<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
For the year ended December 31, 1996
Commission File Number 0-25416
BAOA, INC.
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 33-0563989
----------------- --------------
(State of Incorporation) (I.R.S. Employer Identification No.)
2635 Camino Del Rio South, Suite 210, San Diego, California 92108
------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(619) 291-2262 FAX (619) 291-2290
------------------ --------------------------
(Registrant's telephone and fax 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 filing
requirements for the past 90 days.
Yes X No
------- --------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10 KSB or any amendment to
this Form 10-KSB.
Yes X No
------- --------
<PAGE> 2
The issuer's revenues for the year ended December 31, 1996 were $63,368.
The approximate aggregate market value of the voting stock held by
non-affiliates of the registrant as of December 31, 1996, based on the average
of the closing bid and asked prices of one share of the Common Stock of the
Company, as reported on December 31, 1996 was $10,577,322. As of December 31,
1996 the registrant had outstanding 18,558,600 shares of common stock, $.001 par
value.
<PAGE> 3
PART 1
ITEM 1 BUSINESS
General
BAOA, Inc. ("the Company") is currently in the business of selling Black
Americans of Achievement, "The Game" and developing a licensing program for its
BAOA logo as a primary African American logo for an expanded in-house product
line as well as for products sold by outside vendors. The Company is developing
licensable trademark and product concepts including a series of electronic
ethnic, music, educational, and game CD-ROMS. An advisory board has been
appointed consisting of the Reverend Jesse Jackson, Mervyn Dymally, and other
notable African American business leaders, politicians, and professional
athletes. The purpose of the advisory board is to provide marketing direction
and direct access to corporate sponsors, as well as access to networks of
African American special interest groups and religious organizations. The
advisory board is currently working with management to secure major corporate
sponsors for the Company's ethnic product niche.
The Company is in the process of completing several new products and services
including a CD-Rom game, an Internet Web site, long-distance telephone services,
and a BAOA credit card that should result in profitable operations and a
positive cash flow during the next year.
Competition
The Company sells its current game, and anticipates its future products to be
sold through the retail and educational sectors. Proposed electronic products
will be sold through a variety of channels such as multi-media retail stores and
through on-line services such as the Internet.
Competitors in the traditional board game lines include Hasbro, Milton Bradley,
and Parker Brothers. Competitors in the electronic game and educational lines
generally consist of a multitude of small to medium size companies, with a few
dominant major corporations such as Sony and Sega. Competitors in the
long-distance telephone and credit card business are dominated by large
telephone carriers and banks, however, BAOA intends to utilize its ethnic niche
appeal and contacts within the ethnic community to secure a significant portion
of these markets.
The size and financial strength of the Company's competitors are substantially
greater than those of the Company. Management, however, believes the Company
will be able to compete effectively because of its unique products and its
cultural niche goals. The Company maintains current product sales through a
variety of retail outlets and is discussing new major sponsorships with major
U.S. corporations for new distribution channels.
<PAGE> 4
Intellectual Property
The Company is in compliance with its legal obligations for rights and
authorizations to use names and likenesses of historical and famous personages.
Copyright and trademark licensing agreements are currently in force for the
Company's current game board and for its developmental products. These licensing
agreements are between the Company and several of its major shareholders. The
Company has properly accrued all licensing obligations as "Accrued Royalties"
per agreements with the major shareholder licensors. (HOWEVER SEE ITEM 3 - LEGAL
PROCEEDINGS)
ITEM 2 PROPERTIES
The Company leases its corporate office space located at 2635 Camino del Rio
South, Suite 210, San Diego, California. The office space consists of
approximately 2,700 square feet. The lease commenced November 1996 and will
terminate November 30, 2001.
ITEM 3 LEGAL PROCEEDINGS
In the first quarter of 1996, the Company was served with a complaint filed in
the Superior Court for the State of California, as was reported in the Company's
prior 10-KSB filing for 1995. The second complaint was filed in June, 1996, in
the Superior Court for the State of California. The complaints involved demands
for payments of a loan and other monies advanced to the Company by two former
management personnel. The Company's position was that no payments were possible
due to the lack of necessary cash flow. Both complaints were dismissed without
prejudice in October, 1996 at a cost to the Company of less than $10,000.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There have been no such submissions, as the Company did not have a shareholders
meeting during 1996.
