-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JNA7CW1B76MmxJmjQRCjAOjcw2Tmh17gfdJTXoliqbHw7aDoSVZtisNVZS4J1hEZ 0yqTf9YTOOC4cAEOPnHoPw== 0001116502-01-500947.txt : 20010815 0001116502-01-500947.hdr.sgml : 20010815 ACCESSION NUMBER: 0001116502-01-500947 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HBOA HOLDINGS INC CENTRAL INDEX KEY: 0001042463 STANDARD INDUSTRIAL CLASSIFICATION: OIL AND GAS FIELD EXPLORATION SERVICES [1382] IRS NUMBER: 651053546 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-24977 FILM NUMBER: 1713504 BUSINESS ADDRESS: STREET 1: 2400 E COMMERCIAL BLVD STREET 2: SUITE 211 CITY: FT LAUDERDALE STATE: FL ZIP: 33308 BUSINESS PHONE: 3039329998 MAIL ADDRESS: STREET 1: 2400 E COMMERCIAL BLVD STREET 2: SUITE 211 CITY: FT LAUDERDALE STATE: FL ZIP: 33308 FORMER COMPANY: FORMER CONFORMED NAME: MIZAR ENERGY CO DATE OF NAME CHANGE: 19980923 10QSB 1 hboa-10qsb.txt QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________ COMMISSION FILE NUMBER: 0-24977 HBOA HOLDINGS, INC. ------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Florida 65-1053546 ------------- -------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification Number) 5200 NW 33rd Avenue, Suite 215 Ft. Lauderdale, FL 33309 (Address of principal executive offices, including zip code) (954) 938-8010 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such requirements for the past 90 days. YES [X] NO [ ] The number of issued and outstanding shares of the Registrant's Common Stock, $0.001 par value, as of June 30, 2001 was 21,625,000. HBOA HOLDINGS, INC. PART I - FINANCIAL INFORMATION
PAGE ---- Item 1. Financial Statements: Consolidated Balance Sheets as of June 30, 20001 and December 31, 2000...................................................................4 Consolidated Statements of Operations for the Three months and Six Months Ended June 30, 2001 and 2000 and for the period from July 7, 1998 (date of inception) to June 30, 2001.......................................................................5 Consolidated Statements of Changes in Stockholders' Equity from July 7, 1998 (date of inception) through June 30, 2001 ..............6-10 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2001 and 2000 and for the period from July 7, 1998 (date of inception) through June 30, 2001..................................11 Notes to Consolidated Financial Statements...............................12-19 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.....................................................20-33 PART II - OTHER INFORMATION Item 5. Other Information ...................................................................33 Item 6. Exhibits and Reports on Form 8-K.....................................................33 Signatures...........................................................................34
2 HBOA HOLDINGS, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED BALANCE SHEET (Unaudited) JUNE 30, 2001 Assets Current assets Cash $ 25,014 Accounts receivable -- Other receivables -- Prepaid expenses 16,994 -------- Total current assets $ 42,008 Property and equipment, net 64,693 Intangible assets, net 146,464 Other assets Deposits 7,980 Due from related party 6,923 -------- 14,903 -------- $268,068 ======== See notes to financial statements. 3 HBOA HOLDINGS, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED BALANCE SHEET (Unaudited) JUNE 30, 2001 Liabilities and Stockholders' Equity Current liabilities Accounts payable $ 34,605 Accrued salaries 10,246 Payroll taxes -- Due to related parties 100,000 ----------- Total current liabilities $ 144,851 Stockholders' equity Common stock, $0.0005 par value, 25,000,000 shares authorized; 21,625,000 shares issued 10,812 Additional paid in capital 3,669,588 Deficit accumulation during the development stage (3,544,683) ----------- 135,717 Less: Treasury stock, 50,000 shares at cost (12,500) ------------ 123,217 --------- $ 268,068 ========== See notes to financial statements. 4 HBOA HOLDINGS, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Period from July 7, 1998 For the period ended June 30, (Date of inception) Three months ended Six months ended to 2001 2000 2001 2000 June 30, 2001 --------------------------- --------------------------- ------------------- Income Sales net of returns $ 1,020 $ 1,610 $ 2,148 $ 2,555 $ 15,229 Management fees -- -- 11,778 Cost of sales (9) (193) (5,569) (331) (13,126) --------------------------- --------------------------- ----------- Gross profit 1,011 1,417 (3,421) 2,224 13,881 Expenses Salaries 66,515 81,130 196,531 110,726 688,345 Consulting -- 51,500 110,225 160,609 1,751,307 Professional fees 12,468 12,933 52,980 27,084 247,094 Marketing and advertising 7,229 3,026 18,175 17,606 100,897 Loss on web site design -- 14,610 24,128 49,316 Rent -- 15,972 63,241 30,582 160,624 Other general and administrative expenses 32,559 34,865 76,665 89,063 387,511 Loss on purchase option -- -- 139,255 Depreciation and amortization 21,608 1,198 39,549 1,722 73,464 --------------------------- --------------------------- ----------- 140,379 215,234 557,366 461,520 3,597,813 Other income Interest income 69 14,798 1,541 17,122 39,249 --------------------------- --------------------------- ----------- Net loss $ (139,299) $ (199,019) $ (559,246) $ (442,174) $(3,544,683) =========================== =========================== =========== Earnings per share Net loss per common share $ (0.01) $ (0.02) $ 0.03 $ (0.04) $ (0.16) --------------------------- --------------------------- -----------
See notes to financial statements. 5 HBOA HOLDINGS, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY PERIOD FROM JULY 7, 1998 (DATE OF INCEPTION) TO JUNE 30, 2001
Deficit accumulated Common Stock Paid in through the Shares Amount Capital Development stage ------------ --------- ------------ ---------------- Issuance of common stock for cash on July 7, 1998 6,426,975 $ 75,000 $ -- $ -- Net loss December 31, 1998 -- -- -- (52,257) --------- --------- ------------ --------- Balance December 31, 1998 6,426,975 75,000 (52,257) Issuance of common stock for cash 2,142,325 25,000 -- -- Merge of Home Based Business Owner Association of America, Inc. and HBOA Com, Inc. -- 990 -- -- Issuance of common stock for cash on April 20, 1999 8,569 10,000 -- -- Issuance of common stock for cash on April 22, 1999 1,714 2,000 -- -- Issuance of common stock for cash on April 30, 1999 86 100 -- -- --------- --------- ------------ --------- Sub-total 8,579,669 $ 113,090 $ -- $ (52,257) [RESTUBBED] Treasury Stock Shares Amount TOTAL ------------ ---------- ---------- Issuance of common stock for cash on July 7, 1998 -- $ -- $ 75,000 Net loss December 31, 1998 -- -- (52,257) --------- ------------ --------- Balance December 31, 1998 -- 22,743 Issuance of common stock for cash -- -- 25,000 Merge of Home Based Business Owner Association of America, Inc. and HBOA Com, Inc. -- -- 990 Issuance of common stock for cash on April 20, 1999 -- -- 10,000 Issuance of common stock for cash on April 22, 1999 -- -- 2,000 Issuance of common stock for cash on April 30, 1999 -- -- 100 --------- ------------ --------- Sub-total -- $ -- $ 60,833
See notes to financial statements. 6 HBOA HOLDINGS, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY PERIOD FROM JULY 7, 1998 (DATE OF INCEPTION) TO JUNE 30, 2001
Deficit accumulated Common Stock Paid in through the Shares Amount Capital Development stage ------------ --------- --------- ---------------- Sub-total 8,579,669 $ 113,090 $ -- $ (52,257) Issuance of common stock for cash on May 11, 1999 2,571 3,000 -- -- Issuance of common stock for cash on May 28, 1999 1,285 1,500 -- -- Issuance of common stock for cash on June 7, 1999 2828 3300 -- -- Issuance of common stock for cash on July 12, 1999 428 500 -- -- Issuance of common stock in exchange for services per contract on December 31, 1999 857 1,000 -- -- Issuance of common stock in exchange for loan payable to a related party on December 31, 1999 181,584 211,900 -- -- Contribution of shares from principal shareholders (199,922) -- -- -- ---------- ---------- ------------ ---------- Sub-total 8,569,300 $ 334,290 $ -- $ (52,257) [RESTUBBED] Treasury Stock Shares Amount TOTAL ------------ ----------- ------------ Sub-total -- $ -- $ 60,833 Issuance of common stock for cash on May 11, 1999 -- -- 3,000 Issuance of common stock for cash on May 28, 1999 -- -- 1,500 Issuance of common stock for cash on June 7, 1999 -- -- 3300 Issuance of common stock for cash on July 12, 1999 -- -- 500 Issuance of common stock in exchange for services per contract on December 31, 1999 -- -- 1,000 Issuance of common stock in exchange for loan payable to a related party on December 31, 1999 -- -- 211,900 Contribution of shares from principal shareholders -- -- -- --- ------------ ---------- Sub-total -- $ -- $ 282,033
See notes to financial statements. 7 HBOA HOLDINGS, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY PERIOD FROM JULY 7, 1998 (DATE OF INCEPTION) TO JUNE 30, 2001
