BAOA INC
10QSB, 2000-05-22
GAMES, TOYS & CHILDREN'S VEHICLES (NO DOLLS & BICYCLES)
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<PAGE>   1

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-QSB

================================================================================


(Mark one)
    XX         QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
- --------       EXCHANGE ACT OF 1934


                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000

               TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
- --------       ACT OF 1934

         For the transition period from ______________ to _____________

================================================================================


                         Commission File Number: 0-25416

                                   BAOA, INC.
        (Exact name of small business issuer as specified in its charter)

               California                             33-0563989
        ------------------------                ------------------------
        (State of incorporation)                (IRS Employer ID Number)

                        555 Whitehall, Atlanta, GA 30381
                    ----------------------------------------
                    (Address of principal executive offices)

                                 (404) 222-0760
                           ---------------------------
                           (Issuer's telephone number)


================================================================================

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]

State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date:
        March 31, 2000: 88,871,303

Transitional Small Business Disclosure Format (check one): YES [ ] NO [X]



<PAGE>   2

                                   BAOA, INC.

                Form 10-QSB for the Quarter ended March 31, 2000

                                Table of Contents


<TABLE>
<CAPTION>
                                                                                   Page
                                                                                   ----
<S>                                                                                <C>
PART I - FINANCIAL INFORMATION

  Item 1 Financial Statements                                                        3

  Item 2 Management's Discussion and Analysis or Plan of Operation                  15


PART II - OTHER INFORMATION

  Item 1 Legal Proceedings                                                          16

  Item 2 Changes in Securities                                                      16

  Item 3 Defaults Upon Senior Securities                                            16

  Item 4 Submission of Matters to a Vote of Security Holders                        16

  Item 5 Other Information                                                          16

  Item 6 Exhibits and Reports on Form 8-K                                           16


SIGNATURES                                                                          16
</TABLE>


                                                                               2
<PAGE>   3

S. W. HATFIELD, CPA
certified public accountants

Member:  American Institute of Certified Public Accountants
            SEC Practice Section
            Information Technology Section
         Texas Society of Certified Public Accountants

Item 1 - Part 1 - Financial Statements


                           ACCOUNTANT'S REVIEW REPORT


Board of Directors and Shareholder
BAOA, Inc.

We have reviewed the accompanying balance sheets of BAOA, Inc. and Subsidiaries
(a California corporation) as of March 31, 2000 and 1999 and the accompanying
statements of operations and comprehensive income and statements of cash flows
for the three months ended March 31, 2000 and 1999. These financial statements
are prepared in accordance with the instructions for Form 10-QSB, as issued by
the U. S. Securities and Exchange Commission, and are the sole responsibility of
the Company's management.

We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression on an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be 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 B to the
financial statements, the Company has suffered losses in prior years, working
capital deficiencies and continues to experience liquidity problems that raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note B. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.



                                                 S. W. HATFIELD, CPA
Dallas, Texas
May 22, 2000



                      Use our past to assist your future(sm)

P. O. Box 820395                               9002 Green Oaks Circle, 2nd Floor
Dallas, Texas  75382-0395                               Dallas, Texas 75243-7212
214-342-9635 (voice)                                          (fax) 214-342-9601
800-244-0639                                                      [email protected]



                                                                               3
<PAGE>   4

                           BAOA, INC. AND SUBSIDIARIES
                                 BALANCE SHEETS
                             March 31, 2000 and 1999

                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                         March 31,          March 31,
                                                                           2000               1999
                                                                       -----------         -----------
<S>                                                                    <C>                 <C>
                                     ASSETS
CURRENT ASSETS
   Cash and cash equivalents                                           $    99,862         $     1,374
   Other current assets                                                     21,000                  --
                                                                       -----------         -----------
     TOTAL CURRENT ASSETS                                                  120,862               1,374
                                                                       -----------         -----------

