-----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, GWpMhsXUid5v9Ro2Oh6X4KiSz6oRIokGCIIQUB3QtG73l/F/U+V0Quw8tmVQZGi5 E/vrkbslTQJKKC0nxqnoKQ== 0001116502-03-002291.txt : 20031208 0001116502-03-002291.hdr.sgml : 20031208 20031208162813 ACCESSION NUMBER: 0001116502-03-002291 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031208 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KIRSHNER ENTERTAINMENT & TECHNOLOGIES INC CENTRAL INDEX KEY: 0001042463 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING SERVICES [7371] 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: 031042799 BUSINESS ADDRESS: STREET 1: 5200 NW 33RD AVENUE STREET 2: SUITE 215 CITY: FT LAUDERDALE STATE: FL ZIP: 33309 BUSINESS PHONE: 954-938-8010 MAIL ADDRESS: STREET 1: 5200 NW 33RD AVENUE STREET 2: SUITE 215 CITY: FT LAUDERDALE STATE: FL ZIP: 33309 FORMER COMPANY: FORMER CONFORMED NAME: HBOA HOLDINGS INC DATE OF NAME CHANGE: 20001116 FORMER COMPANY: FORMER CONFORMED NAME: MIZAR ENERGY CO DATE OF NAME CHANGE: 19980923 10QSB 1 kirschner10qsb.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 SEPTEMBER 30, 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 KIRSHNER ENTERTAINMENT & TECHNOLOGIES, 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 [ ] NO [X] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES [ ] NO [X] The number of issued and outstanding shares of the Registrant's Common Stock, $0.001 par value, as of September 30, 2003 was 24,125,000 (does not include 1,775,359 shares which were issued, but are being held in escrow). Kirshner Entertainment & Technologies, Inc., f/k/a HBOA Holdings, Inc. PART I - FINANCIAL INFORMATION PAGE ---- Item 1. Financial Statements: Consolidated Balance Sheet as of September 30, 2003.............2 Consolidated Statements of Operations for the Nine Months Ended September 30, 2003 and 2002...............................4 Consolidated Statements of Changes in Stockholders' Equity......5 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2003 and 2002...............................6 Notes to Consolidated Financial Statements......................7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................9 Item 3 Disclosure Controls and Procedures...............................17 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K.................................18 Signatures................................................................19 1 Item 1. - Financial Statements KIRSHNER ENTERTAINMENT & TECHNOLOGIES, INC. AND SUBSIDIARIES F/K/A HBOA HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Unaudited) September 30, 2003 Assets Current assets Cash $ 41,530 Accounts receivable 43,836 Prepaid expenses 130,373 -------- Total current assets 215,739 Property and equipment, net 33,263 Intangible assets, net 7,645 Other assets Deposits 7,980 Investment in Limited partnership - related party 202,085 -------- 210,065 -------- $466,712 ======== See notes to financial statements. 2 KIRSHNER ENTERTAINMENT & TECHNOLOGIES, INC. AND SUBSIDIARIES F/K/A HBOA HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Unaudited) September 30, 2003 Liabilities and Stockholders' Equity Current liabilities Accounts payable $ 101,379 Accrued expenses 6,462 Accrued interest 40,217 Deferred revenue 36,935 Due to related parties 83,645 ----------- Total current liabilities 268,638 ----------- Stockholders' equity Preferred stock, no par value, 10,000,000 shares authorized; no shares issued and outstanding -- Common stock, $0.0005 par value, 150,000,000 shares authorized; 24,125,000 shares issued and 24,075,000 shares outstanding 12,037 Additional paid in capital 4,541,305 Accumulated Deficit (5,340,518) Common stock to be issued 997,750 ----------- 210,574 Less: Treasury stock, 50,000 shares at cost (12,500) ----------- 198,074 ----------- $ 466,712 =========== See notes to financial statements. 3 KIRSHNER ENTERTAINMENT & TECHNOLOGIES, INC. AND SUBSIDIARIES F/K/A HBOA HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three months ended September 30, Nine months ended September 30, 2003 2002 2003 2002 --------- --------- --------- --------- Income Sales net of returns $ 13,948 $ 22,221 $ 48,103 $ 26,873 --------- --------- --------- --------- 13,948 22,221 48,103 26,873 Expenses Salaries 228,732 70,731 393,327 204,337 Consulting 4,889 1,588 32,396 9,988 Professional fees 264,829 13,917 346,412 39,733 Insurance 16,260 10,739 37,710 31,107 Marketing and advertising 2,640 10,867 12,302 31,716 Rent 3,469 1,379 6,779 4,137 Other general and administrative expenses 26,752 9,177 55,086 29,562 Depreciation and amortization 16,977 19,943 50,930 59,828 --------- --------- --------- --------- 564,548 138,341 934,942 410,408 --------- --------- --------- --------- Loss form operations (550,600) (116,120) (886,839) (383,535) Other income Other income -- 73,700 100,516 118,350 Interest expense (7,478) (6,170) (20,783) (15,786) --------- --------- --------- --------- Net loss $(558,078) $ (48,590) $(807,106) $(280,971) ========= ========= ========= ========= Loss per share Net loss per common share $ (0.024) $ (0.002) $ (0.037) $ (0.013) ========= ========= ========= =========