Deficit accumulated Common Stock Paid in through the Shares Amount Capital Development stage ------------ ------------ ------------ ---------------- Sub-total 8,569,300 $ 334,290 $ -- $ (52,257) Net loss December 31, 1999 -- -- -- (327,921) ----------- ----------- ------------ ----------- Balance December 31, 1999 8,569,300 $ 334,290 $ -- $ (380,178) Issuance of common stock according to the private offering dated February 7, 2000 net of offering expenses 1,730,998 1,810,872 -- -- Issuance of common stock in exchange for loan payable to a related party on June 30, 2000 9,640 11,249 -- -- Prorated return of capital to common shareholders based on dividends -- (6,936) -- -- Issuance of common stock in exchange for services per contract on June 30, 2000 5,313 6,200 -- -- Issuance of common stock for cash, on June 30, 2000 5,056 5,900 -- -- ----------- ----------- ------------ ----------- Sub-total 10,320,307 $ 2,161,575 $ -- $ (380,178) [RESTUBBED] Treasury Stock Shares Amount TOTAL ---------- ----------- ----------- Sub-total -- $ -- $ 282,033 Net loss December 31, 1999 -- -- (327,921) --- ----------- ----------- Balance December 31, 1999 -- $ -- $ (45,888) Issuance of common stock according to the private offering dated February 7, 2000 net of offering expenses -- -- 1,810,872 Issuance of common stock in exchange for loan payable to a related party on June 30, 2000 -- -- 11,249 Prorated return of capital to common shareholders based on dividends -- -- (6,936) Issuance of common stock in exchange for services per contract on June 30, 2000 -- -- 6,200 Issuance of common stock for cash, on June 30, 2000 -- -- 5,900 --- ----------- ----------- Sub-total -- $ -- $ 1,781,397
See notes to financial statements. 8 HBOA HOLDINGS, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY PERIOD FROM JULY 7, 1998 (DATE OF INCEPTION) TO JUNE 30, 2001
Deficit accumulated Common Stock Paid in through the Shares Amount Capital Development stage ---------- ----------- --------- ---------------- Sub-total 10,320,307 $ 2,161,575 $ -- (380,178) Contribution of shares from principal shareholders (1,751,007) -- -- -- Acquisition of assets of Mizar Energy on May 31, 2000 1,430,700 510 -- -- Additional paid in capital from shareholders -- -- 65,000 -- Recapitalization on May 31, 2000 -- (2,152,085) 2,152,085 -- On November 28, 2000, shares of common stock were issued to a consultant in exchange for consulting services 440,000 440 687,060 -- On November 20, 2000, shares of common stock were issued to consultants in exchange for consulting services 350,000 350 568,400 -- ----------- ----------- ----------- ----------- Sub-total 10,790,000 $ 10,790 $ 3,472,545 $ (380,178) [RESTUBBED] Treasury Stock Shares Amount TOTAL -------- -------- ------------ Sub-total -- $ -- $ 1,781,397 Contribution of shares from principal shareholders -- -- -- Acquisition of assets of Mizar Energy on May 31, 2000 -- -- 510 Additional paid in capital from shareholders -- -- 65,000 Recapitalization on May 31, 2000 -- -- -- On November 28, 2000, shares of common stock were issued to a consultant in exchange for consulting services -- -- 687,500 On November 20, 2000, shares of common stock were issued to consultants in exchange for consulting services -- -- 568,750 --- --------- ----------- Sub-total -- $ -- $ 3,103,157
See notes to financial statements. 9 HBOA HOLDINGS, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY PERIOD FROM JULY 7, 1998 (DATE OF INCEPTION) TO JUNE 30, 2001
Deficit accumulated Common Stock Paid in through the Shares Amount Capital Development stage ---------- ----------- ------------ ---------------- Sub-total 10,790,000 $ 10,790 $ 3,472,545 $ (380,178) On December 11, 2000, shares of common stock were issued in exchange for options granted to an officer 22,500 22 33,728 -- Compensation for consulting services in exchange of stock options and warrants -- -- 59,770 -- Stock reacquired on December 7, 2000 totaling 50,000 shares at cost -- -- -- -- Stock split 2:1 10,812,500 -- -- -- Net loss December 31, 2000 -- -- -- (2,605,259) ----------- ----------- ----------- ----------- Balance December 31, 2000 21,625,000 10,812 3,566,043 (2,985,437) Additional capital paid in from shareholders -- -- 3,360 -- Compensation for consulting services in exchange of stock options and warrants -- -- 100,185 -- Net loss June 30, 2001 -- -- -- (559,246) ----------- ----------- ----------- ----------- 21,625,000 $ 10,812 $ 3,669,588 $(3,544,683) =========== =========== =========== =========== [RESTUBBED] Treasury Stock Shares Amount TOTAL ---------- ------------ --------- Sub-total -- $ -- $ 3,103,157 On December 11, 2000, shares of common stock were issued in exchange for options granted to an officer -- -- 33,750 Compensation for consulting services in exchange of stock options and warrants -- -- 59,770 Stock reacquired on December 7, 2000 totaling 50,000 shares at cost (50,000) (12,500) (12,500) Stock split 2:1 -- -- Net loss December 31, 2000 -- -- (2,605,259) ----------- ----------- ----------- Balance December 31, 2000 (50,000) (12,500) 578,918 Additional capital paid in from shareholders -- -- 3,360 Compensation for consulting services in exchange of stock options and warrants -- -- 100,185 Net loss June 30, 2001 -- -- (559,246) ----------- ----------- ----------- (50,000) $ (12,500) $ 123,217 =========== =========== ===========
See notes to financial statements. 10 HBOA HOLDINGS, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CASH FLOWS
Period from July 7, 1998 (Date of inception) Six months ended June 30, to 2001 2000 June 30, 2001 ----------- ----------- ----------- Cash flows from operating activities Net Loss $ (559,246) $ (442,174) $(3,544,683) ----------- ----------- ----------- Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 39,549 1,722 73,464 Compensation in exchange for stock, options and warrants 100,185 -- 1,449,955 (Increase) decrease in loans -- (29,795) (6,923) (Increase) decrease in deposits and advances -- (5,000) (7,980) (Increase) decrease in accounts receivables 440 (820) -- (Increase) decrease in other receivables 33,750 -- -- (Increase) decrease in prepaid expenses 18,054 (82,756) (16,994) Increase (decrease) in accounts payable and accrued expenses (20,085) (27,442) 46,891 ----------- ----------- ----------- Total adjustments 171,893 (144,091) 1,538,413 ----------- ----------- ----------- Net cash used by operating activities (387,353) (586,265) (2,006,270) ----------- ----------- ----------- Cash flow from investing activities: Cash payments for the purchase of investments -- (94,500) (179,219) Cash payments for the purchase of property (24,353) (56,813) (103,354) ----------- ----------- ----------- Net cash used by investing activities (24,353) (151,313) (282,573) ----------- ----------- ----------- Cash flow from financing activities: Return of capital -- -- 6,936 Treasury stock reacquired -- -- (12,500) Proceeds from loans - related party 100,000 100,000 Proceeds from additional paid in capital 3,359 -- 143,359 Proceeds from issuance of common stock -- 1,838,286 2,076,062 ----------- ----------- ----------- Net cash provided by financing activities 103,359 1,838,286 2,313,857 ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents (308,347) 1,100,708 25,014 Cash and cash equivalents, beginning of the period 333,361 3,332 -- ----------- ----------- ----------- Cash and cash equivalents, end of the period $ 25,014 $ 1,104,040 $ 25,014 =========== =========== ===========
See notes to financial statements. 11 HBOA HOLDINGS, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED NOTES TO FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 2001 NOTE 1 UNAUDITED FINANCIAL STATEMENTS The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 310(b) of Regulation SB. Accordingly, they do not include all of the information and footnote disclosures normally included in complete financial statements prepared in accordance with generally accepted accounting principles. For further information, including significant accounting policies followed by the Company, refer to the notes to the Company's audited financial statements at December 31, 2000 - Form 10KSB. In the opinion of management, the unaudited financial statements include all necessary adjustments (consisting of normal, recurring accruals) for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results may differ from these estimates. Interim results are not necessarily indicative of results for a full year. The results of operations for the six-month period ended June 30, 2001 are not necessarily indicative of operating results to be expected for a full year. NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Description - -------------------- HBOA Holdings, Inc. (the Company), formerly known as Mizar Energy Company, was incorporated in the state of Colorado on December 11, 1996. On May 31, 2000, the Company acquired 100% of HBOA.Com, Inc. through a newly formed subsidiary whose name was changed to HBOA.Com, Inc. in a transaction accounted for as a recapitalization of HBOA.Com, Inc. The Company is focusing on development of a premier Internet portal through which home based business owners, as well as commercial private label businesses, obtain the products, services, and information necessary to start, expand and profitably run their businesses. On December 28, 2000, the Company formed a new subsidiary, Aerisys, Inc., a Florida Corporation, to handle all commercial private business. The Company is considered to be in the development stage and the accompanying financial statements represent those of a development stage company. Principles of Consolidation - --------------------------- The consolidated financial statements of the Company include those accounts of HBOA Holdings, Inc., a development stage company, and its wholly owned subsidiaries, HBOA.Com, Inc. and Aerisys, Inc. All significant intercompany transactions and balances have been eliminated in consolidation. Cash and Cash Equivalents - ------------------------- For purposes of the statement of cash flows, the Company treats all short-term investments with maturities of six months or less to be cash equivalents. 