, certain information regarding its acquisition of Envision
Development Corporation, a Massachusetts corporation.
On April 11, 2000, Envision filed a Current Report on Form 8-K, dated
April 4, 2000, to report certain information under Item 4, Changes in
Registrant's Certifying Accountants. On April 13, 2000, Amendment No. 1 to such
Current Report on Form 8-K was filed by Envision.
On February 18, 2000, Envision filed a Current Report on Form 8-K dated
February 8, 2000, to report certain information under Item 5, Other Events.
14
<PAGE> 15
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
June 13, 2000
/s/ Michael E. Amideo
-----------------------------------
Michael E. Amideo
Chief Financial Officer,
(Principal Financial and
Accounting Officer)
June 13, 2000
/s/ William J. Patch
-----------------------------------
William J. Patch
Chairman of the Board of Directors
and Chief Executive
Officer
15
