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, 2003 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 March 31, 2003 was 21,675,000. PART I - FINANCIAL INFORMATION
PAGE -------- ITEM 1. FINANCIAL STATEMENTS: Consolidated Balance Sheet as of March 31, 2003 (Unaudited) ....................................3 Consolidated Statements of Operations for the Three Months Ended March 31, 2003 and March 31, 2002..............................................................................5 Consolidated Statements of Changes in Stockholders' Equity......................................6 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2003 and 2002.........................................................................7 Notes to Consolidated Financial Statements......................................................8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................................................9 Item 3. Controls and Procedures..................................................................................16 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K.........................................................................17 Certifications Exhibit 99.1 Exhibit 99.2 Signatures........................................................................................................18
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. 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements HBOA HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Unaudited) March 31, 2002 Assets Current assets Cash $ 12,222 Accounts receivable 4,512 Prepaid expenses 19,715 -------- Total current assets 36,449 Property and equipment, net 40,248 Intangible assets, net 34,612 Other assets Deposits 7,980 Investment in Limited partnership - related party 202,085 Due from related party 6,923 -------- 216,988 -------- $328,297 ======== See notes to financial statements. 3 HBOA HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Unaudited) March 31, 2003 Liabilities and Stockholders' Deficit Current liabilities Accounts payable $ 51,071 Accrued expenses 6,462 Accrued interest 32,761 Deferred revenue 18,145 Due to related parties 530,000 ----------- Total current liabilities 638,439 Stockholders' deficit 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 4,284,170 Accumulated Deficit (4,592,674) ----------- (297,642) Less: Treasury stock, 50,000 shares at cost (12,500) ----------- (310,142) ----------- $ 328,297 =========== See notes to financial statements. 4 HBOA HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three months ended March 31, 2003 2002 --------- --------- Income Sales net of returns $ 17,424 $ 5,354 --------- --------- 17,424 5,354 Expenses Salaries 66,996 57,270 Consulting 5,775 -- Professional fees 10,613 4,461 Insurance 11,174 10,741 Marketing and advertising 5,032 3,481 Rent 1,655 1,379 Other general and administrative expenses 12,582 6,800 Depreciation and amortization 16,976 19,943 --------- --------- 130,803 104,075 Other income Other income 60,516 2,975 Interest expense (6,399) (4,053) --------- --------- Net loss $ (59,262) $ (99,799) ========= ========= Loss per share Net loss per common share $ (0.003) $ (0.005) ========= ========= See notes to financial statements. 5 HBOA HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT (UNAUDITED)
Additional Common Stock Paid in Accumulated Shares Amount Capital Deficit ----------- ----------- ----------- ----------- Balance January 1, 2003 21,725,000 $ 10,862 $ 4,272,515 $(4,533,412) Additional paid in capital contributed as rent -- -- 1,655 -- Additional paid in capital contributed as salary -- -- 10,000 -- Net loss -- -- -- (59,262) ----------- ----------- ----------- ----------- Balance March 31, 2003 21,725,000 $ 10,862 $ 4,284,170 $(4,592,674) =========== =========== =========== =========== [RESTUBBED] Treasury Stock Shares Amount TOTAL ----------- ----------- ----------- Balance January 1, 2003 $ (50,000) $ (12,500) $ (262,535) Additional paid in capital contributed as rent -- -- 1,655 Additional paid in capital contributed as salary -- -- 10,000 Net loss -- -- (59,262) ----------- ----------- ----------- Balance March 31, 2003 (50,000) $ (12,500) $ (310,142) =========== =========== ===========
The accompanying notes are an integral part of these financial statement 6 HBOA HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three months ended March 31, 2003 2002 -------- -------- Cash flows from operating activities: Net Loss $(59,262) $(99,799) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 16,976 19,943 Capital contributed as rent 1,655 1,379 Capital contributed as salary 10,000 -- Increase in prepaid expenses (15,860) (10,351) Increase n accounts payable 12,358 2,442 Decrease in accrued expenses (215) -- Increase in deferred income (12,509) (825) -------- -------- Net cash used in operating activities (46,857) (87,211) -------- -------- Cash flow from financing activities: Proceeds from notes payable-related party 40,000 92,500 -------- Net cash provided by financing activities 40,000 92,500 -------- -------- Net (decrease) increase in cash (6,857) 5,289 Cash, beginning of the period 19,079 5,046 -------- -------- Cash, end of the period $ 12,222 $ 10,335 ======== ======== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 94 $ 153 ======== ======== See notes to financial statements. 