-----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, U+u8P6J85RUm5+/HTC0VfoKwPnD5CTE2gQlwvGaG+Rr6WlSM1MuI9p/9dUoYTPOO hZVwX2hxnPr1IOXwJvqWlA== 0001116502-02-000691.txt : 20020516 0001116502-02-000691.hdr.sgml : 20020516 20020516101921 ACCESSION NUMBER: 0001116502-02-000691 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020516 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: 02654305 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 MARCH 31, 2002 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 (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 March 31, 2002 was 21,675,000. HBOA HOLDINGS, INC. PART I - FINANCIAL INFORMATION PAGE -------- Item 1. Financial Statements: Consolidated Balance Sheets as of March 31, 2002....................3 Consolidated Statements of Operations for the Three Months Ended March 31, 2002 and 2001 and for the period from July 7, 1998 (date of inception) to March 31, 2002 .........................4 Consolidated Statements of Changes in Stockholders' Equity from July 7, 1998 (date of inception) through March 31, 2002 . . . . Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2002 and 2001 and for the period from July 7, 1998 (date of inception) through March 31, 2002 .........................5 Notes to Consolidated Financial Statements.......................6-10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................11-15 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K...................................16 Signatures................................................................... 17 i HBOA HOLDINGS, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED BALANCE SHEET (Unaudited) MARCH 31, 2002 Assets Current assets Cash $ 10,335 Prepaid expenses 22,786 -------- Total current assets 33,121 Property and equipment, net 54,219 Intangible assets, net 97,447 Other assets Deposits 7,980 Investment in Limited partnership - related party 243,290 Due from related party 6,923 -------- 258,193 -------- $442,980 ======== See notes to financial statements 2 HBOA HOLDINGS, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED BALANCE SHEETS (Unaudited) MARCH 31, 2002 Liabilities and Stockholders' Equity Current liabilities Accounts payable $ 22,550 Accrued salaries 15,665 Deferred revenue 4,125 Due to related parties 364,500 ----------- Total current liabilities 406,840 Stockholders' equity Preferred stock, no par value, 10,000,000 shares authorized; no shares issued and outstanding -- Common stock, $0.0005 par value, 25,000,000 shares authorized; 21,725,000 shares issued and 21,675,000 shares outstanding 10,862 Additional paid in capital 4,267,276 Deficit accumulation during the development stage (4,229,498) ----------- 48,640 Less: Treasury stock, 50,000 shares at cost (12,500) ----------- 36,140 ----------- $ 442,980 =========== See notes to financial statements 3
HBOA HOLDINGS, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Period from July 7, 1998 (Date of inception) Three months ended March 31, to 2002 2001 March 31, 2002 ----------- ----------- -------------------- Income Sales net of returns $ 5,354 $ 1,128 $ 20,658 Management fees -- -- 11,778 Cost of sales (97) (5,560) (14,344) ----------- ----------- ----------- Gross profit 5,257 (4,432) 18,092 Expenses Salaries 57,270 130,016 605,082 Consulting -- 110,225 2,326,296 Professional fees 4,461 40,512 280,783 Insurance 10,741 10,919 78,748 Marketing and advertising 3,481 10,946 95,745 Loss web site design -- -- 49,316 Rent 1,379 63,241 167,517 Other general and administrative expenses 6,705 33,187 396,636 Loss on purchase option -- -- 139,255 Depreciation and amortization 19,943 17,941 132,956 ----------- ----------- ----------- 103,978 416,987 4,272,334 Other income Other income 2,975 -- 2,975 Interest expense (4,053) -- (17,513) Interest income -- 1,472 39,281 ----------- ----------- ----------- Net loss $ (99,799) $ (419,947) $(4,229,499) =========== =========== =========== Earnings per share Net loss per common share $ (0.005) $ (0.019) $ (0.195) ----------- ----------- -----------
See notes to financial statements 4
HBOA HOLDINGS, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (Unaudited) PERIOD FROM JULY 7, 1998 (DATE OF INCEPTION) TO MARCH 31, 2002 Deficit accumulated through the Common Stock Paid in Development Treasury Stock Shares Amount Capital stage Shares Amount TOTAL -------------------------------------------------------------------------------------------- Issuance of common stock for cash on July 7, 1998 6,426,975 $ 75,000 $ -- $ -- $ -- $ -- $ 75,000 Net loss 1998 -- -- -- (52,257) -- -- (52,257) -------------------------------------------------------------------------------------------- Balance December 31, 1998 6,426,975 75,000 -- (52,257) -- -- 22,743 Issuance of common stock for cash 2,142,325 25,000 -- -- -- -- 25,000 Merge of Home Based Business Owner Association of America, Inc. and HBOA Com, Inc. -- 990 -- -- -- -- 990 Issuance of common stock for cash on April 20, 1999 8,569 10,000 -- -- -- -- 10,000 Issuance of common stock for cash on April 22, 1999 1,714 2,000 -- -- -- -- 2,000 Issuance of common stock for cash on April 30, 1999 86 100 -- -- -- -- 100 -------------------------------------------------------------------------------------------- Sub-total 8,579,669 $ 113,090 $ -- $ (52,257) -- $-- $ 60,833
See notes to financial statements 5