<PAGE> 5
PART II
ITEM 5 MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDERS MATTERS.
The Company's common stock is traded on the NNOTC Electronic Bulletin Board. The
NNOTC Electronic Bulletin Board is sponsored by the National Association of
Securities Dealers (NASD). The Electronic Bulletin Board is a network of
security dealers who buy and sell stocks.
For the periods indicated, the following table sets forth the high and low bid
prices per share of common stock. These prices represent inter-dealer quotations
without retail mark-up, markdown, or commission and may not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
Low High
<S> <C> <C>
1995
First Quarter .50 1.75
Second Quarter .125 .50
Third Quarter .125 .50
Fourth Quarter .25 .50
1996
First Quarter .25 .50
Second Quarter .1875 .25
Third Quarter .125 .23
Fourth Quarter .125 .20
</TABLE>
The Company's Board of Directors determines any payment of dividends. The Board
of Directors does not expect to authorize the payment of cash dividends in the
foreseeable future. Any future decision with respect to dividends will depend on
future earnings, operations, capital requirements and availability, restrictions
in future financing agreements, and other business and financial considerations.
As of December 31, 1996, there were approximately 200 holders of record of the
Company's Common Stock. The Board of Directors believe that the number of
beneficial owners is substantially greater than the number of record holders
because a portion of the Company's outstanding Common Stock is held of record in
broker "street names" for the benefit of individual investors.
<PAGE> 6
ITEM 6 SELECTED FINANCIAL DATA
Financial Condition
The financial condition of the company has not improved when comparing 1995 to
1996. The following table presents the key measures of financial condition as of
December 31, 1995 and 1996:
<TABLE>
<CAPTION>
1996 1995
% %
$ of assets $ of assets
<S> <C> <C> <C> <C>
Cash 1,372 1.13 1,654 .42
Current Assets 94,198 77.28 351,847 89.50
Current Liabilities 1,147,010 941.04 1,009,827 256.88
Working Capital -1,051,440 ------ -656,326 ------
Property & Equip (net) 19,432 15.94 27,780 7.07
Total Assets 121,888 100 393,119 100
Long Term Debt ------ ------ ------ ------
Shareholders' Equity -1,025,122 ------ -616,708 ------
</TABLE>
As of December 31, 1996, the Company had $1,372 cash on hand and in the bank.
The primary sources of cash and financing for the Company for the year ended
December 31, 1996 were $63,368 from sales, a $12,001 decrease in accounts
receivable, and a $112,683 increase in accounts payable and notes payable, of
which, shareholders payables and loans to the Company increased by $88,116. The
primary use of cash during 1996 was $186,458 to finance the Company's
operations.
<PAGE> 7
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Significant losses in 1996 were primarily due to the lack of material
distributions contracts and marketing delays in obtaining new sponsorships for a
revised version of the Company's game products. Management has achieved its goal
of hiring new African American officers and employees in order to develop the
Company's targeted ethnic niche markets. With new management personnel, the
Board believes the Company will achieve new contracts and sponsorships in 1997.
The Board chose to utilize the benefits of a Stock Award Plan in filing with the
Securities and Exchange Commission a Registration Statement on Form S-8 in
December 1996. This registration for 3,000,000 shares of common stock was used
as authorized under Rule 16(b) (3) under the Securities Exchange Act of 1934 for
selected consultants.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Financial Statements of the Company with related Notes are
attached hereto:
Balance Sheets as of December 31, 1996 and 1995
Statements of Operations for the years ended December 31, 1996 and 1995
Statements of Stockholders' Equity for the years ended December 31, 1996
and 1995 Statements of Cash Flows for the years ended December 31, 1996
and 1995
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
<PAGE> 8
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
Directors:
Age Date Elected Position
<S> <C> <C> <C>
Peter Van Brunt 51 7/20/96 Director & President
Steven R. Wright 52 11/1/93 Director, Secretary & Treasurer
Ed Litwak 53 7/30/96 Director
William H. Black 39 3/6/96 Director
</TABLE>
Mr. Van Brunt is a graduate of Columbia University, has taken postgraduate
studies at Oxford University, and completed a J.D. in law from the University of
La Verne where he made Law Review. He is responsible for overall development,
production, marketing, and distribution of the Company's products. He is using
his established talents in the music and game software industries to establish
BAOA's high visibility as a product leader in the emerging ethnic, urban
contemporary market niche. Mr. Van Brunt has over fifteen years experience as an
officer and attorney for one of the nation's largest African American owned
record labels. He has extensive experience as a corporate officer conducting
commodities transactions and business development throughout the African
continent, dealing with heads of state, political bodies and the international
banking community. He has managed all phases of business affairs and contract
negotiations for one of the largest African American owned recording companies.