7 HBOA HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2003 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, 2002. 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, 2002, 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, 2003 are not necessarily indicative of operating results to be expected for a full year. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 20.68% membership interest in PARIS Health Services Ltd. ("PARIS Ltd."). PARIS Ltd. Offers two healthcare process solutions: (i) a virtual private network to help hospitals obtain required approvals from insurers and (ii) a web-based program to assist companies in managing compliance with The Health Insurance Portability and Accountability Act ("HIPAA"). The HBOA Division, which is now inactive, provides an online community with business tools and services for small and home based businesses. RESULTS OF OPERATIONS Sales, net of returns, were $17,424 during the three months ended March 31, 2003 compared with sales, net of returns, of $5,354 during the three months ended March 31, 2002. Substantially all of our sales during the first quarter of 2003 were generated from sales of our Aerisys Intelligent Community to schools. During the first quarter of 2002, our sales of $5,354, included $4,475 from consulting services rendered to PARIS, Ltd., $825 from sales of our Aerisys Intelligent Community to schools and $54 for HBOA membership interests. Expenses were $130,803 during the three months ended March 31, 2003 compared with $104,077 during the three months ended March 31, 2002. Expenses increased primarily because our salary expenses increased by $9,726, our professional fees increased by $6,152 and our other general administrative expenses increased by $5,780 during the first quarter of 2003 compared with the first quarter of 2002. In the first quarter of fiscal 2003, we emerged from being a development stage company to being an operating company and Mr. Verdier began devoting more time to the company's operations. As such, we made a determination that we should recognize the fair value of Mr. Verdier's services in the amount of $40,000 per year in our financial statements beginning in the first quarter of fiscal 2003. This expense is a non cash-item and Mr. Verdier is not receiving any salary from us. Additionally, we had $5,775 in consulting expenses during the three months ended March 31, 2003 and we did not have this expense in the first quarter of 2002. We had other income of $60,516 during the three months ended March 31, 2003 consisting of revenues that we received under our consulting agreement with Dundas Systems, a related company. In the first quarter of 2002, we had other income of $2,975. We accrued interest expense of $6,399 during the three months ended March 31, 2003 compared with interest expense of $4,053 during the three months ended March 31, 2002. This interest expense is due on funds that Dundas Systems, a related company, has advanced to the Company. We had a net loss of $59,262 for the three months ended March 31, 2003 compared with a net loss of $99,799 for the three months ended March 31, 2002. Our net loss decreased by $40,537 in the first quarter of 2003 because our sales increased by $12,070, other income increased by $57,541, which was offset by the increase in our operating expenses of $26,728 compared with the same expenses in the first quarter of 2002. 9 LIQUIDITY AND CAPITAL RESOURCES As of March 31, 2003, we had cash on hand of $12,222 and our working capital deficit was $601,990. As of March 31, 2003, we have received $530,000 from Dundas Systems, a related company. The loans from Dundas Systems are due on demand. We expect that this cash on hand and payments under our consulting agreement with Dundas Systems will allow us to meet our working capital requirements for the next few months. In September 2002, we entered into a consulting agreement with Dundas Systems in which we agreed to provide technical and network support, marketing and operating services to Dundas for $5,000 per week. The fees generated from this agreement have provided working capital for our operations. However, the consulting agreement does not have a term and can be canceled at any time by either party, upon two weeks written notice. Our total current liabilities were $638,439 as of March 31, 2003, which includes accounts payable of $51,071, accrued expenses of $6,462, accrued interest of $32,761, notes payable to related parties of $530,000 and $18,145 in deferred income. We have multi-year contracts with several of our schools for the Aerisys Intelligent Community and therefore, we must defer revenue and recognize it over the period for which the services are provided. We have incurred net losses of $59,262 and $99,799 for the three months ended March 31, 2003 and 2002, respectively. These conditions raise substantial doubt as to our ability to continue as a going concern. Management's plans with regard to these matters includes raising working capital to assure our viability through private equity offerings, debt financing, or through the acquisition of new businesses or private