PROPERTY AND EQUIPMENT - AT COST
   Furniture and equipment                                                  62,931              51,781
   Accumulated depreciation                                                (46,707)            (41,802)
                                                                       -----------         -----------
     NET PROPERTY AND EQUIPMENT                                             16,224               9,978
                                                                       -----------         -----------

OTHER ASSETS
   Option to acquire real property                                         118,064             101,404
   Deposits and other assets                                                    --              12,961
                                                                       -----------         -----------
     TOTAL OTHER ASSETS                                                    118,064             114,365
                                                                       -----------         -----------

TOTAL ASSETS                                                           $   255,150         $   125,717
                                                                       ===========         ===========

                      LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
   Accounts payable                                                    $    16,935         $    94,777
   Accrued expenses and other liabilities                                   54,555             139,103
   Advances and notes payable to affiliates and related parties                 --             108,700
   Interest payable to affiliates and related parties                       31,215              10,557
   Income taxes payable                                                      4,363               3,563
                                                                       -----------         -----------
     TOTAL CURRENT LIABILITIES                                             107,068             356,700
                                                                       -----------         -----------

LONG-TERM LIABILITIES
   Notes payable to affiliates and related parties                         168,700                  --
                                                                       -----------         -----------
     TOTAL LIABILITIES                                                     275,768             356,700
                                                                       -----------         -----------

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY (DEFICIT)
   Preferred stock - $0.001 par value.  10,000,000 shares
     authorized.  160,000 and no shares issued and outstanding                 160                  --
   Common stock - $0.001 par value. 90,000,000
     shares authorized.  88,871,303 and 44,991,295
     shares issued and outstanding, respectively                            88,871              44,991
   Additional paid-in capital                                            6,920,290           4,310,141
   Accumulated deficit                                                  (7,029,939)         (4,586,115)
                                                                       -----------         -----------
     TOTAL SHAREHOLDERS' EQUITY (DEFICIT)                                  (20,618)           (230,983)
                                                                       -----------         -----------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                             $   255,150         $   125,717
                                                                       ===========         ===========
</TABLE>


See Accountant's Review Report.
The accompanying notes are an integral part of these financial statements.

                                                                               4

<PAGE>   5

                           BAOA, INC. AND SUBSIDIARIES
         CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
                   Three months ended March 31, 2000 and 1999

                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                     Three months         Three months
                                                                        ended                ended
                                                                       March 31,            March 31,
                                                                         2000                 1999
                                                                     ------------         ------------
<S>                                                                  <C>                  <C>
REVENUES, NET                                                        $         --         $         --

COST OF SALES                                                                  --                   --
                                                                     ------------         ------------

GROSS PROFIT                                                                   --                   --

OPERATING EXPENSES
   Sales and marketing expenses                                                --               15,840
   Marketing and consulting fees to related parties                       557,424                8,485
   General and administrative expenses                                     84,814               21,707
   Depreciation                                                               728                1,373
                                                                     ------------         ------------
     TOTAL OPERATING EXPENSES                                             642,966               47,405
                                                                     ------------         ------------

LOSS FROM OPERATIONS                                                     (642,966)             (47,405)

OTHER INCOME (EXPENSE)
   Interest expense                                                        (2,993)                (121)
   Compensation expense related
     to common stock sales at less
     than "fair value"                                                   (566,667)                  --
   Forgiveness of debt                                                         --                   --
                                                                     ------------         ------------
     TOTAL OTHER INCOME (EXPENSE)                                        (569,660)                (121)
                                                                     ------------         ------------

INCOME (LOSS) BEFORE INCOME TAXES                                      (1,212,626)             (47,526)

Federal and state income taxes                                                 --                   --
                                                                     ------------         ------------

NET INCOME (LOSS) BEFORE COMPREHENSIVE INCOME                          (1,212,626)             (47,526)

OTHER COMPREHENSIVE INCOME                                                     --                   --
                                                                     ------------         ------------

COMPREHENSIVE INCOME (LOSS)                                          $ (1,212,626)        $    (47,526)
                                                                     ============         ============

Income (Loss) per weighted-average share of common
   stock outstanding, computed on net loss
   Basic and fully diluted                                           $      (0.01)                 nil

Weighted-average number of shares of common stock outstanding
   Basic and fully diluted                                             82,846,460           36,287,379
                                                                     ============         ============
</TABLE>


See Accountant's Review Report.
The accompanying notes are an integral part of these financial statements.