His experience includes managing recording artists through the recording
process, selecting material and producers, promoting and marketing products, and
managing tours. He has developed and negotiated agreements for recording,
distribution, label joint ventures, publishing, and foreign licensing.
Mr. Wright has a B.A. in public administration and a B.S. in accounting, both
from San Diego State University in California. He continues to work on his
masters degree. He is responsible for corporate taxes at Wright & Geis,
Certified Public Accountants, Inc., in San Diego. He is responsible for firm
marketing, all corporate tax client management, quality control, tax review, tax
strategies, tax research, audit representation, strategic planning, and staff
management. He designs and implements financial policies for client accounting,
cash management, job costing, and budgets. He has an extensive background in
working with lenders and investors and small business entrepreneurs.
<PAGE> 9
Mr. Litwak majored in business at Cornell University. He is the chairman and CEO
of Merchandise Entertainment Television (METV-1) and Satellite TODAY, Inc. He
has achieved awards of excellence and national recognition for his
accomplishments in marketing, sales, administration and broadcasting in the
satellite and cable television industries. He has served as an officer and owner
in various manufacturing and marketing companies since 1964. His experience
includes high level management and marketing in the clothing, shoe, and sports
merchandising fields. As a consultant, he managed the special events marketing
for Pepsi-Cola's most successful sports program. He was the licensing agent for
fashion designer Paolo Gucci and the Gucci family in their successful
development of retail and hotel businesses, and the Gucci and Versace labels. He
worked in association with General Electric to establish the fourth largest home
shopping and entertainment television channel, Merchandise Entertainment
Television (METV-1). He has formed a strategic alliance with AT&T and Hughes
Network Systems DirecPC to create Satellite TODAY for delivery of
up-to-the-minute, on-line, vital medical information to doctors, pharmacists,
and hospitals on a world wide basis. He currently serves on the board of
advisors for AT&T's Global Information Solutions and the Interactive Times
Shoppers Network.
Mr. Black has a B.A. in business administration from Carson-Newman College in
Jefferson City, Tennessee. He is the Chairman and CEO of Professional
Management, Inc. and World Express Travel, Inc. He also owns Professional
Realty, Inc. These companies include one of the largest professional athlete
management agencies in the United States - with clients such as Sterling Sharpe,
Andre Risen, Terry Allen, Robert Brooks, and Natrone Means; a large travel
agency with major national corporate clients; and a successful realty company
that specializes in real estate investing. He was a three-time College Football
All-American, played professional football, and was a college football coach. He
is known nationally for his business acumen and his long history of community
service.
<PAGE> 10
ITEM 11 EXECUTIVE COMPENSATION
Summary Compensation Table for 1996:
<TABLE>
<S> <C> <C>
Name Peter Van Brunt Steven R. Wright
Principal Position Director & President Director, Treasurer & Secretary
Salary $ 0 $ 0
Bonus 0 0
Other
Compensation 0 0
Restricted stock
awards 0 0
Options 0 0
LTIP payouts 0 0
All other
compensation 0 0
</TABLE>
Notes: William Black served as president until July 20, 1996 without salary. Mr.
Black earned 250,000 shares of restricted stock as other compensation from the
Company. The Company currently has no standard arrangement by which its
Directors are compensated. The Company canceled its two year employment contract
with William H. Black on July 20, 1996.