12 HBOA HOLDINGS, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED NOTES TO FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 2001 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Use of Estimates - ---------------- The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Revenue Recognition - ------------------- Revenues of HBOA.Com, Inc. are recognized at the time the services are rendered to customers. Services are rendered when the Company's representatives receive the customers' requests and complete the customers' orders. Property and Equipment - ---------------------- Property and equipment are stated at cost. Depreciation of depreciable assets is computed using the straight-line method of depreciation over the estimated useful lives of the assets. The estimated useful life is 5-10 years. Software Development Costs - -------------------------- In accordance with EITF Issue No. 00.2, the Company accounts for its Internet website design in accordance with Statement of Position No. 98-1 Accounting for the Cost of Computer Software Developed or Obtained for Internet Use. (SOP 98-1). SOP 98-1 requires the expensing of all costs of both the preliminary project stage, and the training and application maintenance stage, and the capitalization of all internal or external direct costs incurred during the application development stage. Amortization - ------------ Amortization of trademarks and Internet web site is determined utilizing the straight-line method based generally on the estimated useful lives of the intangibles as follows: Trademarks 15 years Internet Website 3 years Long Lived Assets - ----------------- The Company continually evaluates the carrying value of property and equipment, goodwill and other intangible assets to determine whether there are any impairment losses. If indicators of impairment are present in intangible assets used in operations, and future cash flows are not expected to be sufficient to recover the assets' carrying amount, an impairment loss would be charged to expense in the period identified. No reduction for impairment of long-lived assets was necessary at June 30, 2001. 13 HBOA HOLDINGS, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED NOTES TO FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 2001 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Advertising Costs - ----------------- Advertising and marketing costs are expensed as incurred. During the six months ended June 30, 2001, advertising expenses totaled $18,175. Stock Options - ------------- The Company elected to account for stock options issued to employees in accordance with Accounting Principles Board Opinion No. 25 (APB Opinion No. 25) and related interpretations, and accounts for stock options and warrants issued to non-employees in accordance with SFAS 123. Concentration of Risk - --------------------- Financial instruments that potentially subject the Company to credit risk include cash on deposit with one financial institution amounting to $25,014 at June 30, 2001. Financial institutions insure depositors for up to $100,000 through the U.S. Federal Deposit Insurance Corporation. Basic Earnings (Loss) per Share - ------------------------------- Basic earnings (loss) per share for each year is computed by dividing income (loss) for the year by the weighted average number of common shares outstanding during the year. Diluted earnings (loss) per share include the effects of common stock equivalents to the extent they are dilutive. Basic weighted average number of shares outstanding at June 30, 2001 is as follows: Basic weighted average number of shares outstanding 21,625,000 In connection with the stock option and warrants, 2,540,000 shares of common stock are not included in the diluted earnings per share because the effect is antidilutive (See Note 8 and Note 9). NOTE 3 PROPERTY AND EQUIPMENT Property and equipment at June 30, 2001 consisted of the following: Furniture and fixtures $ 40,431 Computer equipment & software 40,970 ------------ 81,401 Less: accumulated depreciation (16,708) ----------- $ 64,693 =========== 6,982 Depreciation expense for the six months ended June 30, 2001 was $3,491. 14 HBOA HOLDINGS, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED NOTES TO FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 2001 NOTE 4 INTANGIBLE ASSETS Intangible assets at June 30, 2001 are summarized by major classification as follows: Trademarks $ 7,273 Web design 195,947 ----------- 203,220 Less: accumulated depreciation (56,756) ----------- $ 146,464 =========== Amortization expense for the six months ended June 30, 2001 totaled $32,567. NOTE 5 STOCKHOLDERS' EQUITY Preferred Stock - --------------- Authorized 10,000,000 shares of preferred stock, no par value per share. None issued as of six months ended June 30, 2001. Common Stock - ------------ Authorized 25,000,00 shares of common stock, $0.0005 par value per share. Issued and outstanding 21,625,000 shares of common stock at June 30, 2001. NOTE 6 INCOME TAXES The Company has no current or deferred income tax due to its operating losses. The Company's income tax expense for the six months ended June 30, 2001 differed from the statutory federal rate of 34% as follows: Statutory rate applied to loss before income taxes $ 144,900 State income taxes, net of federal income tax effect 3,800 Increase in valuation allowance ( 148,700) ------------- Income Tax Expense $ 0 ============= 15 HBOA HOLDINGS, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED NOTES TO FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 2001 NOTE 6 INCOME TAXES - continued Deferred tax assets and liabilities consist of the following: Current deferred tax asset $ 0 Valuation allowance 0 ----------------- $ 0 ================= Non-current tax asset $ 1,208,676 Valuation allowance (1,208,676) ------------------ $ 0 ================= The net operating loss carryforward for HBOA Holdings, Inc. may be limited in use due to a change of ownership. The non-current deferred tax asset results from the net operating loss carryforward of approximately $3,544,683 at June 30, 2001. The net operating loss carryforward, which is subject to annual limitations prescribed by the Internal Revenue Code, is available to offset future taxable income from 2017 through 2020. A 100% valuation allowance has been recorded to offset the net deferred tax asset due to uncertainty of the Company generating future taxable income. NOTE 7 RELATED PARTY TRANSACTIONS The Company has receivables at June 30, 2001from related party companies as follows: Due from related party $ 6,923 Such loans occurred during the ordinary course of business, bearing no interest, and due on demand. These loans, in the opinion of management, do not involve more than normal credit risk or other unfavorable areas of concern. Due to related party $ 100,000 On May 14, 2000, the Company received a loan from a related party in the amount of $50,000 due on demand with interest at the federal funds rate. On June 18, 2000, the Company received a loan from a related party in the amount of $50,000 due on demand with interest at the federal funds rate. After expiration of its lease for office space, the Company temporarily moved its offices to the premises of a related party company. 16 HBOA HOLDINGS, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED NOTES TO FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 2001 NOTE 8 STOCK OPTIONS AND COMPENSATION PLAN Stock Compensation Plan - ----------------------- On October 10, 2000, HBOA Holdings, Inc. adopted the "Year 2000 Equity Compensation Plan." The Company registered the plan on November 16, 2000. The Company's stock compensation plan provides that officers, directors, employees and consultants may be granted shares of common stock. Under the plan, the options granted are qualified stock options, and the total amount of common stock that may be granted is 5.4 million shares. A total of 540,000 shares were granted to officers and employees at a weighted average price of $0.75 per share at December 31, 2000. Under the plan, no shares were granted for the six months ended June 30, 2001. On December 18, 2000, HBOA Holdings, Inc adopted the "Non-qualified Stock Option Plan." This plan provides that key advisors who perform services for the Company or its subsidiaries and non-employee members of the board of directors of the Company may be granted non-qualified stock options. Under the Non-qualified Stock Option Plan, the total amount of shares of common stock that may be granted is 2,000,000 shares. As of December 31, 2000, a total of 1,000,000 shares Non-qualified Stock Option Plan at a weighed average price of $0.70 were granted to a key advisor for consultation services to be provided during the current year. For stock options issued to non-employees, the Company complies with regulations in accordance with SFAS No. 123. Accordingly, $100,185 was charged to operations on March 31, 2001, as payment for consulting services rendered during the first quarter of 2001, equivalent to 1,000,000 stock options. No shares have been granted for the six months ended June 30, 2001. The fair value for these options was established at the date of grant using a Black-Scholes option pricing model with the following assumptions: Expected dividend yield 0% Risk free interest rate 5.77% Expected time of exercise 1 year Expected volatility 55.23% Changes during the six months ended June 30, 2001 are presented as follows: Weighted Average Stock Options Number of Options Exercise Price ------------------------------------------------------------------ Balance at beginning of period 1,940,000 $ 0.75 Granted 0 .00 Exercised 0 .00 Forfeited 0 .00 ----------- Balance at end of period 1,940,000 =========== 17 HBOA HOLDINGS, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED NOTES TO FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 2001 NOTE 8 STOCK OPTIONS AND COMPENSATION PLAN - continued The following table summarizes information about stock options outstanding at June 30, 2001:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ----------------------------------------- ----------------------------------------- Weighted Weighted Weighted Range of Number Average Average Number Average Exercise Outstanding Remaining Exercise Exercisable at Exercise Price at 06/30/00 Contracted Life Price 06/30/00 Price - ---------- ---------------------------------------------- -------------------------------------------------- 0.75 80,000 9.75 $ 0.75 0 $ .00 0.75 460,000 9.75 0.75 0 .00 .625 - 1.00 1,400,000 1-2.75 0.75 1,400,000 .75