                                                                               5

<PAGE>   6

                           BAOA, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                   Three months ended March 31, 2000 and 1999

                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                  Three months        Three months
                                                                      ended              ended
                                                                    March 31,           March 31,
                                                                      2000                1999
                                                                  ------------        ------------
<S>                                                               <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income (loss) for the year                                 $(1,212,626)        $   (47,526)
   Adjustments to reconcile net income to net cash
     provided by operating activities
        Depreciation and amortization                                     728               1,373
        Consulting and other fees paid with common stock              556,000                  --
        Compensation expense related to common
          stock sales at less than "fair value"                       566,667                  --
     (Increase) decrease in
        Other current assets                                          (21,000)                 --
        Deposits and other assets                                      10,703                  --
     Increase (decrease) in
        Accounts payable                                              (86,827)            (15,776)
        Accrued liabilities and other                                   2,993              73,417
        Income taxes payable                                               --                  --
                                                                  -----------         -----------
NET CASH USED IN OPERATING ACTIVITIES                                (183,362)             11,488
                                                                  -----------         -----------

CASH FLOWS FROM INVESTING ACTIVITIES
   Purchases of property and equipment                                (11,151)             (2,255)
   Cash paid for option to acquire real property                       (2,380)             (7,187)
                                                                  -----------         -----------

NET CASH USED IN INVESTING ACTIVITIES                                 (13,531)             (9,442)
                                                                  -----------         -----------

CASH FLOWS FROM FINANCING ACTIVITIES
   Increase (decrease) in cash overdrafts                                  --                (672)
   Proceeds from advances from related parties                             --                  --
   Payments on advances from related parties                          (39,500)                 --
   Proceeds from sale of common stock                                 331,500                  --
                                                                  -----------         -----------

NET CASH PROVIDED BY FINANCING ACTIVITIES                             292,000                (672)
                                                                  -----------         -----------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                       95,107               1,374

Cash and cash equivalents at beginning of year                          4,755                  --
                                                                  -----------         -----------

Cash and cash equivalents at end of year                          $    99,862         $     1,374
                                                                  -----------         ===========

SUPPLEMENTAL DISCLOSURES OF INTEREST AND INCOME TAXES PAID
   Interest paid                                                  $         -         $         -
                                                                  ===========         ===========
   Income taxes paid (refunded), net                              $         -         $         -
                                                                  ===========         ===========
</TABLE>

See Accountant's Review Report.
The accompanying notes are an integral part of these financial statements.

                                                                               6

<PAGE>   7

                           BAOA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             March 31, 2000 and 1999


NOTE A - BACKGROUND AND ORGANIZATION

BAOA, Inc. (BAOA) was originally incorporated on August 15, 1983 according to
the laws of the State of California. BAOA was dormant until 1993. From 1993
through 1997, BAOA was engaged in the development, sale and marketing of an
educational and entertainment board game, the marketing of an affinity credit
card, the licensing of its trademarked logo "Black Americans of Achievement" and
the development for production of a television game show.

During 1997, BAOA redirected its efforts to the operation of telemarketing call
centers located in Federally designated "Empowerment Zones" throughout the
United States. BAOA has entered into a strategic alliance with MKT
Communications Corp., a telemarketing and call center management entity, to
assist the Company in marketing and managing its call centers. As of December
31, 1999, the Company has no call centers in operation and remains in
negotiation for the opening of call centers in Atlanta, Georgia and New York
City, New York.