<PAGE> 11
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth information on the ownership of the Company's
voting securities by Officers, Directors, and Major shareholders as well as
those who own beneficially more than five percent of the Company's common stock.
<TABLE>
<CAPTION>
Name of Beneficial Owner Number of Shares Percent of Total
<S> <C> <C>
Maritime International Ltd. 2,475,422 13.3
c/o Clark, Wilson Barristers
& Solicitors
800-885 West Georgia St.
Vancouver, B.C., Canada
Sontag S.A. 2,110,424 11.4
c/o Clark, Wilson Barristers
& Solicitors
800-885 West Georgia St.
Vancouver, B.C., Canada
Barkley Edwards, Inc. 2,114,422 11.4
c/o Clark, Wilson Barristers
& Solicitors
800-885 West Georgia St.
Vancouver, B.C., Canada
William H. Black 450,000 2.4
914 Richland St.
Ste A200
Columbia, South Carolina
Steven R. Wright 165,000 .9
c/o BAOA, Inc.
2635 Camino del Rio South
Ste 210
San Diego, California
</TABLE>
(Percentages are based on the number of outstanding shares as of
December 31, 1996)
<PAGE> 12
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
Balance Sheet as of December 31, 1996
Statements of Operations for the years ended December 31, 1996 and 1995
Statements of Stockholders' Equity for the years ended December 31, 1996
and 1995
Statements of Cash Flows for the years ended December 31, 1996 and 1995
Reports filed on Form 8-K: None
Reports required to be filed by Regulation S-X: None
Exhibits
23 Consent of Independent Accountants
27 Financial Data Schedule
<PAGE> 13
SIGNATURES
-----------------
Pursuant to the requirements of Section 13 and 15(d) 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.
BAOA, INC.
Date: March 28, 1997 /s/ PETER VAN BRUNT
--------------------------------------------
Peter Van Brunt,
President, Principal Executive Officer,
Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
Dated: March 28, 1997 /s/ STEVEN R. WRIGHT
--------------------------------------------
Steven R. Wright,
Treasurer, Principal Financial Officer,
Director
Dated: March 28, 1997 /s/ ED LITWAK
--------------------------------------------
Ed Litwak,
Director
<PAGE> 14
BAOA, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
<PAGE> 15
BAOA, INC.
FINANCIAL STATEMENTS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITORS' REPORT............................................... F-1
BALANCE SHEETS............................................................. F-2
STATEMENTS OF OPERATIONS................................................... F-4
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT.............................. F-5
STATEMENTS OF CASH FLOWS................................................... F-6
NOTES TO FINANCIAL STATEMENTS......................................... F-7-F-13
</TABLE>
<PAGE> 16
[LOGO]
[LETTERHEAD
HARLAN & BOETTGER
CERTIFIED PUBLIC ACCOUNTANTS]
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
OF BAOA, INC.:
We have audited the accompanying balance sheets of BAOA, Inc. (a California
corporation) as of December 31, 1996 and 1995 and the related statements of
operations, changes in stockholders' deficit, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of BAOA, Inc. as of December 31,
1996 and 1995, and the results of operations and cash flows for the years then
ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note L to the
financial statements, the Company's default on certain loan agreements,
recurring losses, decreases in working capital, and negative cash flows raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note L to
the financial statements. The financial statements do not include any
adjustments relating to the recoverability and classification of reported asset
amounts or the amounts and classification of liabilities that might result from
the outcome of this uncertainty.