NOTE 9 WARRANTS No warrants were granted during the six months ended June 30, 2001. Changes during the period are presented as follows:
Weighted Common Common Average Number of Warrants Stock Exercise Price -------------------------------------------------------------------------------------------------- Balance at beginning of period 600,000 600,000 $ 1.00 Granted 0 0 0 Exercised 0 0 Forfeited 0 0 ---------- -------- Balance at end of period 600,000 600,000 ========== =======
The following table summarizes information about warrants outstanding at June 30, 2001:
WARRANTS OUTSTANDING WARRANTS EXERCISABLE ----------------------------------------- ----------------------------------------- Weighted Weighted Weighted Range of Number Average Average Number Average Exercise Outstanding Remaining Exercise Exercisable at Exercise Price at 06/30/01 Contracted Life Price 06/30/01 Price - ---------- ---------------------------------------------- -------------------------------------------------- 0.75 - 1.25 600,000 3.75 1.00 600,000 1.00
18 HBOA HOLDINGS, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED NOTES TO FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 2001 NOTE 10 GOING CONCERN UNCERTAINTY These financial statements are presented assuming the Company will continue as a going concern. The Company has little established source of revenue, and recurring losses from operations. This raises substantial doubt about its ability to continue as a going concern. Management's plan in regard to these matters includes raising working capital to assure the Company's viability, through private or public equity offerings and/or debt financing; and/or through the acquisition of new business or private ventures. NOTE 11 SUBSEQUENT EVENT On July 31, 2001, the Company received a loan from a related party in the amount of $50,000 due on demand with no interest. 19 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. THE FOLLOWING INFORMATION HAS BEEN DERIVED FROM OUR FINANCIAL STATEMENTS AND SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL STATEMENTS AND RELATED NOTES THERETO INCLUDED IN PART 1-ITEM 1 OF THIS 10-QSB. THE DISCUSSION FOLLOWING CONTAINS FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS, INCLUDING THOSE SET FORTH UNDER THE SECTION ENTITLED "RISK FACTORS" UNDER MATERIAL CHANGES IN FINANCIAL CONDITION, RESULTS OF OPERATIONS AND LIQUIDITY HEREIN. Overview We currently have three distinct divisions: (1) the Aerisys Division, (2) the HBOA Division and (3) the PARIS Division. The Aerisys Division offers ASP services in the form of branded, private communities hosted for K-12 schools, corporations, network marketing firms and affinity groups. The HBOA Division provides an online community with business tools and fee-based services for small and home-based businesses. The PARIS Division owns a membership interest in PARIS, LLC, a privately held corporation owned by Healthcare Financial Enterprises, Inc., LexSys Software and our company. The PARIS LLC was formed to launch a new service for hospitals for routing procedure authorizations between hospitals and insurance providers. History We were incorporated in the state of Colorado on December 11, 1996. From our inception through December 28, 1999, we were involved in the business of acquiring, developing and operating oil and gas properties. On December 28, 1999, Philip Davis and John Lee, our founders and principal shareholders, sold 60% of our issued and outstanding common stock to HBOA.Com, Inc., a District of Columbia corporation ("HBOA-DC"). Pursuant to this stock sale, there was a change in our business and management team. We began to focus on HBOA's business, which was related to the sale of products and services to the owners of home based businesses through its Internet web site On May 31, 2000, HBOA-DC was merged with and into our wholly owned subsidiary, HBOA.Com, Inc., a Florida corporation ("HBOA-FL"). In June 2000, we began to develop our ASP business, in addition to HBOA's web site. On November 10, 2000, our shareholders approved our proposal to change our name from Mizar Energy Company to HBOA Holdings, Inc. and to change our state of incorporation from Colorado to Florida. The merger of HBOA-DC into our company in May 2000 was treated as a capital transaction and a recapitalization of HBOA-DC. Our financial statements became those of HBOA-DC, with adjustments to reflect the changes in equity structure and receipt of assets. As a result of this accounting treatment, our historical financial statements from the previous periods have been restated to include the operations of HBOA-DC. Prior to the merger, our revenues and expenses were nominal. The majority of the changes in our results of operations, liquidity and capital resources are due to the merger of HBOA-DC with and into HBOA-FL on May 31, 2000 and the accounting treatment of the merger.. 20 Results of Operations We are a development stage company and our revenue from operations have been nominal. Sales, net of returns, were $1,020 during the three months ended June 30, 2001 and $2,148 during the six months ended June 30, 2001. During the period from July 7, 1998 (date of inception) through June 30, 2001, sales, net of revenues, were $15,229. Our revenues were lower than expected, because two of our customers, Firefigher.com and 121.TV, had financial problems. We had signed agreements with both of these clients to launch communities for their members in the first quarter of fiscal 2001. However, in May 2001, 121.TV closed its doors and did not launch the community that we developed for them. Likewise, the Firefigher.com community was never launched to their 30,000 members as their company lost funding to continue operations. Costs of sales was $9 during the three months ended June 30, 2001 and $193 during the six months ended June 30, 2001. During the period from July 7, 1998 (date of inception) through the June 30, 2001, costs of sales were $13,126. We had gross profit of $1,011 for the three months ended June 30, 2001 and a gross loss of $3,421 during the six months ended June 30, 2001. Our gross loss is primarily a result of our increased costs of sales. During the period from inception, July 7, 1998, through June 30, 2001, our gross profit was $13,881. Our operating expenses for the six months ended June 30, 2001 were $557,246 compared with operating expenses of $140,379 during the three month ended June, 2000. This increase is operating expenses is primarily due to increased expenses for salaries, professional fees, rent and depreciation and amortization. As a result of the forgoing, our net loss was $139,299 for the three months ended March 31, 2001 compared with a net loss of $559,246 for the six months ended June 30, 2001. For the period from July 7, 1998 (date of inception) through June 30, 2001, our net loss was $3,544,683. Liquidity and Capital Resources As of June 30, 2001, we had cash on hand of $25,014. We expect that this cash on hand as of this date will allow us to meet our working capital requirements for the next month. Furthermore, on July 31, 2001, Mr. Verdier advanced another $50,000 to our company. We are presently exploring other options to raise additional capital for HBOA, in the form of debt or equity financing. On May 14, 2000 and June 18, 2000, Gary Verdier, our founder, President and Chairman advanced $50,000 to the Company for an aggregate of $100,000. On July 31, 2001, Mr. Verdier advanced another $50,000 to the Company. In total, Mr. Verdier has advanced $150,000 to the Company during the past four months. This loans are due on demand are bear interest at the federal funds rate. In order to obtain additional financing, we are considering obtaining a loan or loans from our other shareholders, which may be secured by a lien on all of our assets or our intellectual property. At this time, we have not entered into any definitive financing agreements, which are secured by our intellectual property or any other assets. See "We need Additional Capital" and "Proposed 21 Financing from Shareholders secured by a lien on the Company's Assets or Intellectual Property" under "Risk Factors." Our capital requirements have been and will continue to be significant due to, among other things, our expenses to develop our ASP business, including the marketing of the Aerisys Intelligent Community(TM), and to fulfill our obligations to the PARIS LLC. At the present time, we do not have any extensive capital commitments, other than our web hosting services fees in the amount of $17,940 per year. We also have an obligation to provide certain services under the PARIS LLC agreement. At this time, we are not able to estimate the costs of providing these services. We do not plan on making any new purchases of plant or equipment or hiring any additional employees during the next 12 month period. During the six months ended June 30, 2001, we used $387,353 in operating activities. This consisted primarily of our net loss of $559,246 offset by certain cash sources in the amount of $171,893, including $100,185 for compensation in exchange