See notes to financial statements. 4 KIRSHNER ENTERTAINMENT & TECHNOLOGIES, INC. AND SUBSIDIARIES F/K/A HBOA HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
Additional Common Stock Paid in Accumulated Common Stock Shares Amount Capital Deficit to be Issued ------------------------------------------------------------------------- Balance January 1, 2003 21,725,000 $ 10,862 $ 4,272,515 $(4,533,412) $ -- Additional paid in capital contributed as rent -- -- 4,965 -- -- Additional paid in capital contributed as salary -- -- 30,000 -- -- Common stock issued for services 2,350,000 1,175 233,825 -- -- Obligation to issue common stock -- -- -- -- 997,750 Net loss -- -- -- (807,106) -- Balance September 30, 2003 24,075,000 $ 12,037 $ 4,541,305 $(5,340,518) $ 997,750 [RESTUB] Treasury Stock Shares Amount TOTAL ------------------------------------- Balance January 1, 2003 (50,000) $ (12,500) $ (262,535) Additional paid in capital contributed as rent -- -- 4,965 Additional paid in capital contributed as salary -- -- 30,000 Common stock issued for services -- -- 235,000 Obligation to issue common stock -- -- 997,750 Net loss -- -- (807,106) ----------- Balance September 30, 2003 (50,000) $ (12,500) $ 198,074
See notes to financial statements. 5 KIRSHNER ENTERTAINMENT & TECHNOLOGIES, INC. AND SUBSIDIARIES F/K/A HBOA HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine months ended September 30, 2003 2002 --------- --------- Cash flows from operating activities: Net Loss $(807,106) $(280,971) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 50,929 59,828 Common stock issued for services 235,000 -- (Increase) decrease in: Accounts receivable (39,323) -- Other receivables -- (15,325) Prepaid expenses (126,519) (2,010) Other assets 6,923 -- Increase in: Accounts payable and accrued expenses 29,689 25,373 Deferred income 6,281 12,635 Accrued interest 40,217 -- --------- --------- Net cash used in operating activities (603,909) (200,470) --------- --------- Cash flow from financing activities: Capital contributed 34,965 4,137 Proceeds from notes payable-related party 163,645 208,000 Proceeds from common stock to be issued 427,750 -- --------- --------- Net cash provided by financing activities 626,360 212,137 --------- --------- Net increase in cash 22,451 11,667 Cash, beginning of the period 19,079 5,046 --------- --------- Cash, end of the period $ 41,530 $ 16,713 ========= ========= Supplemental disclosures of cash flow information: - -------------------------------------------------- Cash paid during the period for: Interest $ -- $ 669 ========= =========
See notes to financial statements 6 KIRSHNER ENTERTAINMENT & TECHNOLOGIES, INC. & Subsidiaries f/k/a/ HBOA Holdings, Inc. NOTE 1 - UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 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 audited financial statements for Kirshner Entertainment & Technologies, Inc. f/k/a HBOA Holdings, Inc. (the "Company") for the fiscal year ended December 31, 2002, which are included in its Annual Report on Form 10- KSB and Annual Report on 10-KSB/A for fiscal 2002. 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 six month period ended September 30, 2003 are not necessarily indicative of operating results to be expected for a full year. 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. Effective as of July 18, 2003, the Company changed its name from HBOA Holdings, Inc. to Kirshner Entertainment & Technologies, Inc. and increased its authorized common stock from 25 million shares to 150 million shares. These changes were approved by the Company's Board of Directors and a majority of the Company's shareholders effective as of June 9, 2003. The Company filed a definitive information statement with the Securities and Exchange Commission on June 23, 2003 pursuant to Section 14C of the Exchange Act. 7 NOTE 2 - GOING CONCERN The accompanying financial statements have been presented in accordance with generally accepted accounting principles, which assumes the continuity of the Company as a going concern. However, during the years ending December 31, 2002 and 2001, the Company experienced, and continues to experience, certain going concern and liquidity problems. The Company has incurred net losses of $403,713 and $1,144,262 for the years ended December 31, 2002 and 2001, respectively. These conditions raise substantial doubt to the ability of the Company to continue as a going concern. Management's plans with regard to these matters include raising working capital to assure the Company's viability through private equity offerings, debt financing, or through the acquisition of new business or private ventures. The eventual outcome of the success of management's plans cannot be ascertained with any degree of certainty. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. NOTE 3 - STOCKHOLDER'S EQUITY The Company has obligations to issue 12,031,553 shares of common stock pursuant to two private placements, a principal shareholder's conversion of debt into equity and consulting obligations and is in the process of issuing such shares. As of the date of these financial statements, the Company is working with the transfer agent to properly record the issuance of these shares and expects to record this activity in the fourth quarter. As of September 30, 2003, the Company has recorded $997,750 to equity for the issuance of such shares. The obligations to issue shares arise from the following transactions: Effective as of July 24, 2003, Dundas Systems, Inc. agreed to convert its $570,000 loan into equity of the Company at a conversion price of 7.4 cents per share. As of December 8, 2003, the Company has not issued 7,702,702 shares of its common stock to Dundas Systems in this conversion . On July 24, 2003, the Company closed a private offering in which it sold 2,377,500 shares of its common stock to eight investors at an offering price of $.10 per share. The Company issued stock certificates to these investors on October 7, 2003. On September 5, 2003, the Company sold 1,351,351 shares of its common stock to five investors in a private offering at a price of $.074 per share. The Company issued stock certificates to these investors on October 30, 2003. NOTE 4 - SUBSEQUENT EVENTS The Company entered into agreements to purchase two businesses: LexSys Software Corp., effective as of June 5, 2003 and PARIS Health Services, LLC, effective as of June 9, 2003. Both of these acquisitions were scheduled to close on or before October 15, 2003, but the Company decided to terminate its agreements to purchase each of these businesses. The Company and each of LexSys and PARIS verbally agreed to the termination on October 15, 2003. 8 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 two divisions: (1) our Entertainment Division and (2) our Technology Division. Our Technology Division consists of two businesses - our Aerisys business are our 20.68% partnership interest in PARIS Health Services Health, Ltd. ENTERTAINMENT DIVISION We formed our entertainment division in June 2003. We hired Donald Kirshner as our Chief Executive Officer in May 2003. Mr. Kirshner resigned as Chief Executive Officer on October 7, 2003. We are currently searching for a new Chief Executive Office to run our entertainment division. In September 2003, we interviewed a well -known record producer. We will continue negotiations with this individual and consider other candidates as well. Until we select a Chief Executive Officer, we do not plan on pursuing any entertainment related projects. TECHNOLOGY DIVISION As of September 30, 2003, we own a 20.68% interest in PARIS Health Services, Ltd. ("PARIS"), which provides two healthcare process services. One service is a web-based application, which assists companies in managing compliance with the HIPAA regulations as defined by the United States Department of Health and Human Services. As of December 1, 2003, PARIS has 23 customers, all of whom are in the health care industry. The other service is focused on assisting hospitals in obtaining the pre-authorization approvals from insurance providers before they perform certain medical procedures. The procedure authorization routing interface system is sometimes referred to as the PARIS Outsource system. Originally, PARIS had planned on running the PARIS outservice system for each hospital, but revised this strategy. PARIS intend to market the software that completes the authorization and eligibility procedures to hospitals for a one time fee, plus an annual maintenance contract. 9 PROPOSED ACQUISITIONS - TERMINATED We entered into agreements to purchase two businesses: LexSys Software Corp. ("LexSys"), effective as of June 5, 2003 and PARIS, effective as of June 9, 2003. LexSys is a technology and software company and PARIS is a healthcare process solution company. Both of these closings were scheduled to take place on October 15, 2003. Based on our inability to obtain financing for these acquisitions, we verbally agreed to terminate these acquisitions with each of LexSys and PARIS on October 15, 2003. We may consider these acquisitions at a later date, but at the present time, we have decided to stop considering these acquisitions RESULTS OF OPERATIONS Sales, net of returns, were $13,948 and $48,103 during the three and nine months ended September 30, 2003 compared to $22,221 and $26,873 during the three and nine months ended September 30, 2002. Substantially all of these sales were generated from sales of the Aerisys Intelligent Community to schools. Approximately $7,000 of the $13,948 in sales for the three months ended September 30, 2003 and $22,000 of the $48,103 in the nine months ended September 30, 2003 represent revenue that has been deferred. Expenses were $564,548 and $934,942 during the three and nine months ended September 30, 2003 and $138,341 and $410,408 during the three and nine months ended September 30, 2002. The expenses that increased the most during the three months ended September 30, 2003 compared with the prior period in fiscal 2002 were (i) salaries, which increased by $158,002, (2) professional