/S/ HARLAN & BOETTGER
San Diego, California
March 10, 1997
F-1
<PAGE> 17
[LOGO] [LETTERHEAD]
HARLAN & BOETTGER
CERTIFIED PUBLIC ACCOUNTANTS
BAOA, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------------------
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 1,372 $ 1,654
Accounts receivable, less $100,687 and
$60,000 of allowance for doubtful accounts 47,570 100,258
Inventory, net (Note B) 45,256 249,935
---------- ----------
TOTAL CURRENT ASSETS 94,198 351,847
---------- ----------
FURNITURE AND EQUIPMENT,
less $26,424, and $18,076 of accumulated
depreciation (Note C) 19,432 27,780
---------- -----------
OTHER ASSETS (Note D)
Organization Costs, net of $14,000,
and $10,000 of accumulated amortization 6,000 10,000
Deposits 2,258 3,492
------------ ------------
TOTAL OTHER ASSETS 8,258 13,492
------------ ------------
$ 121,888 $ 393,119
============ ============
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-2
<PAGE> 18
BAOA, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------------------
1996 1995
------------- -------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable (Note E) $ 209,075 $ 173,245
Accrued expenses (Note E) 290,610 213,757
Income taxes payable 1,600 1,600
Related party debt (Note F) 645,725 621,225
------------- -------------
TOTAL CURRENT LIABILITIES 1,147,010 1,009,827
------------- -------------
COMMITMENTS AND CONTINGENCIES (Note I)
STOCKHOLDERS' DEFICIT (Note H)
Common Stock-,$.001 par,
25,000,000 shares authorized
18,558,600 shares issued and
outstanding at December 31, 1996,
and 13,551,600 issued and outstanding
at December 31, 1995 18,559 13,552
Paid in capital 2,628,695 2,084,649
Retained deficit (3,672,376) (2,714,909)
------------- -------------
TOTAL STOCKHOLDERS' DEFICIT (1,025,122) (616,708)
------------- -------------
$ 121,888 $ 393,119
============= =============
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-3
<PAGE> 19
BAOA, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------
1996 1995
------------- -------------
<S> <C> <C>
REVENUES
Sales $ 63,368 $ 18,879
------------- -------------
TOTAL REVENUES 63,368 18,879
COST OF SALES (Note B) 164,086 315,096
------------- -------------
Gross profit (loss) (100,718) (296,217)
------------- -------------
OPERATING EXPENSES
Sales and marketing 541,294 533,898
Salaries and wages - 107,216
Legal & professional 61,462 49,921
Consulting & outside services 10,965 41,751
Travel 2,690 25,039
Depreciation 8,348 8,349
Royalties 24,567 4,652
Amortization 4,000 4,000
General and administrative 150,782 146,798
------------- -------------
TOTAL OPERATING EXPENSES 804,108 921,624
------------- -------------
LOSS FROM OPERATIONS (904,826) (1,217,841)
OTHER INCOME (EXPENSES)
Interest income 3 13
Interest expense (51,844) (40,060)
------------- -------------
TOTAL OTHER EXPENSE (51,841) (40,047)
------------- -------------
LOSS BEFORE TAXES (956,667) (1,257,888)
INCOME TAXES 800 800
------------- -------------
NET LOSS $ (957,467) $ (1,258,688)
============= =============
NET LOSS PER COMMON SHARE $ (.06) $ (.11)
============= =============
AVERAGE COMMON SHARES OUTSTANDING 14,974,900 11,648,600
============= =============
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-4
<PAGE> 20
BAOA, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Common Stock
----------------------------- Paid in Retained
Shares Amount Capital Deficit Total
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 11,551,600 $ 11,552 $ 1,586,649 $ (1,456,221) $ 141,980
------------- ------------- ------------- ------------- -------------
Issued shares of common
stock for services 2,000,000 2,000 498,000 -- 500,000
Net loss for year -- -- -- (1,258,688) (1,258,688)
------------- ------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1995 13,551,600 $ 13,552 $ 2,084,649 $ (2,714,909) $ (616,708)
------------- ------------- ------------- ------------- -------------
Issued shares of common
stock for services 5,007,000 5,007 544,046 -- 549,053
Net loss for year -- -- -- (957,467) (957,467)
------------- ------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1996 18,558,600 $ 18,559 $ 2,628,695 $ (3,672,376) $ (1,025,122)
============= ============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-5
<PAGE> 21
BAOA, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (957,467) $(1,258,688)
Adjustments to reconcile net income
(loss) to net cash used in
operating activities:
Depreciation and amortization 12,348 12,349
Allowance accounts 108,570 308,686
Common stock issued for services 549,053 500,000
(Increase) decrease in:
Accounts receivable 12,001 16,158
Inventory 136,796 32,332
Increase (decrease) in:
Accounts payable 35,830 91,215
Accrued expenses 76,853 45,673
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (26,016) (252,275)
CASH FLOWS FROM INVESTING ACTIVITIES
(Increase) decrease in deposits 1,234 (510)
----------- -----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 1,234 (510)
CASH FLOWS FROM FINANCING ACTIVITIES
Related party debt increase 24,500 238,980
----------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 24,500 238,980
----------- -----------
NET DECREASE IN CASH (282) (13,805)
CASH, AT BEGINNING OF PERIOD 1,654 15,459
----------- -----------
CASH, AT END OF PERIOD $ 1,372 $ 1,654
=========== ===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-6
<PAGE> 22
BAOA, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Nature of Business
The Company was incorporated in the state of California in August 1983
under the name Tahoe Lake Concessions, Inc. Pursuant to a special
meeting of shareholders held June 21, 1993 the Company changed its name
to BAOA, Inc.