HBOA HOLDINGS, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (Unaudited) PERIOD FROM JULY 7, 1998 (DATE OF INCEPTION) TO MARCH 31, 2002 Deficit accumulated through the Common Stock Paid in Development Treasury Stock Shares Amount Capital stage Shares Amount TOTAL -------------------------------------------------------------------------------------------- Sub-total 8,579,669 $ 113,090 $ -- $ (52,257) $ -- $ -- $ 60,833 Issuance of common stock for cash on May 11, 1999 2,571 3,000 -- -- -- -- 3,000 Issuance of common stock for cash on May 28, 1999 1,285 1,500 -- -- -- -- 1,500 Issuance of common stock for cash on June 7, 1999 2,828 3,300 -- -- -- -- 3300 Issuance of common stock for cash on July 12, 1999 428 500 -- -- -- -- 500 Issuance of common stock in exchange for services per contract on December 31, 1999 857 1,000 -- -- -- -- 1,000 Issuance of common stock in exchange for loan payable to a related party on December 31, 1999 181,584 211,900 -- -- -- -- 211,900 Contribution of shares from principal stockholders (199,922) -- -- -- -- -- -- -------------------------------------------------------------------------------------------- Sub-total 8,569,300 $ 334,290 $ -- $ (52,257) $-- $-- $ 282,033
6
HBOA HOLDINGS, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (Unaudited) PERIOD FROM JULY 7, 1998 (DATE OF INCEPTION) TO MARCH 31, 2002 Deficit accumulated through the Common Stock Paid in Development Treasury Stock Shares Amount Capital stage Shares Amount TOTAL -------------------------------------------------------------------------------------------- Sub-total 8,569,300 $ 334,290 $ -- $ (52,257) $-- $ -- $ 282,033 Net loss 1999 (327,921) (327,921) -------------------------------------------------------------------------------------------- Balance December 31, 1999 8,569,300 334,290 -- (380,178) $ -- -- (45,888) Issuance of common stock according to the private offering dated February 7, 2000 net of offering expenses 1,730,998 1,810,872 -- -- -- -- 1,810,872 Acquisition of assets of Mizar Energy on May 31, 2000 1,430,700 510 -- -- -- -- 510 Additional capital paid in from stockholders -- -- 65,000 -- -- -- 65,000 Recapitalization on May 31, 2000 -- (2,152,085) 2,152,085 -- -- -- -- Contribution of shares from principal stockholders (1,751,007) -- -- -- -- -- -- Issuance of common stock in exchange for loan payable to a related party on June 30, 2000 9,640 11,249 -- -- -- -- 11,249 -------------------------------------------------------------------------------------------- Sub-total 9,989,631 $ 4,836 $2,217,085 $(380,178) $-- $ -- $1,841,743
See notes to financial statements 7
HBOA HOLDINGS, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (Unaudited) PERIOD FROM JULY 7, 1998 (DATE OF INCEPTION) TO MARCH 31, 2002 Deficit accumulated through the Common Stock Paid in Development Treasury Stock Shares Amount Capital stage Shares Amount TOTAL -------------------------------------------------------------------------------------------- Sub-total 9,989,631 $ 4,836 $2,217,085 $(380,178) $-- $ -- $1,841,743 Prorated return of capital to common stockholders based on dividends -- (6,936) -- -- -- -- (6,936) Issuance of common stock in exchange for services per contract on June 30, 2000 5,313 6,200 -- -- -- -- 6,200 Issuance of common stock for cash, on June 30, 2000 5,056 5,900 -- -- -- -- 5,900 On November 20, 2000, shares of common stock were issued to consultants in exchange for consulting services 350,000 350 568,400 -- -- -- 568,750 On November 28, 2000, shares of common stock were issued to a consultant in exchange for consulting services 440,000 440 687,060 -- -- -- 687,500 On December 11, 2000, shares of common stock were issued in exchange for options granted to an officer 22,500 22 33,728 -- -- -- 33,750 -------------------------------------------------------------------------------------------- Sub-total 10,812,500 $ 10,812 $3,506,273 $(380,178) $ -- $3,136,907
See notes to financial statements 8
HBOA HOLDINGS, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (Unaudited) PERIOD FROM JULY 7, 1998 (DATE OF INCEPTION) TO MARCH 31, 2002 Deficit accumulated through the Common Stock Paid in Development Treasury Stock Shares Amount Capital stage Shares Amount TOTAL -------------------------------------------------------------------------------------------- Sub-total 10,812,500 $ 10,812 $3,506,273 $ (380,178) $ -- $ -- $3,136,907 Compensation for consulting services in exchange of stock options and warrants -- -- 59,770 -- -- -- 59,770 Stock reacquired on December 7, 2000 totaling 50,000 shares at cost -- -- -- -- (50,000) (12,500) (12,500) Stock split 2:1 10,812,500 -- -- -- -- -- -- Net loss 2000 -- -- -- (2,605,259) -- -- Balance December 31, 2000 21,625,000 10,812 3,566,043 (2,985,437) (50,000) (12,500) 578,918 Additional capital paid in from shareholders -- -- 3,360 -- -- -- 3,360 Compensation for consulting services in exchange of stock options and warrants -- -- 400,740 -- -- -- 400,740 Compensation for consulting services in exchange of common stock 100,000 50 28,050 -- -- -- 28,100 -------------------------------------------------------------------------------------------- Sub-total 21,725,000 $ 10,862 $3,998,193 $(2,985,437) (50,000) $ (12,500) $1,011,118 See notes to financial statements 9