fees, which increased by $250,912 and (iii) other general and administrative expenses increased by $17,575. Salaries increased because of payments made to Mr. Kirshner during this time period. Because Mr. Kirshner has not rendered all services required during his first year of employment, we have accrued a portion of the payments that he has received as a prepaid expense. As a result of the foregoing, our loss from operations was $550,600 and $886,839 for the three and nine months ended September 30, 2003, respectively, compared with a loss from operations of $116,120 and $383,535 for the three and nine months ended September 30, 2003, respectively. We did not generate other income during the three months ended September 30, 2003 because we do not have any transaction with any affiliated parties. During the three months ended September 30, 2002, we generated other income of $73,700 from services rendered to related parties. We generated $100,516 of other income during the nine months ended September 30, 2003 because we had transactions with related parties during the first six months of fiscal 2003. During the nine months ended September 30, 2002, we received consulting fees of $65,000 from Dundas Systems, a company owned by Gary Verdier, our President, and $8,700 in fees for services rendered to PARIS, an affiliated party. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 2003, we had cash on hand of $41,530. Because there is limited capital, we may not be able to continue our business operations and are actively searching for other sources of capital. 10 Our capital requirements have been and will continue to be significant due to, among other things, the expenses that we need to incur to develop our Entertainment and Technology Divisions. At the present time, we do not have any extensive capital commitments. We only have normal operating business costs, which consist of (i) salaries to employees, (ii) consulting fees, and (iii) fees to our lawyers and accountants. 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 nine months ended September 30, 2003, we used $603,909 in operating activities and received $626360 in financing as a result of a loan from Gary Verdier, our founder, Chairman and President. We did not use any funds in investing activities. RISK FACTORS In evaluating our business, the following risk factors should be considered: WE HAVE SIGNIFICANT WORKING CAPITAL NEEDS AND IF WE ARE UNABLE TO OBTAIN ADDITIONAL FINANCING, WHEN NEEDED, WE MAY NOT HAVE SUFFICIENT CASH FLOW TO RUN OUR BUSINESS As of September 30, 2003, we had cash on hand of $41,530. During the past five years, Mr. Verdier, our Chairman and founder, has advanced an aggregate of $653,645 to us. However, Mr. Verdier has stated that he will no longer continue to fund our business and if we can not locate other sources of capital, we may not be able to continue our business. If we do not have sufficient cash on hand, we may be required to file a petition for Chapter 11 or enter into some liquidation or reorganization proceeding. OUR METHODS OF GENERATING REVENUE ARE RELATIVELY NEW AND LARGELY UNTESTED AND WE PROBABLY WILL NOT GENERATE SIGNIFICANT REVENUES IN FISCAL 2003 During 2003, we hope to generate revenues from our Entertainment and Technology Divisions. However, at this time, it is difficult to predict the amount of revenues that will be generated by each division. Entertainment Division We are new in the entertainment field and do not know if any of our projects will be profitable. We will not commence any projects until we hire a Chief Executive Officer. Technology Division Our Technology Division has generated revenues by selling the Aerisys Intelligent Community(TM) to private and parochial schools. As of September 30, 2003, we had contracts with five private schools. However, there can be no assurances that we will continue to generate revenues from our current school contracts. At the present time, we own a 20.68% limited partnership interest in PARIS Health Services and will receive income from this investment, when and if distributions are made. We intend to generate revenues from the PARIS Division by (i) by identifying customers for our HIPAA Compliance Program and (ii) selling our authorization software to hospitals. However, we can not assure you these businesses will be successful. 11 WE HAVE A HISTORY OF OPERATING LOSSES, A GOING CONCERN QUALIFICATION AND EXPECT TO INCUR FUTURE LOSSES We have a net loss of $550,600 and $886,839 during the three and nine months ended September 30, 2003 compared to a net loss of $116,120 and $ 385,535 for the three and nine months ended September 30, 2002. The footnotes 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 Entertainment and Technology Divisions. Furthermore, there can be no assurances that our business strategy will enable us to achieve profitable operations in the future. THE MARKETS SERVED BY OUR TECHNOLOGY DIVISION ARE HIGHLY COMPETITIVE AND MANY OF OUR COMPETITORS HAVE MUCH GREATER RESOURCES Arises Intelligent Community 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. 