ventures. During the three months ended March 31, 2003, we used $46,857 in operating activities compared to $87,211 during the three months ended March 31, 2002. Our use of cash in our operating activities decreased during this time period primarily because our net loss decreased by $40,537. We received $40,000 in financing during the first quarter of 2003 compared with $98,000 in financing in the first quarter of fiscal 2002. Our financing in both of these periods was provided by advances from Dundas Systems, a related party. Our capital requirements have been and will continue to be significant due to, among other things, our expenses to develop our Aerisys Intelligent Community and to fulfill our obligations to PARIS Ltd. Although not yet finalized, we are also planning to acquire two businesses: PARIS Health Services Ltd., a company that provides healthcare process solutions and LexSys Software Corp., a technology and software company. We presently own a 20.68% limited partnership interest in PARIS Ltd. If we acquire LexSys, we may have to provide $150,000 in cash to LexSys as part of the purchase price. Additionally, if we acquire PARIS Health Services, we may have an obligation to provide financing of up to $300,000 for PARIS's operating capital requirements. However, neither of these agreements have been finalized as of May 15, 2003 and we can not provide you with any assurances that we will acquire these companies. 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. As of March 31, 2003, we had cash on hand of $12,222. During the first quarter of 2003, Gary Verdier, through Dundas Systems, advanced $40,000 to our company. As of March 31, 2003, Dundas Systems has advanced $530,000 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. 10 OUR METHODS OF GENERATING REVENUE ARE RELATIVELY NEW AND LARGELY UNTESTED AND WE PROBABLY WILL NOT GENERATE SIGNIFICANT REVENUES IN FISCAL 2003 During fiscal 2003, 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. As of December 31, 2003, we had contracts with five 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 these agreements. We intend to generate revenues from the PARIS Division by (i) securing long-term contracts with hospitals to provide outsourcing services to assist hospitals in obtaining authorizations for healthcare procedures and (ii) by identifying customers for our HIPAA Compliance Program. As of March 31, 2003, we are trying to finalize a three-year contract with one hospital for a virtual private network which uses the PARIS routing procedure. However, as of March 31, 2003, we have not finalized this agreement and we can not assure you that we will be able to finalize agreements with any hospitals. As of May 5, 2003, we have 20 customers who are using our web-based HIPAA Compliance Program. Given the current economic climate, we do not plan on devoting significant resources to our HBOA division in fiscal 2003. Growth and Acquisition Risks We intend to acquire two businesses: PARIS Ltd., a company that provides healthcare process solutions and LexSys Software Corp., a software and technology company. We cannot predict the likelihood of these material acquisitions being completed in the future. We also cannot assure you that these acquisitions will be profitable or that they will achieve sales and profitability that justify the investment. Acquisitions involve a number of special risks, including adverse effects on reported operating results, diversion of management's attention, dependence on retention and hiring of key personnel, risks associated with unanticipated problems or legal liabilities, some or all of which could have a material adverse effect on our operations and financial performance. Our expansion of operations, whether through acquisitions or internal growth, may place substantial burdens on our management resources and financial controls. The increased burden on our management resources and financial controls may have an adverse effect on our operations. WE HAVE A HISTORY OF OPERATING LOSSES, A GOING CONCERN QUALIFICATION AND EXPECT TO INCUR FUTURE LOSSES We have a net loss of $403,713 for the fiscal year ended December 31, 2002. The independent auditors' report and footnote to our financial statements for the twelve months ended December 31, 2002 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 2003 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 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, another "competitor" of our product is 11 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. 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 the PARIS Division believes that it is offering hospitals a unique service with its outsourcing service which assists hospitals in obtaining authorizations from insurance companies, 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, the PARIS Division 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. We know that many other companies offer HIPAA compliance services. Many of these companies have greater financial, technical product development and market resources and greater name recognition. WE FACE RISKS RELATED TO INTELLECTUAL PROPERTY RIGHTS. Our Aerisys and PARIS Divisions depend on our 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 our intellectual property or trade secrets without authorization. In addition, it is possible 12 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. SECURITY RISKS A party who is able to circumvent our security measures could misappropriate proprietary information or cause interruptions in our 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. In particular, after the passage of HIPAA, hospitals and insurers, which use our outsourcing service for healthcare information have increased liability if any confidential patient information is revealed. 