HBOA HOLDINGS, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (Unaudited) PERIOD FROM JULY 7, 1998 (DATE OF INCEPTION) TO MARCH 31, 2002 Deficit accumulated through the Common Stock Paid in Development Treasury Stock Shares Amount Capital stage Shares Amount TOTAL -------------------------------------------------------------------------------------------- Sub-total 21,725,000 $ 10,862 $ 3,998,193 $(2,985,437) (50,000) $ (12,500) $1,011,118 Compensation for consulting services in exchange of warrants -- -- 262,189 -- -- -- 262,189 Additional paid in capital contributed as rent -- -- 5,515 -- -- -- 5,515 Net loss 2001 -- -- (1,144,262) (1,144,262) Balance December 31, 2001 21,725,000 $ 10,862 $4,265,897 $(4,129,699) (50,000) $ (12,500) $ 134,560 Additional paid in capital contributed as rent 1,379 1,379 Net loss March 31, 2002 -- -- -- (99,799) (99,799) -- -- -------------------------------------------------------------------------------------------- 21,725,000 $ 10,862 $4,267,276 $(4,229,498) (50,000) $ (12,500) $ 36,140 ============================================================================================ See notes to financial statements
10
HBOA HOLDINGS, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Period from July 7, 1998 (Date of inception) Three months ended March 31, to 2002 2001 March 31, 2002 -------- --------- -------------- Cash flows from operating activities Net loss $(99,799) $(419,947) $(4,229,498) -------- --------- ----------- Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 19,943 17,941 132,956 Compensation in exchange for stock, options and warrants -- 100,185 2,040,799 (Increase) decrease in loans -- -- (6,923) (Increase) decrease in deposits and advances -- -- (7,980) (Increase) decrease in accounts receivables -- 440 -- (Increase) decrease in other receivables -- 33,750 -- (Increase) decrease in prepaid expenses (10,351) 11,162 (22,786) Increase (decrease) in accounts payable and accrued expenses 2,442 1,634 54,128 Increase (decrease) in deferred income (825) 4,125 -------- --------- ----------- Total adjustments 11,209 165,112 2,194,319 -------- --------- ----------- Net cash used in operating activities (88,590) (254,835) (2,035,179) -------- --------- ----------- Cash flow from investing activities: Cash payments for the purchase of investments -- -- (243,290) Cash payment for the purchase of intangible property -- -- (203,219) Cash payments for the purchase of property -- (24,353) (79,356) -------- --------- ----------- Net cash used in investing activities -- (24,353) (525,865) -------- --------- ----------- Cash flow from financing activities: Return of capital -- -- (6,936) Treasury stock reacquired -- -- (12,500) Capital contributed as rent 1,379 -- 6,894 Proceeds from notes payable 92,500 -- 364,500 Proceeds from additional paid in capital -- 3,359 143,359 Proceeds from issuance of common stock -- -- 2,076,062 -------- --------- ----------- Net cash provided by financing activities 93,879 3,359 2,571,379 -------- --------- ----------- Net increase (decrease) in cash and cash equivalents 5,289 (275,829) 10,335 Cash and cash equivalents, beginning of the period 5,046 333,361 -- -------- --------- ----------- Cash and cash equivalents, end of the period $ 10,335 $ 57,532 $ 10,335 ======== ========= =========== See notes to financial statements
11 HBOA HOLDINGS, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CASH FLOWS
For the period from July 7, 1998 (Date of inception) Three months ended March 31, to 2002 2001 March 31, 2002 ------------------ ---------------- ---------------------- Supplemental disclosures of cash flow information: Cash paid during the period for: - -------------------------------- Interest expense $ 153 $ 126 8,311 ------------------ ---------------- ----------------------
Supplemental disclosures, 2000, of non-cash financing activities: - ----------------------------------------------------------------- On May 31, 2000, the Company acquired HBOA, Com, Inc. through Ingenu Incorporated, its wholly owned subsidiary. The acquisition of HBOA.Com, Inc. by the Company has been treated as an acquisition of the Company by HBOA.Com, Inc. and a recapitalization of HBOA.Com, Inc. A total of 1,430,700 shares were issued with the transaction (See Note 12). On November 20, 2000, the Company issued 350,000 shares of common stock in exchange for consulting services. The value of $1.625 per share was the market price on the date of the grant. Accordingly, consultant expenses of $568,750 were charged to operations. On November 28, 2000, the Company issued 440,000 shares of common stock in exchange for consulting services. The value of $1.5625 per share was the market price on the date of the grant. Accordingly, consultant expenses of $687,500 were charged to operations. See notes to financial statements 12 HBOA HOLDINGS, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) THREE MONTHS ENDED MARCH 31, 2002 NOTE 1 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS The accompanying consolidated financial statements of the Company have been prepared in accordance with the instructions to Form 10-QSB and, therefore, omit or condense certain footnotes and other information normally included in financial statements prepared in accordance with generally accepted accounting principles. It is suggested that these consolidated condensed financial statements should be read in conjunction with the Company's