The Company was originally incorporated to engage in the field of real
estate development and investments. After its reorganization in June
1993, the Company is now engaged in the business of the sale and
marketing of the board game known as Black Americans of Achievement
(BAOA), the sale and marketing of a BAOA credit card, the licensing of
its trademark logo, as well as the development for production of a
television game show.
Revenue and Cost Recognition
The Company recognizes sponsorship revenue on an accrual basis as the
sponsorship fees are earned. Board game sales are recorded upon
invoicing and concurrent shipment of games. General and administrative
costs are charged to expense as incurred. Research and development costs
are charged to expense in the period incurred.
Inventories
Inventories are stated at lower of cost (first-in, first-out) or market.
Organization Costs
The Company is amortizing its organization costs on the straight-line
method over a 5 year period.
Intangible Assets
The Company is amortizing its intangible assets on the straight-line
method over the estimated useful life of the assets.
Basis of Accounting
The Company's policy is to use the accrual method of accounting and to
prepare and present financial statements which conform to generally
accepted accounting principles. The preparation of financial statements
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and reported
amounts of revenues and expenses during the reporting periods. Actual
results could differ from those estimates.
F-7
<PAGE> 23
BAOA, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(CONTINUED)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Property and Equipment
Property and equipment is stated at cost, and depreciated using the
straight-line method over the estimated useful lives of the assets,
which range from five to ten years. Assets under capital leases are
depreciated by the straight-line method over the shorter of the lease
term or the useful lives of the assets. Maintenance, repairs and minor
renewals are charged to operations as incurred. Major replacements or
betterments are capitalized. When properties are retired or otherwise
disposed, the related cost and accumulated depreciation are eliminated
from the respective accounts and any gain or loss on disposition is
reflected as income or expense.
Income Taxes
Income taxes, including pro forma computations, are provided using the
liability method of accounting in accordance with Statement of Financial
Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes."
A deferred tax asset or liability is recorded for all temporary
differences between financial and tax reporting. Deferred tax expense
(benefit) results from the net change during the year of deferred tax
assets and liabilities.
Net Loss per Common Share
Net loss per share is calculated using the weighted average outstanding
common and common stock equivalent shares.
B. INVENTORY:
Inventory at December 31, 1996 and 1995 consisted of finished products
as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------
1996 1995
--------- ---------
<S> <C> <C>
Board games $ 88,745 $ 433,593
5-Up kits 12,075 57,926
10-Up kits 12,319 57,102
--------- ---------
Total 113,139 548,621
Less valuation allowance (67,883) (298,686)
--------- ---------
Inventory, net $ 45,256 $ 249,935
========= =========
</TABLE>
During 1996 and 1995 it became apparent to management that actual market
value for their board game was less than actual costs. As a result,
inventory as of December 31, 1996 and 1995 has been adjusted to reflect
current market value. The results of this adjustment was to charge
$67,883 and $298,686 to cost of sales for the years ended December 31,
1996 and 1995, respectively, and to establish an inventory valuation
allowance account.