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. 12 PARIS Division We know that many other companies offer HIPAA compliance services and software for eligibility authorizations. Many of these companies have greater financial, technical product development and market resources and greater name recognition. As such, we do not know if we will successful in competing against these other businesses. THE GROWTH IN DEMAND FOR OUR AERISYS INTELLIGENT COMMUNITIES(TM)IS HIGHLY UNCERTAIN As of September 30, 2003, we have signed contracts with five 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. WE FACE RISKS RELATED TO INTELLECTUAL PROPERTY RIGHTS. Our success in our Technology Division depends on its internally developed technologies and other intellectual property. We believe our Aerisys Intelligent Community for Schools and the software for the PARIS Division is proprietary and the software. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use its intellectual property or trade secrets without authorization. In addition, it is possible that others may independently develop substantially equivalent intellectual property. If we do not effectively protect our intellectual property, our business could suffer. In the future, we may have to resort to litigation to enforce our intellectual property rights, to protect our trade secrets, or to determine the validity and scope of the proprietary rights of others. This type of litigation, regardless of its outcome, could result in substantial costs and diversion of management and technical resources. We may receive in the future notices of claims of infringement of other parties' proprietary rights. Infringement or other claims could be made against us in the future. Any claims, with or without merit, could be time-consuming, result in costly litigation and diversion of technical and management personnel, cause product delays or require us to develop non-infringing technology or enter into royalty or licensing agreements. Royalty or licensing agreements, if required, may not be available on acceptable terms or at all. If a successful claim of product infringement were made against us, it could have a material adverse effect on our business. 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. 13 OUR LIABILITY FOR INFORMATION RETRIEVED FROM THE WEB Because users of our web sites for our Intelligent Communities(TM) and our KEI 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 KEI 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. 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 other web sites associated with our businesS. 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. 14 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 KEI 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 KEI's products and services or increase the cost of doing business or in some other manner have a material adverse effect on KEI'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. KEI does not believe that such regulations, which were adopted prior to the advent of the Internet, govern the operations of KEI's business nor have any claims been filed by any state implying that KEI is subject to such legislation. There can be no assurance, however, that a state will not attempt to impose these regulations upon KEI in the future or that such imposition will not have a material adverse effect on KEI'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 KEI 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 KEI's business, results of operations, and financial condition. In addition, because KEI's services are accessible worldwide, and KEI facilitates sales of goods to users worldwide, other jurisdictions may claim that KEI is required to qualify to do business as a foreign corporation in a particular state or foreign country. KEI is qualified to do business in Florida, and failure by KEI to qualify as a foreign corporation in a jurisdiction where it is required to do so could subject KEI to taxes and penalties for the failure to quality and could result in the inability of KEI 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 KEI's business, could have a material adverse effect on KEI's business, results of operations, and financial condition. 15 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 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. ADDITIONAL SHARES ELIGIBLE FOR FUTURE SALE As of September 30, 2003, our Articles of Incorporation authorize the issuance of up to 150 million shares of Common Stock and 10 million shares of preferred stock. As of September 30, 2003, we had 24,125,000 shares of our common stock issued and 24,075,000 shares outstanding. The issuance of additional shares of KEI's common stock or preferred stock is solely within the discretion of KEI's Board of Directors. The issuance of a substantial number of additional shares of common stock in connection with the further development of KEI'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 KEI's Board of Directors. The declaration and payment of cash dividends, if at all, by KEI 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 KEI. The success of KEI will be subject to many factors beyond the control of KEI, 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 KEI. Even if KEI 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. . 