In anticipation of opening the Atlanta center and others to be established, the
Company has incorporated wholly-owned subsidiaries: Call Atlanta, Inc. and Call
Harlem, Inc.

The Company's wholly-owned subsidiary, Call Atlanta, Inc. was incorporated on
January 7, 1998 under the laws of the State of Georgia. Call Atlanta, Inc. will
operate the Company's telemarketing call center operations domiciled in the
Atlanta Georgia designated "Empowerment Zone".

The Company's wholly-owned subsidiary, Call Harlem, Inc. was incorporated on
September 29, 1998 under the laws of the State of Delaware. Call Harlem, Inc.
will operate the Company's telemarketing call center operations domiciled in the
New York City designated "Empowerment Zone".

The accompanying financial statements present the consolidated financial
condition, operations and cash flows of BAOA, Inc. and its wholly-owned
subsidiaries, Call Atlanta, Inc. and Call Harlem, Inc. All significant
intercompany transactions have been eliminated in consolidation. The
consolidated entities are collectively referred to as the "Company".

During interim periods, the Company follows the accounting policies set forth in
its Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act
of 1934 on Form 10-KSB filed with the U. S. Securities and Exchange Commission.
The information presented herein may not include all disclosures required by
generally accepted accounting principles and the users of financial information
provided for interim periods should refer to the annual financial information
and footnotes contained in its Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934 on Form 10-KSB when reviewing the interim
financial results presented herein.

In the opinion of management, the accompanying interim financial statements,
prepared in accordance with the instructions for Form 10-QSB, are unaudited and
contain all material adjustments, consisting only of normal recurring
adjustments necessary to present fairly the financial condition, results of
operations and cash flows of the Company for the respective interim periods
presented. The current period results of operations are not necessarily
indicative of results which ultimately will be reported for the full fiscal year
ending December 31, 2000.

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
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.


                                                                               7

<PAGE>   8

                           BAOA, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                             March 31, 2000 and 1999


NOTE B - GOING CONCERN UNCERTAINTY

The Company has had continuing losses from operations and experienced negative
cash flows from operating activities since 1993. Further, the Company has
limited ability to utilize traditional financing methods. The Company's survival
in the current and prior years has been substantially dependent upon advances
from related parties and other individuals and the sale of equity securities
through the efforts of Management.

The Company's continued existence is dependent upon its ability to generate
sufficient cash flows from operations to support its daily operations as well as
provide sufficient resources to retire existing liabilities and obligations on a
timely basis.

The Company has customer contracts to provide telemarketing services commencing
with the opening of its two (2) planned call centers. The City of Atlanta,
Georgia has issued final site and financial commitment approval for the
Company's Atlanta Empowerment Zone call center. The City of New York City, New
York has issued its final site and financial commitment approval for the
Company's New York Empowerment Zone call center.

On February 22, 1999, the Company received a financing commitment letter from
the Atlanta Empowerment Zone Corporation for a development loan of approximately
$3.5 million at an interest rate of 8.0% and a term of ten (10) years. As of
March 23, 2000, the loan, and related documentation, has been executed and the
initial funding has been made.

On September 3, 1998, the Company was approved by the Upper Manhattan
Empowerment Zone Development Corporation for a development loan of approximately
$800,000. As of March 23, 2000, the loan, and related documentation, has not
been executed or funded.

Additionally, management believes that its ongoing efforts to raise additional
capital through the sale of equity securities and/or debt instruments will
provide additional cash flows. However, there can be no assurance that the
Company will be able to obtain additional funding or, that such funding, if
available, will be obtained on terms favorable to or affordable by the Company.


NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1.  Cash and Cash Equivalents

    For Statement of Cash Flows purposes, the Company considers all cash on hand
    and in banks, including accounts in book overdraft positions, certificates
    of deposit and other highly-liquid investments with maturities of three
    months or less, when purchased, to be cash and cash equivalents.

    Cash overdraft positions may occur from time to time due to the timing of
    making bank deposits and releasing checks, in accordance with the Company's
    cash management policies.