F-8
<PAGE> 24
BAOA, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(CONTINUED)
C. FURNITURE AND EQUIPMENT:
Furniture and Equipment consists of:
<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1995
-------- --------
<S> <C> <C>
Furniture $14,402 $14,402
Equipment 31,454 31,454
-------- --------
Total 45,856 45,856
Less accumulated
depreciation 26,424 18,076
-------- --------
Furniture and
equipment, net $ 19,432 $27,780
======== =======
</TABLE>
D. INTANGIBLE ASSETS:
In June 1993 the Company entered into an agreement with BAOA, a Grand
Cayman Corporation, whereby the Company exchanged 8,000,000 shares of
its common stock and issued notes payable totaling $300,000 in exchange
for all the rights, title and interest in various items. As a result of
the intangible assets being acquired from an affiliated party as part of
a nonmonetary exchange, the assets were valued at the predecessor's
basis which has been determined to be $1. In 1993 the Company charged to
expense $300,000 as asset acquisition costs. This amount represented the
full amount of the notes payable issued, along with the Company's common
stock, to obtain these intangible assets. The assets acquired and future
liabilities associated with such acquisition are as follows:
1. The license of the board game known as, Black Americans of
Achievement.
2. The board game concept known as, The Soul of American Music.
3. The Chelsea House Publishers, Division of Main Line Publishers
contract.
4. Uniworld Group, Inc., Louis Corbo, Thomas M. Magee and HGI
Marketing Services, Inc. contract.
5. The licensable Trademark concept of "BAOA" together with or
without its tag line:
"Buy It With Pride"
F-9
<PAGE> 25
BAOA, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(CONTINUED)
D. INTANGIBLE ASSETS: (CONTINUED)
6. The Registered Television Game Show Concept entitled: "BAOA"
The following monies, royalties and fees are all part and parcel
of this transfer and are payable to the parties as indicated
along with the party, Louis Corbo, under a licensing agreement
dated May 14, 1993.
a. First year of the three years sponsorship revenues
received for said board game, Black Americans of
Achievement, in the following percentages --- 1/3 of
which to Louis Corbo and 2/3 of which to HGI Marketing
Services, Inc. and Thomas M. Magee, collectively.
b. Royalties of Eight (8%) percent of the wholesale selling
price from Black Americans of Achievement board game to
Louis Corbo pursuant to the licensing agreement dated
May 14, 1993.
c. Upon completion of the Soul of American Music board game
an Eight (8%) percent royalty shall be paid to Louis
Corbo for a license therefrom.
d. Royalties of Eight (8%) percent of the Budget of the
Television Game show entitled BAOA payable to Louis
Corbo.
e. Royalties of Eight (8%) percent of any and all licensing
fees derived from the marketing and sale of the BAOA
Trademark concept with or without its tag line "Buy It
With Pride" for such products as clothing, greeting
cards, gifts, food and candy, etc. payable to Louis
Corbo.
E. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Accounts payable - shareholders $ 130,325 $ 130,325
Accounts payable - vendors 78,750 42,920
Accrued royalties 194,265 169,698
Accrued interest 95,799 43,957
Other accrued expenses 546 102
------------ ------------
$ 499,685 $ 387,002
============ ============
</TABLE>
F-10
<PAGE> 26
BAOA, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(CONTINUED)
F. RELATED PARTY DEBT:
Notes payable at December 31, 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Notes payable to various shareholders, interest
payable at 8%, principal and interest due
December 31, 1997. $ 509,225 $ 482,225
Notes payable to various shareholders, interest
payable at 8%, principal and interest due
December 31, 1997. 136,500 139,000
------------ -----------
$ 645,725 $ 621,225
============= ===========
</TABLE>
G. INCOME TAXES:
The provision for income taxes for the year ended December 31, 1996
consists solely of the minimum state taxes.