financial statements and notes thereto included in the Company's audited financial statements on Form 10-KSB for the fiscal year ended December 31, 2001. The accounting policies followed for interim financial reporting are the same as those disclosed in Note 1 of the Notes to Financial Statements included in the Company's audited financial statements for the fiscal year ended December 31, 2001, which are included in Form 10- KSB. In the opinion of management, the unaudited consolidated financial statements include all necessary adjustments (consisting of normal, recurring accruals) for a fair presentation of the financial position, results of operations and cash flow for the interim periods presented. Preparing consolidated 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 three-month period ended March 31, 2002 are not necessarily indicative of operating results to be expected for a full year. The Financial Accounting Standards Board has recently issued several new accounting pronouncements, which may apply to the Company. Statement No.133 as amended by Statement No. 137 and 138, Accounting for Derivative Instruments and Hedging Activities established accounting and reporting standards for derivative instruments and related contracts and hedging activities. This statement is effective for all fiscal quarters and fiscal years beginning after June 15, 2000. The adoption of this pronouncement did not have a material effect on the Company's financial position, results of operations or liquidity. Statement No. 141, Business Combinations (SFAS 141) establishes revised standards for accounting for business combinations. Specifically, the statement eliminates the pooling method, provides new guidance for recognizing intangible assets arising in a business combination, and calls for disclosure of considerably more information about a business combination. This statement is effective for business combinations initiated on or after July 1, 2001. The adoption of this pronouncement on July 1, 2001 did not have a material effect on the Company's financial position, results of operations or liquidity. Statement No. 142, Goodwill and Other Intangible Assets (SFAS 142) provides new guidance concerning the accounting for the acquisition of intangibles, except those acquired in a business combination, which is subject to SFAS 141, and the manner in which intangibles and goodwill should be accounting for subsequent to their initial recognition. Generally, intangible assets with indefinite lives, and goodwill, are no longer amortized; they are carried at lower of cost or market and subject to annual impairment evaluation, or interim impairment evaluation if an interim triggering event occurs, using a new fair market value method. Intangible assets with finite lives are amortized over those lives, with no stipulated maximum, and an impairment test is performed only when a triggering event occurs. This statement is effective for all fiscal years beginning after December 15, 2001. 13 HBOA HOLDINGS, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) THREE MONTHS ENDED MARCH 31, 2002 NOTE 1 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED The Company believes that the implementation of SFAS 142 on April 1, 2002 will not have a material effect on the Company's financial position, results of operations or liquidity. Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets supercedes Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of (SFAS 121). Though it retains the basic requirements of SFAS 121 regarding when and how to measure an impairment loss, SFAS 144 provides additional implementation guidance. SFAS 144 excludes goodwill and intangibles not being amortized among other exclusions. SFAS 144 also supersedes the provisions of APB 30, Reporting the Results of Operations, pertaining to discontinued operations. Separate reporting of a discontinued operation is still required, but SFAS 144 expands the presentation to include a component of an entity, rather than strictly a business segment as defined in SFAS 131, Disclosures about Segments of an Enterprise and Related Information. SFAS 144 also eliminates the current exemption to consolidation when control over a subsidiary is likely to be temporary. This statement is effective for all fiscal years beginning after December 15, 2001. The Company believes that the implementation of SFAS 144 on April 1, 2002 will not have a material effect on the Company's financial position, results of operations or liquidity. The accompanying consolidated condensed financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant inter-company balances and transactions have been eliminated. NOTE 2 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 March 31, 2002 is as follows: Basic weighted average number of shares outstanding 21,675,000 The 2,077,452 shares of common stock reserved in connection with warrants are not included in the computation of dilutive earnings per share because the effect is antidilutive due to the net loss. NOTE 3 CONCENTRATION OF CREDIT RISK Financial instruments that potentially subject the Company to credit risk include cash on deposit with one financial institution amounting to $10,335 at March 31, 2002. Financial institutions insure depositors for up to $100,000 through the U.S. Federal Deposit Insurance Corporation. 