2.  Accounts Receivable

    In the normal course of business, the Company extends unsecured credit to
    virtually all of its clients which are located throughout the United States.
    Because of the credit risk involved, management has provided an allowance
    for doubtful accounts which reflects its opinion of amounts which will
    eventually become uncollectible. In the event of complete non-performance,
    the maximum exposure to the Company is the recorded amount of trade accounts
    receivable shown on the balance sheet at the date of non-performance.


                                                                               8

<PAGE>   9

                           BAOA, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                             March 31, 2000 and 1999


NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

3.  Property and Equipment

    Property and equipment are recorded at cost and are depreciated on a
    straight-line basis, over their estimated useful lives (generally 5 to 7
    years). Major additions and betterments are capitalized and depreciated over
    the remaining estimated useful lives of the related assets. Maintenance,
    repairs, and minor improvements are charged to expense as incurred.

4.  Income Taxes

    The Company uses the asset and liability method of accounting for income
    taxes. At December 31, 1999 and 1998, respectively, the deferred tax asset
    and deferred tax liability accounts, as recorded when material to the
    financial statements, are entirely the result of temporary differences.
    Temporary differences represent differences in the recognition of assets and
    liabilities for tax and financial reporting purposes, primarily accumulated
    depreciation and amortization, allowance for doubtful accounts and vacation
    accruals.

    As of March 31, 2000 and 1999, the deferred tax asset related to the
    Company's net operating loss carryforward is fully reserved. If these
    carryforwards are not utilized, they will begin to expire in 2007.

5.  Earnings (loss) per share

    Basic earnings (loss) per share is computed by dividing the net income
    (loss) by the weighted-average number of shares of common stock and common
    stock equivalents (primarily outstanding options and warrants). Common stock
    equivalents represent the dilutive effect of the assumed exercise of the
    outstanding stock options and warrants, using the treasury stock method. The
    calculation of fully diluted earnings (loss) per share assumes the dilutive
    effect of the exercise of outstanding options and warrants at either the
    beginning of the respective period presented or the date of issuance,
    whichever is later. As of March 31, 2000 and 1999, the outstanding warrants
    and options are deemed to be anti-dilutive due to the Company's net
    operating loss position.

6.  Stock Options

    During 1997, the Company adopted a method of accounting for stock-based
    compensation as required by Statement of Financial Accounting Standards No.
    123 (SFAS 123), "Accounting for Stock Based Compensation". SFAS 123 allows
    for two methods of valuing stock-based compensation. The first method allows
    for the continued application of Accounting Principle Board Opinion No. 25
    (APB 25). The second method uses an option pricing model to value stock
    compensation and record such valuation as compensation expense within the
    financial statements over the anticipated period that the options will be
    outstanding. The Company has elected to apply the tenets of APB 25 and the
    supplemental disclosure standards of SFAS 123.

7.  Advertising

    The Company expenses direct advertising and marketing costs as incurred.
    Advertising expenses of approximately $450 and $1,801 are included in the
    accompanying financial statements as a component of sales and marketing
    expense for the years ended December 31, 1999 and 1998, respectively.


                                                                               9

<PAGE>   10

                           BAOA, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                             March 31, 2000 and 1999


NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

8.  Research and development

    The Company expenses research and development costs as incurred. Research
    and development costs of approximately $-0- and $-0- are included in the
    accompanying financial statements as a component of general and
    administrative expenses for the three months ended March 31, 2000 and 1999,
    respectively.


NOTE D - RELATED PARTY TRANSACTIONS

The Company has both advances and notes payable to related parties, who are also
stockholders or related to stockholders of the Company. The advances arose from
the direct payment of expenses paid on behalf of the Company and for various
cash advances made directly to the Company. The advances are not formally
documented, unsecured, non-interest bearing and are due upon demand based on the
initial understanding of the Company and the related parties.