for stock, options and warrants. During the period from July 7, 1998 through March 31, 2001, we have used $2,006,270 in operating activities. During the six months ended June 30, 2001, we used $24,353 in investing activities to purchase property. During the period from inception (July 7, 1998) through June 30, 2001, we have used $282,573 in investing activities. In the six months ended June 30, 2001, we received $103,359 from financing activities, primarily as a result of a $100,000 loan from Gary Verider, our founder, Chairman and President. During the period from our inception (July 7, 1998) through June 30, 2001, we raised $2,313,857 in financing. Plan of Operations Our Aerisys Division intends to generate revenues by marketing and selling the Aerisys Intelligent Community (TM) to schools. This product can be described as a hosted, private intranet that is branded for each new client to the colors and logo of that school. The Aerisys Intelligent Community(TM) is a branded, hosted private intranet that is simple to use, but powerful and robust for multi-tiered content. Unlike similar products, the Aerisys Intelligent Community for Schools(TM) will not cost the school anything, is private to one school's community and does not allow outside users to view school, teacher or classroom-level information. The schools will charge the parents an annual fee of approximately $100 to use the Aerisys Intelligent Community(TM) for their children. On May 11, 2001, we launched our Aerisys Intelligent Community(TM) for schools. On August 10, 2001, we announced that we will launch our first Aerisys Intelligent Community for Schools(TM) in a private school in Hollywood, Florida with approximately 580 students. Our agreement with the Hollywood school is for term of three years. We will probably not generate significant revenue during the first year. However, we expect that we will begin generating more revenues in the second and third years. We also plan on commencing other marketing efforts to promote our Aerisys Intelligent Community(TM). In late 2001, we intend to begin an "Internet Intelligence Fair" event series. These 1-day events will be hosted by Aerisys and corporate sponsors and will be held in metropolitan areas with high concentrations of K-12 schools. Initial plans include Miami, Atlanta, Dallas, Los Angeles, Chicago, Boston and San Francisco, but long-term plans include dozens more major and secondary cities nationwide. The Internet Intelligence Fair will offer schools, parents and teachers free training 22 on the internet and computer products, including Aerisys Intelligent Schools for K-12 schools. During the rest of 2001, we expect to launch approximately 15 new communities for other schools in the South Florida marketplace, with is the test market for the Aerisys Intelligent Community Schools(TM). However, there can be no assurances that we will implement these marketing goals. HBOA Division Our HBOA Division intends to generate revenues by (1) the sale of products and services from our Internet web site, (2) advertising revenues and (3) fees to be a member of the HBOA web site. We will facilitate electronic commerce by directing users who ask a shopping question to electronic commerce merchants, some of who will compensate us for the referral. During fiscal 2000, we generated nominal revenues from the sale of memberships to our HBOA web site. The HBOA Division sees only minor amounts of membership due in part to its affiliation with the struggling online marketplace. For this reason, very few resources will be dedicated to this division in the months ahead. PARIS Division In May 2000, we entered into an agreement with two other companies which will assist hospitals in obtaining the pre-authorization approvals that they need to obtain from insurance providers before they perform certain medical procedures. We refer to the procedure authorization routing interface system as the PARIS project. The fees for the service are expected to be transaction- based, whereby every authorization request (including its return response to the hospital) will create a billable transaction. In August 2000, the PARIS LLC began the first beta project at a South Florida hospital. The beta process is the first step toward launching the PARIS product at numerous other hospitals. The principals of the PARIS LLC expect to have a second beta hospital underway by the end of the summer and regular service started by late fall. However, there can be no assurances that the beta tests will be completed at that time or that this venture will ever be profitable. Year 2000 Readiness We have not incurred any material costs nor experienced any operational problems as a result of the Year 2000 issues. We have reviewed our internal computer systems and products and their capability of recognizing the year 2000 and years thereafter. We expect that any costs relating to ensuring such systems to be year 2000 compliant will not be material to the financial condition or results of operations of the Company. Risk Factors In evaluating our business, the following risk factors should be considered: We need additional capital Our capital requirements have been and will continue to be significant due to, among other things, our expenses to develop our ASP business. Management expects that our existing cash on 23 hand of $25,014 on hand as of June 30, 2001 will last for 1 month. On July 31, 2001, Gary Verdier, our founder, advanced another $50,000 to our company. We are currently exploring various forms of financing, including but not limited sales of additional debt or equity securities (or a combination thereof) in future public or private offerings or obtaining loans from third parties. However, there can be no assurance that any such financing will in fact be available to us when needed or upon terms acceptable to us. Our methods of generating revenue are relatively new and largely untested and we probably will not generate significant revenues in fiscal 2001 Our Aerisys Division intends to generate revenues by (1) selling the Aerisys Intelligent Community(TM) to schools and (2) providing consulting services regarding the implementation of these services. With the Aerisys Intelligent Community(TM), we intend to have the parents pay an annual fee for use of the private branded network at the school. As of August 14, 2001, we have entered into an agreement with one private school in Hollywood, Florida. However, we do not expect our agreement to generate significant revenues in 2001. The Aerisy Division will also continue to sell private Intranet services to other organizations, such as corporations, network marketing firms and affinity groups. Similarly, there can be no assurance that our PARIS Division will generate revenues in the near future. Our PARIS Division is still in the development stage and the PARIs LLC is conducting beta testing at a hospital in South Florida. Our HBOA Division intends to generate revenues by (1) the sale of products and services from our Internet web site, (2) advertising revenues and (3) fees to be a member of the HBOA web site. We will facilitate electronic commerce by directing users who ask a shopping question to electronic commerce merchants, some of who will compensate us for the referral. During fiscal 2000,we generated nominal revenues from the sale of memberships to our HBOA web site. Given the current economic climate, we do not plan on devoting significant resources to the HBOA division during the next few months. We have a history of operating losses, a going concern qualification and expect to incur future losses We have a net loss of $3,544,683 for the period from July 7, 1998 (date of inception) through June 30, 2001. The footnotes to our financial statements for the three months ended June 30, 2001 include an explanatory paragraph relating to the uncertainty of our ability to continue as a going concern, which may make it more difficult for us to raise additional capital. We do not anticipate that we will earn a profit, during the 2001 fiscal year, due, in part to start up costs associated with developing our ASP business, the Paris LLC and the further development of our HBOA web site. Furthermore, there can be no assurances that our business strategy will enable us to achieve profitable operations in the future. In particular, Accordingly, an investment in HBOA is a high-risk speculative investment suitable only for persons having no need for liquidity in their investment and who have adequate financial resources to withstand the total loss of their investment. Our success depends on the acceptance and increased use of Internet-based business software solutions and we cannot be sure that this will happen. 