The Company's total deferred tax asset as of December 31, 1996 is as
follows:
<TABLE>
<CAPTION>
1996
---------------
<S> <C>
Net operating loss carryforwards $ 886,800
Valuation allowance (886,800)
---------------
Net deferred tax asset $ -
===============
</TABLE>
As of December 31, 1996 the Company had net operating loss carryforwards
before any limitations which expire as follows:
<TABLE>
<CAPTION>
Year Ending
December 31, Federal State
------------ ------- -----
<S> <C> <C>
2007 $ 337,200 $ -
2008 1,117,000 558,500
2009 1,248,700 624,350
2010 947,700 473,850
2011 942,200 471,100
</TABLE>
F-11
<PAGE> 27
BAOA, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(CONTINUED)
H. STOCKHOLDERS' DEFICIT:
Stock for Services
During the twelve months ended December 31, 1996, the Company authorized
and issued 5,007,000 shares of common stock in exchange for consulting
and marketing services provided. The Company has entered into several
agreements with public figures to promote the board games in exchange
for stock. These contracts cover a period of one year.
I. COMMITMENTS AND CONTINGENCIES:
Operating Leases
The Company leases office facilities and equipment under noncancelable
operating leases from unrelated third parties which expire November 30,
2001. The accompanying statement of operations includes expenses from
operating leases of $35,870 and $36,564 for 1996 and 1995, respectively.
Future minimum lease payments due under the noncancelable operating
leases as of December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997 $ 35,178
1998 36,798
1999 38,418
2000 39,860
2001 36,081
---------
Total $ 186,335
=========
</TABLE>
J. MAJOR CUSTOMERS:
During the year ended December 31, 1996 the Company had three major
customers, sales to each of which exceeded 10% of the Company's total
sales. Sales to these customers totaled $39,250 for the year ended
December 31, 1996.
K. SUPPLEMENTAL CASH FLOW INFORMATION:
Supplemental disclosures of cash flow information for the years ended
December 31, 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Noncash investing and financing activities:
Services acquired with stock issuance $549,053 $500,000
</TABLE>
F-12
<PAGE> 28
BAOA, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(CONTINUED)
L. GOING CONCERN:
The Company has had recurring losses from operations, and as of December
31, 1996, the Company's current liabilities exceeded its current assets
by approximately $1,052,812. In addition, the Company had negative cash
flows for the year ended December 31, 1996. These factors create an
uncertainty as to the Company's ability to continue as a going concern.
The Company has added an advisory board consisting of the Reverend Jesse
Jackson, Mervyn Dymally, and other notable African American business
leaders, politicians, and professional athletes. The purpose of the
advisory board is to provide marketing direction and direct access to
corporate sponsors, as well as access to networks of African American
special interest groups and religious organizations. The advisory board
is currently working with management to secure major corporate sponsors
for the Company's ethnic product niche. The Company has a series of new
products and services that they believe will result in profitable
operations and a positive cash flow during the next year.
The ability of the Company to continue as a going concern is dependent
upon its ability in its endeavors to seek additional sources of capital,
and its attaining future profitable operations. The accompanying
financial statements do not include any adjustments that might be
necessary should the Company be unable to continue as a going concern.
F-13
<PAGE> 29
EXHIBIT INDEX
Sequentially
Exhibit Numbered
Number Description Page
- ------ ----------- ------------
23 Consent of Independent Accountants
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use of our report included in the Registration
Statement on Form 10-KSB dated March 10, 1997 relating to the financial
statements of BAOA, Inc.
/S/ HARLAN & BOETTGER
San Diego, California
March 10, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED
FINANCIAL STATEMENTS FOR YEAR ENDING DECEMBER 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH BAOA, INC. 10-KSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,372
<SECURITIES> 0
<RECEIVABLES> 146,257
<ALLOWANCES> 100,687
<INVENTORY> 45,256
<CURRENT-ASSETS> 94,198
<PP&E> 45,856
<DEPRECIATION> 26,424
<TOTAL-ASSETS> 121,888
<CURRENT-LIABILITIES> 1,147,010
<BONDS> 0
0
0
<COMMON> 18,559
<OTHER-SE> 2,628,695
<TOTAL-LIABILITY-AND-EQUITY> 121,888
<SALES> 63,368
<TOTAL-REVENUES> 63,368
<CGS> 164,086
<TOTAL-COSTS> 164,086
<OTHER-EXPENSES> 804,108
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 51,844
<INCOME-PRETAX> (956,667)
<INCOME-TAX> 800
<INCOME-CONTINUING> (957,467)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (957,467)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