14 HBOA HOLDINGS, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) THREE MONTHS ENDED MARCH 31, 2002 NOTE 4 INVESTMENT IN LIMITED PARTNERSHIP - RELATED PARTY During 2001, the Company invested in an affiliated limited partnership, which developed, owns, and operates a computer system designed to facilitate the notifications and authorizations process between hospitals and insurers. The Company has a 17.92% interest in the partnership, acquired during 2001. The Company provided services to the related party in exchange for the interest; no services have been provided during the three months ended March 31, 2002. In addition, the principal shareholder, an officer and director of the Company, owns 1/3 of the general partner in the partnership. NOTE 5 LONG-TERM NOTES PAYABLE Long-term notes payable at March 31, 2002 are summarized as follows:
Note payable to a related party with no specified rate of interest; due on demand. $ 50,000 Note payable to a related party with no specified rate of interest; due on demand. 50,000 Note payable to a related party with no specified rate of interest; due on demand. 50,000 Note payable to a related party with no specified rate of interest; due on demand. 50,000 Note payable to a related party with no specified rate of interest; due on demand. 30,000 Note payable to a related party with no specified rate of interest; due on demand. 12,000 Note payable to a related party with no specified rate of interest; due on demand. 30,000 Note payable to a related party with no specified rate of interest; due on demand. 10,000 Note payable to a related party with no specified rate of interest; due on demand. 12,500 Note payable to a related party with no specified rate of interest; due on demand. 15,000
15 HBOA HOLDINGS, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) THREE MONTHS ENDED MARCH 31, 2002 NOTE 5 LONG-TERM NOTES PAYABLE - CONTINUED
Note payable to a related party with no specified rate of interest; due on demand. $ 10,000 Note payable to a related party with no specified rate of interest; due on demand. 15,000 Note payable to a related party with no specified rate of interest; due on demand. 15,000 Note payable to a related party with no specified rate of interest; due on demand. 15,000 ----------- 364,500 Less current portion (364,500) ----------- Total long-term notes payable: $ 0 ===========
NOTE 6 STOCKHOLDERS' EQUITY Preferred Stock Authorized 10,000,000 shares of preferred stock, no par value per share. None issued as of three months ended March 31, 2002. Common Stock Authorized 25,000,000 shares of common stock, $0.0005 par value per share. At March 31, 2002, 21,725,000 shares of common stock were issued and 21,675,000 shares were outstanding. NOTE 7 INCOME TAXES At March 31, 2002, the Company had useable net operating loss carryforwards of approximately $4,266,899 for income tax purposes, available to offset future taxable income of the U.S. entity expiring through 2021. The valuation allowance was $1,400,000 at March 31, 2002. This allowance was reversed at December 31, 2001, as management estimates that it is more likely than not that the deferred tax assets will be realized due to uncertainty of the Company's ability to generate future taxable income. The deferred tax asset was adjusted based on estimated use of net operating losses through December 31, 2001 to $385,000. 16 HBOA HOLDINGS, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) THREE MONTHS ENDED MARCH 31, 2002 NOTE 8 RELATED PARTY TRANSACTIONS The Company has receivables at March 31, 2002 from a related party company totaling $6,923. This loan occurred during the ordinary course of business, bearing no interest, and due on demand. In the opinion of management, this loan does not bear more than normal credit risk, nor other unfavorable areas of concern. At March 31, 2002, amounts due to related parties totaled $364,500 as follows: On May 14, 2000, the Company received a loan from a related party in the amount of $50,000 due on demand with no interest. On June 18, 2000, the Company received a loan from a related party in the amount of $50,000 due on demand with no interest. 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. On September 5, 2001, the Company received a loan from a related party in the amount of $50,000 due on demand with no interest. On October 23, 2001, the Company received a loan from a related party in the amount of $30,000 due on demand with no interest. On October 26, 2001, the Company received a loan from a related party in the amount of $12,000 due on demand with no interest. On November 28, 2001, the Company received a loan from a related party in the amount of $30,000 due on demand with no interest. On January 2, 2002, the Company received a loan from a related party in the amount of $10,000 due on demand with no interest. On January 16, 2002, the Company received a loan from a related party in the amount of $12,500 due on demand with no interest. On January 30, 2002, the Company received a loan from a related party in the amount of $15,000 due on demand with no interest. On February 13, 2002, the Company received a loan from a related party in the amount of $10,000 due on demand with no interest. On February 27, 2002, the Company received a loan from a related party in the amount of $15,000 due on demand with no interest. 