24 We are a development stage company and we face many risks related to our business We are a development stage company and face many risks related to the early-stage nature of our business. These risks include our ability to: - identify and secure as customers schools who will use our Aerisys Intelligent Community Schools(TM); - fulfill our obligations under the PARIS LLC operating agreement; - the ability of the PARIS LLC to complete beta testing, the ability of the PARIS LLC to enter into contracts with hospitals that are profitable to the PARIS LLC; - increase awareness of our Aerisys Intelligent Community(TM), our ASP services and our HBOA web site, - strengthen user-loyalty for our ASP services an our HBOA web site, - offer compelling content on our HBOA web site and attract a large number of advertisers from a variety of industries, - maintain our current, and develop new, strategi relationships for our ASP business and our web site, - respond effectively to competitive pressures, - continue to develop and upgrade our technology and - attract, retain and motivate qualified personnel. We also depend on the growing use of the Internet for advertising, commerce and communications, and on general economic conditions. We cannot assure you that our business strategy will be successful or that we will successfully address these risks. Our business is difficult to evaluate because we have a limited and varied operating history We were incorporated under Colorado law on December 11, 1996 under the name of Mizar Energy Company. During our first three years of operations, we were engaged in the development, production and sale of oil and gas leases. On December 28, 1999, an affiliate of HBOA acquired a 60% ownership interest in Mizar and on May 31, 2000 merged its operations into a wholly owned subsidiary of Mizar. Since December 28, 1999, we have been primarily focused on HBOA's Internet operations. In June 2000, we began focusing on the application service provider business. In November 2000, we reincorporated in Florida and changed our name to HBOA Holdings, Inc. Accordingly we have a varied and limited operating history upon which an evaluation of its prospects and future performance can be made. Proposed loans from shareholders secured by a lien on all of our assets or our intellectual property We are presently exploring the possibility of receiving a loan or loans from our shareholders which are secured by a lien on some or all of our assets. As of August 14, 2001, Gary Verdier has advanced over $150,000 to our company. These loans were not secured by a lien on any of our assets. However, Mr. Verdier may not be willing to make any further loans to our company or he may demand that his previous loans be secured by some or all of our assets. Similarly, our other shareholders may not be willing to advance money to HBOA unless they receive a security interest in all of our assets or our intellectual property. As of August 14, 2001, we have not entered into any definitive financing agreements which grant a lien in our assets to any of our shareholders. However, if any of our shareholders receive a security interest in all of our assets and we default on our loan, our shareholders could foreclose on the pledged assets. Any foreclosure on pledged assets would have a material adverse effect on our business. 25 Our historical results may not be indicative of our future performance Our historical results of operations are not useful as a basis for predicting future operating results. The merger on May 31, 2000 of HBOA.Com, Inc., a District of Columbia corporation with and into our wholly owned subsidiary, HBOA.Com, Inc., a Florida corporation, was accounted for as a capital transaction and a recapitalization of HBOA-DC. As a result of this accounting treatment of the merger, our historical financial statements from prior periods have been restated to include the operations of HBOA-DC. Prior to the merger, our revenues and expenses were nominal. The majority of the changes in our results of operations, liquidity and capital resources are due to the merger of HBOA- DC with and into us on May 31, 2000 and the accounting treatment of the merger . We face risks related to intellectual property rights. Our success depends on its internally developed technologies and other intellectual property. Despite our precautions, it may be possible for a third party to copy or otherwise obtain and use its intellectual property or trade secrets without authorization. In addition, it is possible that others may independently develop substantially equivalent intellectual property. If we do not effectively protect our intellectual property, our business could suffer. In the future, we may have to resort to litigation to enforce our intellectual property rights, to protect our trade secrets, or to determine the validity and scope of the proprietary rights of others. This type of litigation, regardless of its outcome, could result in substantial costs and diversion of management and technical resources. We may receive in the future notices of claims of infringement of other parties' proprietary rights. Infringement or other claims could be made against us in the future. Any claims, with or without merit, could be time-consuming, result in costly litigation and diversion of technical and management personnel, cause product delays or require us to develop non-infringing technology or enter into royalty or licensing agreements. Royalty or licensing agreements, if required, may not be available on acceptable terms or at all. If a successful claim of product infringement were made against us, it could have a material adverse effect on our business. Our success depends on the acceptance and increased use of Internet-based business software solutions and we cannot be sure that this will happen Our business model depends on the adoption of Internet-based business software solutions by commercial users. Our business could suffer dramatically if Internet-based solutions are not accepted or perceived to be effective. The market for Internet services, private network solutions and widely distributed Internet-enabled packaged application software has only recently begun to develop and is nor evolving rapidly. The growth of Internet-based business software solutions could also be limited by: - concerns over transaction security and user privacy; - inadequate network infrastructure for the entir Internet; and - inconsistent performance of the Internet. 26 We cannot be certain that this market will continue to grow or to grow at the rate we anticipated. The growth in demand for outsourced business software applications is highly uncertain Growth in demand for and acceptance of our ASP services is highly uncertain. Since July 2001, we have focused on marketing and selling our Aerisys Intelligent Community to schools. WE have also sought to provide related ASP services to corporations, networking marketing groups and affinity groups. We believe that many of our potential customers are not fully aware of the benefits of outsourced solutions. It is possible that these solutions may never achieve market acceptance. If the market for our ASP services does not grow or grows more slowly than we currently anticipate, our business, financial condition and operating results would be materially adversely affected. Our business strategy may not effectively address our market and we may never realize a return on the resources we have invested to execute our strategy We have made substantial investments to pursue our strategy. These investments include: - a developing software for the Aerisys Intelligent Community for School (TM); - developing a browser-based application for the PARIS LLC; - expending marketing resources to build awareness of the Aerisys Intelligent Community for Schools (TM) and other products and services of Aerisys; - developing implementation resources around specific applications. These investments may not be successful. More cost effective strategies may be available to compete in this market. We may have chosen to focus on the wrong application areas or to work with the wrong partners. Potential customers may not value the specific product features in which we have invested. There is no assurance that our strategy will prove successful. Our Liability for Information Retrieved from the Web Because users of our web site may distribute our content to others, third parties might sue us for defamation, negligence, copyright or trademark infringement, personal injury or other matters. These types of claims have been brought, sometimes successfully, against online services in the past. Others could also sue us for the content that is accessible from our web site through links to other web sites or through content and materials that may be posed by members in chat rooms or bulletin boards. We also intend to offer e-mail services, which may subject us to potential risks, such as liabilities or claims resulting from unsolicited e-mail (spamming), lost or misdirected messages, illegal or fraudulent use of e-mail or interruptions or delays in e-mail service. Also, we enter into agreements with commerce partners and sponsors that entitle us to receive a share of any revenue from the purchase of goods and services through direct links from our web sites to their web sites. Such arrangements may subject us to additional claims, including potential liabilities to consumers of such products and services, because we provide access to such products or services, even if we do not provide such products or services ourselves. While our agreements with these parties often provide that we will be indemnified against such liabilities, such indemnification, if available, may not be adequate. Our insurance may not adequately protect us against these types of claims. 