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 the customers of any of our three divisions. 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. 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. 13 MANAGEMENT OF GROWTH During 2003, we expect to have significant growth (principally as a result of our PARIS Division and proposed acquisitions) and this growth will require us to make significant additions in personnel and increase our 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 cannot be any assurances that we will be able to attract or retain sufficient personnel to continue the planned expansion of its 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 our management structure and its existing systems and procedures, including, without limitation, our 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 Aerisys 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. 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 our PARIS Division, which includes the outsourcing service for healthcare authorization and HIPAA compliance management program. 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 or networks is greater than anticipated, we will be required to expand and upgrade our web sites, networks 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. 14 RAPID TECHNOLOGICAL CHANGE The markets in which our Aerisys and PARIS Divisions 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 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 Divisions 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. 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 March 31, 2003, Gary Verdier, through Dundas Systems, has advanced approximately $530,000 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 March 31, 2003, 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. 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, 2003, we had 21,675,000 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 in dilution to current HBOA shareholders. 15 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. . TRADING ON THE OTC BULLETIN BOARD; 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 Quarterly Report on Form 10-QSB could have a material effect on the price of our common stock. ITEM 3. CONTROLS AND PROCEDURES Within 90 days prior to the date of this Quarterly Report on Form 10-QSB, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic SEC reports. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. In addition, we reviewed our internal controls, and there have been no significant changes in our internal controls or in other factors that could significantly affect those controls subsequent to the date of their last evaluation. 16 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. A. Exhibits 99.1 Certifying Statement of the Chief Executive Officer pursuant to 18 U.S.C.ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.2 Certifying Statement of the Chief Financial Officer pursuant to 18 U.S.C.ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *We are filing requests with the Securities and Exchange Commission to request confidential treatment of these documents. B. Reports on Form 8-K We filed a Form 8-K on March 7, 2003 reporting Item 4 information regarding a change of our certifying accountant. We engaged Berkovits, Lago & Company, LLP, as our independent accountant effective as of March 4, 2003. Our previous auditor, Sewell and Company, P. A. resigned effective as of March 4, 2003. 17 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, 2003 HBOA HOLDINGS, INC. By /s/ Gary Verdier ---------------------------------- Chief Executive Officer and President (On behalf of Registrant and as Principal Operating Officer) 18 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION ----------- ----------- 99.1 Certifying Statement of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant toss.906 of the Sarbanes-Oxley Act of 2002 99.2 Certifying Statement of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant toss.906 of the Sarbanes-Oxley Act of 2002 19 CERTIFICATIONS I, Gary Verdier, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of HBOA Holdings, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 15, 2003 /S/ GARY VERDIER ----------------------------------- Gary Verdier Chairman and Chief Executive Officer (Principal Executive Officer) 20 CERTIFICATIONS I, William Shope, certify that: 1. I have reviewed this quarterly report on Form 10-Q of HBOA Holdings, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 15, 2003 /S/ WILLIAM SHOPE ------------------------------------------ William Shope Chief Financial Officer and Vice President of Operations (Principal Financial Officer) 21