17 HBOA HOLDINGS, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) THREE MONTHS ENDED MARCH 31, 2002 NOTE 8 RELATED PARTY TRANSACTIONS - CONTINUED On March 12, 2002, the Company received a loan from a related party in the amount of $15,000 due on demand with no interest. On March 27, 2002, the Company received a loan from a related party in the amount of $15,000 due on demand with no interest. NOTE 9 SUBSEQUENT EVENT On April 8, 2002, the Company received a loan from a related party in the amount of $15,000 due on demand with no interest. On April 24, 2002, the Company received a loan from a related party in the amount of $18,500 due on demand with no interest. 18 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 branded, private communities for schools, corporations and large groups. The PARIS Division owns a 17.99% membership interest in PARIS Health Services, Ltd. (The "PARIS Project"). The PARIS Project was formed to launch a new service for hospitals for routing procedure authorizations between hospitals and insurance providers. The HBOA Division provides an online community with business tools and fee-based services for small and home based businesses. 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. 19 RESULTS OF OPERATIONS We are a development stage company and our revenue from operations have been nominal. Sales, net of returns, were $5,354 during the three months ended March 31, 2002 and $1,128 during the three months ended March 31, 2001. These revenues consisted of $4,475 from consulting services rendered to PARIS, Ltd., $825 Aerisys's contract revenue for monthly services and $54 for HBOA membership fees. During the period from July 7, 1998 (date of inception) through March 31, 2002, sales, net of revenues, were $18,092. Costs of sales was $823 during the three months ended March 31, 2001 and $1,048 during the three months ended March 31, 2001. During the period from July 7, 1998 (date of inception) through March 31, 2002, costs of sales were $13,949. We had a gross profit of $5,257 for the three months ended March 31, 2002 and a gross loss of $4,432 during the three months ended March 31, 2001. Our gross profit is a result of our increasing our revenues from our operating business, which arose from our consulting services to PARIS Ltd., and decreasing our cost of sale expenses . During the period from inception, July 7, 1998, through March 31 2002, our gross profit was $18,092. Most of these profits arose from the sale of HBOA memberships. Our operating expenses for the three months ended March 31, 2002 were $103,978 compared with $416,987 for the three months ended March 31, 2001. During the first quarter of 2002, we significantly decrease our operating expenses for salaries, consulting fees, rent, professional fees and other general and administrative expenses compared with our expenses for these items in the first quarter of 2001. During the first quarter of 2001, we had 7 people on our payroll, during the second quarter of 2002, we have 4 people on our payroll. Furthermore, our rent expenses were $1,379 during the first quarter of 2002 compared with rent expenses of $63,241 during the first quarter of 2001. As a result of the forgoing, our net loss was $99,799 for the three months ended March 31, 2002 compared with a net loss of $419,947 for the three months ended March 31, 2001. For the period from July 7, 1998 (date of inception) through March 31, 2002, our net loss was $4,229,499. LIQUIDITY AND CAPITAL RESOURCES As of March 31, 2002, we had cash on hand of $10,335. We expect that this cash on hand as of this date will allow us to meet our working capital requirements for the next two weeks. Beginning in May 2001 through May 1, 2002, Mr. Verdier, our founder and Chairman, has advanced an aggregate of $398,000 to our company. These loans are due on demand. We are presently exploring other options to raise additional capital for HBOA, in the form of debt or equity financing. 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 Financing from Shareholders secured by a lien on the Company's Assets or Intellectual Property" under "Risk Factors." 20 Our capital requirements have been and will continue to be significant due to, among other things, our expenses to develop our ASP business and 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. 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 three months ended March 31, 2002, we used $88,590 in operating activities. This consisted primarily of our net loss of $99,799 offset by certain adjustments of $11,209. During the period from July 7, 1998 through March 31, 2002, we used $2,035,179 in operating expenses. During the three months ended March 31, 2002, we did not use any capital in investment activities. During the period from inception (July 7, 1998) through March 31, 2002, we have used $525,865 in investing activities. During the three months ended March 31, 2002, we received $93,879 from financing activities, primarily as a result of $92,500 loan from Gary Verdier, our founder, Chairman and President. During the period from our inception (July 7, 1998) through March 31, 2002, we have received $2,571,379 in financing, which includes approximately $2.1 million received from a sale of our common stock in 2000 and $364,500 in loans from Gary Verdier. RISK FACTORS In evaluating our business, the following risk factors should be considered: Our capital requirements have been and will continue to be significant due to, among other things, our expenses to develop our ASP business. As of March 31, 2002, we had cash on hand of $10,335. During the first quarter of 2002, our founder, Gary Verdier has placed approximately $10,000 - $15,000 in our company every two weeks. We expect that our founder will continue to provide us with necessary capital, until we obtain a funding source. As of May 1, 2002, Gary Verdier, our founder and Chairman, has advanced $398,000 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 2002 During 2002, we expect to generate revenues from our Aerisys Division and our PARIS Division. However, at this time, it is difficult to predict the amount of revenues that will be generated by each division. Our Aerisys Division intends to generate revenues by selling the Aerisys Intelligent Community(TM) to private and parochial schools. It is our understanding these schools will charge the parents an annual technology fee of up to $120 per year. As of March 31, 2002, we had two contracts with private schools and have set up many sales meetings with other schools. However, there can be no assurances that we will obtain contracts to provide services at other schools or that we will generate revenues from the two school contracts. 21 PARIS Ltd. has agreed to pay for the consulting and technology services that Marty Torsey, our Chief Technology Officer, provides to the PARIS partnership. In March 2002, we submitted an invoice to the PARIS partnership for $4,475 for Mr. Torsey's services in January. However, we do not know when we will begin receiving profit distributions under the PARIS partnership. Our ability to receive profit distributions is limited to approximately 9% of the profits, until the Trust has received distributions equal to its initial capital contribution. Furthermore, the Trust has certain preferences if there is a liquidation or dissolution of the Paris partnership. Given the current economic climate, we do not plan on devoting significant resources to our HBOA division in fiscal 2002. WE HAVE A HISTORY OF OPERATING LOSSES, A GOING CONCERN QUALIFICATION AND EXPECT TO INCUR FUTURE LOSSES We have a net loss of $4,229,499 for the period from July 7, 1998 (date of inception) through March 31, 2002. The footnotes to our financial statements for the twelve months ended December 31, 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 2002 fiscal year, due, in part to start up costs associated with developing our Aerisys and PARIS divisions. Furthermore, there can be no assurances that our business strategy will enable us to achieve profitable operations in the future. THE MARKETS WE SERVE ARE HIGHLY COMPETITIVE AND MANY OF OUR COMPETITORS HAVE MUCH GREATER RESOURCES AERISYS DIVISION The market for providing private, branded intranets to schools is competitive. Our current and potential competitors include companies that are well established both in the technology marketplace and the school arena. Companies like Apple Computer with their Powerschool solution and eChalk are both excellent solutions. Additionally, a definite "competitor" of our product is an in-house solution that any school may decide to build or have built to suit their needs. We expect that it will be quite common for a company that offers or provides basic website development services to offer a school a customized solution that encompasses homework online and other similar features to the Aerisys Intelligent Community(TM) for Schools. We further expect that as the suppliers of other school products realize the market potential of school intranets, they may develop a solution to compete with ours. We expect that these current and future competitors will face increasing price and service pressures on our future family-based price. 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. 22 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 not any substantial barriers to entry, and we have no patented technology that would bar competitors from our market. PARIS DIVISION Although PARIS believes that it is offering hospitals a unique service, other companies could begin providing a similar service because there are not many barriers to entry in this market. Many large consulting companies such as IBM, EDS, Oracle and other small private software consulting companies could offer similar services. Many of these companies have significantly greater financial, technical product development and market resources and greater name recognition. We expect that competition will be based on price, speed of service and quality. Additionally, PARIS expects that the MIS departments of hospitals and managed care companies may try to develop this product on their own. However, we do not think that many of our competitors will be willing to absorb all of the costs to implement and develop the virtual area networks for the hospitals. 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. THE GROWTH IN DEMAND FOR OUR AERISYS INTELLIGENT COMMUNITIES(TM)IS HIGHLY UNCERTAIN As of March 31, 2002, we have two signed contracts with schools. We plan on pursuing an aggressive marketing and sale campaign during the upcoming months with private and parochial schools. However, it is difficult to predict if any additional schools will want to purchase our product. The market for providing private, branded intranets to K-12 schools is competitive. It is unclear if we will be able to distinguish ourselves from our competitors. 