27 E-Commerce and Potential Product Liability We plan to develop a range of products targeted specifically at home business owners. We also may foster relationships with manufacturers or companies to offer such products directly on our web site. Such a strategy involves numerous risks and uncertainties. We have very limited experience in the sale of products online and the development of relationships with manufacturers or suppliers of such products. Consumers may sue us if any of the products that we sell are defective, fail to perform properly or injure the user. Our agreements with manufacturers typically will contain provisions intended to limit our exposure to liability claims. These limitations, however, may not prevent all potential claims. Liability claims could require us to spend significant time and money in litigation or to pay significant damages. As a result, any such claims, whether or not successful, could seriously damage our reputation and our business. Reliability of Web Site and Technology; Risk of Capacity Constraints The performance, reliability and availability of our web site, systems and network infrastructure will be critical to our business and our ability to promote our business. Our web site is hosted by a server owned and operated by a third party, limiting the extent to which we will have control over, or the ability to cure, technical problems, which may arise. Any systems problems that result in the unavailability of our web site or interruption of information or access of information to members through the web site would diminish its effectiveness as a means of promoting our business. If the volume of traffic on our web site is greater than anticipated, we will be required to expand and upgrade its web site and related infrastructure. Although we intend that our systems will be designed for scalability, the can be no assurance that the systems will be fully scalable. Any inability to add additional software and hardware to accommodate increased usage may cause unanticipated systems disruptions and degradation in levels of service to customers. There can be no assurance that we will be able to effectively upgrade and expand our web site in a timely manner or to integrate smoothly any newly developed or purchased technology with its existing systems. Any inability to do so would have a material adverse effect on our business, prospects, financial condition and results of operations. Dependence on Key Personnel We will be dependent upon the services of its executive officers, principal employees and consultants (particularly Gary Verdier, William Shope, Martin Torsey and Bonnie Novella,) for management of HBOA and implementation of our business strategy. The loss of services of Mr. Verdier, Mr. Shope, Mr. Torsey or Ms. Novella, could have a material adverse effect on our business operations, financial conditions and results of operations. If our operations expand, we will be dependent upon its ability to attract and retain additional qualified employees and consultants. There can be no assurances that the demands placed on our personnel by the growth of our business and the need for close monitoring of its operations and financial performance through appropriate and reliable administrative and accounting procedures and controls will be met, or that we will manage its growth successfully; the failure to do so could have a material adverse effect on our business, financial condition and results of operations. There is significant competition for qualified personnel, and there 28 can be no assurances that we will be successful in recruiting, retaining or training the management personnel it requires. Management of Growth During 2001, we expect to have significant growth (principally as a result of its new ASP services and other product introductions) and this growth will require us to make significant additions in personnel and increase it working capital requirements. Such growth will result in new and increased responsibilities for management personnel and has placed and continues to place a significant strain upon our management, operating and financial systems and other resources. There can not be any assurances that we will be able to attract or retain sufficient personnel to continue the planned expansion of its operations. Also crucial to our success in managing its growth will be its ability to achieve economies of scale, such as enhanced purchasing power, the ability to purchase a higher percentage of products on credit and the ability to obtain products, which we might not otherwise be able to obtain. There can be no assurance that we will be able to achieve such economies of scale and the failure to do so could have a material adverse effect on our financial condition and results of operations. Although we have experienced significant sales growth, such growth may not be indicative of future sales growth. To manage the expansion of our operations, we must continuously evaluate the adequacy of its management structure and its existing systems and procedures, including, without limitation, its data processing, financial and internal control systems. There can be no assurance that management will adequately anticipate all of the changing demands that growth could impose on our systems, procedures, and structure. In addition, we will be required to react to changes in its industry, and there can be no assurance that it will be able to do so successfully or at all. Any failure to adequately anticipate and respond to such changing demand may have a material adverse effect on our business, financial condition and results of operations. The markets we serve are highly competitive and many of our competitors have much greater resources ASP Services Our current and potential competitors, including Application Service Providers and companies focused on the application hosting business, Web hosting companies, enterprise applications vendors telecommunications companies and systems integrators. Our strategic partners and suppliers could also become competitors either directly or through strategic relationships with some of our other competitors. These relationships may take the form of strategic investments or marketing or other contractual arrangements. Many of our competitors have substantially greater financial, technical and marketing resources, larger customer bases, longer operating histories, greater name recognition and more established relationships in the industry than we do. We cannot be sure that we will have the resources or expertise to compete successfully in the future. Our competitors may be able to (1) more quickly develop and expand their network infrastructure and service offerings; (2) better adopt to new or emerging technologies and changing customer needs; (3) negotiate more favorable licensing agreements with software application vendors; (4) devote greater resources to the marketing and sale of their products and (5) adopt more aggressive pricing polices. 29 Some of our competitors may also be able to provide customers with additional benefits at lower overall costs. We cannot be sure that we will be able to match cost reductions by our competitors. In addition, we believe that here is likely to be consolidation in our markets. Consolidation could increase price competition and other competitive forces in ways that materially adversely affect our business, results of operations and financial condition. Finally, there are substantial barriers to entry, and we have no patented technology that would bar competitors from our market. HBOA Membership Community The number of web sites competing for the attention and spending of members, users and advertisers has increased and we expect it to continue to increase. Our primary competition at the present time is various associations' sites, which generally have been formed to promote such things as books/tapes, speaking engagements or selling business opportunities. These include the American Association of Home Based Businesses, American Home Business Association, Frank Tarkenton Small Business Network, Home Business Institute and the Home Office Association of America. None of the existing sites have the level of content anticipated to be provided by HBOA. Additionally, we face competition from a number of small businesses sites currently on the web or in various states of development. New entrants to this market include Staples, Office Depot and Onvia further validating the marketplace. While many of these competitors have significantly greater financial, technical and marketing resources than HBOA, none focuses on the home business owner. HBOA offers a "single source" vertically integrated portal for home based businesses which gives it a distinct competitive advantage. We believe providing a user friendly technically rich and product/service complete site will attract and retain home business owners. We always face the risk, however, that competitors will introduce better services and resources. This could also affect our ability to keep existing customers or acquire new customers and could result in lower net revenue and/or profits. Security Risks A party who is able to circumvent our security measures could misappropriate proprietary information or cause interruptions in our Internet operations. We may be required to expend significant capital and resources to protect against the threat of such security breaches or to alleviate problems caused by such breaches. Consumer concern over Internet security has been, and could continue to be, a barrier to commercial activities requiring consumers to send their credit card information over the Internet. Computer viruses, break-ins, or other security problems could lead to misappropriation of proprietary information and interruptions, delays, or cessation in service to HBOA's customers. Moreover, until more comprehensive security technologies are developed, the security and privacy concerns of existing and potential customers may inhibit the growth of the Internet as a merchandising medium. Governmental Regulation and Legal Uncertainties We are not currently subject to direct federal, state, or local regulation, and laws or regulations applicable to access to or commerce on the Internet, other than regulations applicable to businesses generally. Due to the increasing popularity and use of the Internet and other online services, however, 30 it is possible that a number of laws and regulations may be adopted with respect to the Internet or other online services covering issues such as