16 ABSENCE OF PUBLIC MARKET; RESTRICTIONS ON TRANSFERABILITY Our shares presently trade on the OTC Bulletin Board. Securities trading on the OTC Bulletin Board generally attract a smaller number of market makers and a less active public market and may be subject to significant volatility. Factors such as our ability to (i) generate revenues from our existing contracts and locate new customers, (ii) to raise additional capital and(iii) other risk factors listed in this Form 10-QSB and our Annual Report on Form 10-KSB could have a material effect on the price of our common stock. 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. 17 PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES (a) Not Applicable. (b) Not Applicable (c) On July 25, 2003, we issued 1,450,000 shares of our common stock to Steven Silbert for services that he had rendered to us as a consultant. Mr. Silbert advised us on our acquisitions of LexSys Software Corp. and Paris Health Services, LLC and also helped our company to develop its business strategy. Mr. Silbert has worked with our company over a period of years and has comprehensive information about our company. The shares issued to Mr. Silbert were registered under the Securities Act on a registration statement on Form S-8. The shares did not contain any restrictive legends. Between September 2, 2003 and September 23, 2003, we issued an aggregate of 600,000 shares of our common stock to Fugen Lee and 350,000 shares to Marc Siegel for consulting services. We issued 250,000 shares to each of Mr. Siegel and Mr. Lee on September 2, 2003, 100,000 shares to Mr. Siegel and 300,000 shares to Mr. Lee on September 22, 2003. Mr. Lee and Mr. Siegel has worked with our company over a period of years and has comprehensive information about our company. The shares issued to Mr. Siegel and Mr. Lee were registered under the Securities Act on a registration statement on Form S-8. The shares do not contain any restrictive legends. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. A. Exhibits 31.1 Certification of Gary Verdier, Chief Executive Officer and Chief Operating Officer of The Singing Machine Company, Inc., Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. 31.2 Certification of Harvey Judkowitz, Chief Financial Officer of The Singing Machine Company, Inc., Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. 32.1 Certification of Gary Verdier, Chief Executive Officer and Chief Operating Officer of The Singing Machine Company, Inc., Pursuant to 18 U.S.C. Section 1350. 32.2 Certification of Harvey Judkowitz, Chief Financial Officer of The Singing Machine Company, Inc., Pursuant to 18 U.S.C. Section 1350. B. Reports on Form 8-K The Company did not file any reports on Form 8-K during the three month period ended September 30, 2003. 18 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: December 8, 2003 KIRSHNER ENTERTAINMENT & TECHNOLOGIES, INC. By /s/ Harvey Judkowitz --------------------- Harvey Judkowitz Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer) 19 EX-31.1 3 certification311.txt CERTIFICATION EXHIBIT 31.1 CERTIFICATIONS I, Gary Verdier, certify that: 1. I have reviewed this Form 10-Q of Kirshner Entertainment & Technologies, Inc.; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ Gary Verdier -------------------------------------------------- Gary Verdier Chief Executive Office and Chief Operating Officer (Principal Executive Officer) Date: December 8, 2003 EX-31.2 4 certification312.txt CERTIFICATION EXHIBIT 31.2 CERTIFICATIONS I, Harvey Judkowitz, certify that: 1. I have reviewed this Form 10-Q of Kirshner Entertainment & Technologies, Inc.; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ Harvey Judkowitz ----------------------------- Harvey Judkowitz Chief Financial Officer (Principal Financial Officer) Date: December 8, 2003 EX-32.1 5 certification321.txt CERTIFICATION EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Kirshner Entertainment & Technologies, Inc. (the "Company") on Form 10-QSB for the period ended September 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Gary Verdier, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. Date: December 8, 2003 /s/ Gary Verdier ----------------------------- Gary Verdier Chief Executive Officer (Principal Executive Officer) EX-32.2 6 certification322.txt CERTIFICATION EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Kirshner Entertainment & Technologies, Inc. (the "Company") on Form 10-QSB for the period ended September 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Harvey Judkowitz, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. Date: December 8, 2003 /s/ Harvey Judkowitz ----------------------------- Harvey Judkowitz Chief Financial Officer (Principal Financial Officer) -----END PRIVACY-ENHANCED MESSAGE-----