23 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. In May 2001, we received a membership interest in PARIS Health Services, Ltd., which investment was restructured as an interest in a limited liability company in January 2002. In fiscal 2002, we plan on focusing most of our business efforts on our Aerisys Division and our PARIS Division. 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 May 1, 2002, Gary Verdier has advanced approximately $398,000 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 our company unless they receive a security interest in all of our assets or our intellectual property. As of May 1, 2002, 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. 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. 24 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. THE SUCCESS OF OUR AERISYS INTELLIGENT COMMUNITIES(TM) DEPENDS ON THE ACCEPTANCE AND INCREASED USE OF INTERNET-BASED BUSINESS SOFTWARE SOLUTIONS AND WE CANNOT BE SURE THAT THIS WILL HAPPEN The success of our Aerisys Intelligent Community(TM) depends on the adoption of Internet- based business software solutions by schools. Our business could suffer dramatically if Internet-based solutions are not accepted or perceived to be effective. 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 entire Internet; and - inconsistent performance of the Internet. We cannot be certain that this market will continue to grow or to grow at the rate we anticipated. 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 can be no assurances that we will be successful in recruiting, retaining or training the management personnel it requires. MANAGEMENT OF GROWTH During 2002, we expect to have significant growth (principally as a result of our HBOA and PARIS Division) 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 25 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 our growth will be our 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. OUR LIABILITY FOR INFORMATION RETRIEVED FROM THE WEB Because users of our web sites for our Intelligent Communities(TM) and our HBOA web site may distribute our content to others, third parties might use 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 on our Intelligent Community(TM) and HBOA web sites, 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 have entered and may enter into other 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. E-COMMERCE AND POTENTIAL PRODUCT LIABILITY Our HBOA Division plans on developing 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 26 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 SITES AND TECHNOLOGY; RISK OF CAPACITY CONSTRAINTS The performance, reliability and availability of our web sites, systems and network infrastructure will be critical to our business and our ability to promote our business for our Intelligent Communities(TM) and HBOA web site . Our web sites are 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 sites or interruption of information or access of information to members through the web sites would diminish their effectiveness as a means of promoting our business. If the volume of traffic on our web sites is greater than anticipated, we will be required to expand and upgrade our web sites 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 sites 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. 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 our Aerisys Intelligent Community(TM) customers or HBOA 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 communication and 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, 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 27 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. RAPID TECHNOLOGICAL CHANGE The markets in which our Aerisys and PARIS Division compete are 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 our 28 products and services. The future success of our Aerisys and PARIS Divisions will depend to a substantial degree upon their ability to develop and introduce in a timely fashion new products and services and enhancements to their 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 our Aerisys and PARIS Divisons 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 these divisions will be able to respond effectively to announcements by competitors, technological changes, or emerging industry standards. Our business, results of operations, and financial condition would be materially and adversely affected if our Aerisys and PARIS Divisions were to be unsuccessful, or to incur significant delays in developing and introducing new products, services, or enhancements. 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 March 31, 2002, we had 21,725,000 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, 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 29 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 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, 2002. 30 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: May 15, 2002 HBOA HOLDINGS, INC. By /s/ Gary Verdier --------------------- Gary Verdier President and Chief Executive Officer (Principal Financial and Accounting Officer) 31 -----END PRIVACY-ENHANCED MESSAGE-----