user privacy, "indecent" materials, freedom of expression, pricing, content and quality of products and services, taxation, advertising, intellectual property rights and information security. The adoption of any such laws or regulations might also decrease the rate of growth of Internet use, which in turn could decrease the demand for HBOA's products and services or increase the cost of doing business or in some other manner have a material adverse effect on HBOA's business, results of operations, and financial condition. In addition, applicability to the Internet of existing laws governing issues such as property ownership, copyrights and other intellectual property issues, taxation, libel, obscenity, and personal privacy is uncertain. The vast majority of such laws were adopted prior to the advent of the Internet and related technologies and, as a result, do not contemplate or address the unique issues of the Internet and related technologies. HBOA does not believe that such regulations, which were adopted prior to the advent of the Internet, govern the operations of HBOA's business nor have any claims been filed by any state implying that HBOA is subject to such legislation. There can be no assurance, however, that a state will not attempt to impose these regulations upon HBOA in the future or that such imposition will not have a material adverse effect on HBOA's business, results of operations, and financial condition. Several states have also proposed legislation that would limit the uses of personal user information gathered online or require online services to establish privacy policies. The Federal Trade Commission has also initiated action against at least one online service regarding the manner in which personal information is collected from users and provided to third parties. Changes to existing laws or the passage of new laws intended to address these issues, including some recently proposed changes, could create uncertainty in the marketplace that could reduce demand for the services of HBOA of increase the cost of doing business as a result of litigation costs or increased service delivery costs, or could in some other manner have a material adverse effect on HBOA's business, results of operations, and financial condition. In addition, because HBOA's services are accessible worldwide, and HBOA facilitates sales of goods to users worldwide, other jurisdictions may claim that HBOA is required to qualify to do business as a foreign corporation in a particular state or foreign country. HBOA is qualified to do business in Florida, and failure by HBOA to qualify as a foreign corporation in a jurisdiction where it is required to do so could subject HBOA to taxes and penalties for the failure to quality and could result in the inability of HBOA to enforce contracts in such jurisdictions. Any such new legislation or regulation, or the application of laws or regulations from jurisdictions whose laws do not currently apply to HBOA's business, could have a material adverse effect on HBOA's business, results of operations, and financial condition. Potential Liability for Sales and Other Taxes HBOA does not currently collect sales or other similar taxes in respect of the delivery of its products into states other than California where HBOA collects sales taxes for sales of tangible products. New state tax regulations may subject HBOA to the assessment of sales and income taxes in additional states. Although the Internet Tax Freedom Act precludes for a period of three years the imposition of state and local taxes that discriminate against or single out the Internet, it does not impact currently existing taxes. Tax authorities in a number of states are currently reviewing the appropriate tax treatment of companies engaged in Internet retailing and are currently considering an agreement with certain of these companies regarding the assessment and collection of sales taxes. HBOA is not a party to any such discussions. 31 Rapid Technological Change The markets in which HBOA competes is characterized by frequent new product introductions, rapidly changing technology, and the emergence of new industry standards. The rapid development of new technologies increases the risk that current or new competitors will develop products or services that reduce the competitiveness and are superior to HBOA's products and services. HBOA's future success will depend to a substantial degree upon its ability to develop and introduce in a timely fashion new products and services and enhancements to its existing products and services that meet changing customer requirements and emerging industry standards. The development of new, technologically advanced products and services is a complex and uncertain process requiring high levels of innovation, as well as the accurate anticipation of technological and market trends. There is a potential for product development delay due to the need to comply with new or modified standards. There can be no assurance that HBOA will be able to identify, develop, market, support, or manage the transition to new or enhanced products or services successfully or on a timely basis, that new products or services will be responsible to technological changes or will gain market acceptance, or that HBOA will be able to respond effectively to announcements by competitors, technological changes, or emerging industry standards. HBOA's business, results of operations, and financial condition would be materially and adversely affected if HBOA were to be unsuccessful, or to incur significant delays in developing and introducing new products, services, or enhancements. Dependence on Continued Growth In Use of the Internet Our market is new and rapidly evolving. Our business would be adversely affected if Internet usage does not continue to grow, particularly usage by home business owners. A number of factors may inhibit Internet usage, including inadequate network infrastructure, security concerns, inconsistent quality of service, and lack of availability of cost-effective, high-speed service. If Internet usage grows, the Internet infrastructure may not be able to support the demands placed on it by this growth and its performance and reliability may decline. In addition, web sites have experienced interruptions in their service as a result of outages and other delays occurring throughout the Internet network infrastructure. If these outages or delays frequently occur in the future, Internet usage, as well as the usage of our web sites, could grow more slowly or decline. Additional Shares Eligible for Future Sale HBOA's Articles of Incorporation authorize the issuance of up to 25 million shares of Common Stock and 10 million shares of preferred stock. As of June 30, 2001, we had 21,625,000 shares of our common stock issued and outstanding. The issuance of additional shares of HBOA's common stock or preferred stock is solely within the discretion of HBOA's Board of Directors. The issuance of a substantial number of additional shares of common stock in connection with the further development of HBOA's business and such additional issuances may result in dilution to the purchasers in this Offering. No Dividends We anticipate that earnings, if any, will be retained for the development of its business and will not be distributed to shareholders as cash dividends. The declaration and payment of cash dividends, if any, at some future time will depend upon our results of operations, financial condition, 32 cash requirements, future prospects, limitations imposed by credit agreements or senior securities and any other factors deemed relevant by HBOA's Board of Directors. The declaration and payment of cash dividends, if at all, by HBOA will be at the discretion of the Board of Directors. Investment Risks No representation can be made regarding the future operations or profitability or the amount of any future revenues, income or loss of HBOA. The success of HBOA will be subject to many factors beyond the control of HBOA, such as general economic conditions, competition, and general conditions in the home based business market. Prospective investors should be aware that they could lose their entire investment in HBOA. Even if HBOA is successful in its operations, there can be no assurance that investors will receive any cash dividend or derive a profit or benefit from their investment. . Absence of Public Market; Restrictions on Transferability Our shares presently trade on the OTC Bulletin Board. Securities trading on the OTC Bulletin Board generally attract a smaller number of market makers and a less active public market and may be subject to significant volatility. Factors such as our ability to (i) generate revenues from our existing contracts and locate new customers, (ii) to raise additional capital and(iii) other risk factors listed in this Form 10-QSB and our Annual Report on Form 10-KSB could have a material effect on the price of our common stock. PART II. OTHER INFORMATION ITEM 5. OTHER INFORMATION Carl Wolf and Marion Wolf resigned as directors in July 2001. In August 2001, we expect to appoint George Williams and Stephen Golding to our Board. If these appointments are ratified, our board of directors will consist of Gary Verdier, Chairman, Harvey Judkowitz, George Williams and Stephen Golding. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. A. Exhibits None B. Reports on Form 8-K The Company did not file any Reports on Form 8-K during the three months ended March 31, 2001. 33 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: August 14, 2001 HBOA HOLDINGS, INC. By /s/ Gary Verdier Gary Verdier President and Chief Executive Officer 34 -----END PRIVACY-ENHANCED MESSAGE-----