During 2000 and 1999, the Company has received additional loans from other
related parties, who are also stockholders or entities controlled by
stockholders of the Company. The loans bear interest at rates ranging from 5.0%
to 30.0%. All notes are due on terms between two (2) years and three (3) years
from the funding date of the respective loan advance.

The following summarizes these amounts as of March 31, 2000 and 1999:

<TABLE>
<CAPTION>
                                     2000            1999
                                   --------        --------
<S>                                <C>             <C>
Advances                           $     --        $108,700
Notes                               168,700              --
                                   --------        --------
                                    168,700         108,700
Interest                             31,215          10,557
                                   --------        --------

                                   $199,915        $119,257
                                   ========        ========
</TABLE>


Additionally, the Company has paid, in cash and/or common stock, certain amounts
to related parties, including members of management, officers and directors of
the Company for various consulting, marketing and management services. These
amounts are shown as "Marketing and consulting fees to related parties" in the
accompanying Statement of Operations and Comprehensive Income.


NOTE E - OPTION TO ACQUIRE REAL PROPERTY

In 1997, the Company entered into an contractual agreement, which was
subsequently modified and extended, to purchase a building in Atlanta, Georgia
to house its administrative offices and its initial telemarketing call center.
On March 23, 1998, the building was purchased by an affiliated individual, who
intends to deed the property to the Company at a future date to be determined.
Since the closing date, the Company funded all initial deposits, closing costs
and debt service payments on behalf of the owning party. The monies advanced on
behalf of the owning party have been classified as "Option to acquire real
property" in the accompanying balance sheets and statements of cash flows.


                                                                              10

<PAGE>   11

                           BAOA, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                             March 31, 2000 and 1999


NOTE F - INCOME TAXES

The components of income tax (benefit) expense for the years ended March 31,
2000 and 1999, respectively, are as follows:

<TABLE>
<CAPTION>
                                                 1999        1998
                                                 ----        ----
<S>                                              <C>         <C>
Federal:
    Current                                      $ --        $ --
    Deferred                                       --          --
                                                 ----        ----
                                                   --          --
                                                 ----        ----
State:
    Current                                        --          --
    Deferred                                       --          --
                                                 ----        ----
                                                   --          --
                                                 ----        ----
    Total                                        $ --        $ --
                                                 ====        ====
</TABLE>


As of December 31, 1999, the Company has a net operating loss carryforward of
approximately $2,600,000 to offset future taxable income. Subject to current
regulations, this carryforward will begin to expire in 2007 for Federal purposes
and 1999 for State purposes.

The Company's income tax expense for the three months ended March 31, 2000 and
1999, respectively, differed from the statutory federal rate of 34 percent as
follows:

<TABLE>
<CAPTION>
                                                                         2000                1999
                                                                     -----------         -----------
<S>                                                                  <C>                 <C>
Statutory rate applied to earnings (loss) before income taxes        $  (412,293)        $   (16,159)

Increase (decrease) in income taxes resulting from:
  State income taxes                                                          --                  --
  Other, including reserves for deferred tax asset                       412,293              16,159
                                                                     -----------         -----------

    Income tax expense                                               $        --         $        --
                                                                     ===========         ===========

The Company's deferred tax asset as of March 31, 2000 and 1999, respectively, is
as follows:

    Net operating loss carryforwards                                 $ 2,614,000         $ 1,336,100
    Valuation allowance                                               (2,614,000)         (1,336,100)
                                                                     -----------         -----------

    Net deferred tax asset                                           $        --         $        --
                                                                     ===========         ===========
</TABLE>


The valuation allowance estimate increased (decreased) by approximately
$1,277,900 and $(5,600) for the years ended December 31, 1999 and 1998,
respectively. Management is of the opinion that it's valuation estimate is
reasonably possible of changing in future periods.


                                                                              11

<PAGE>   12

                           BAOA, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                             March 31, 2000 and 1999


NOTE G - CAPITAL STOCK TRANSACTIONS

In October 1998, the Company's Articles of Incorporation (Articles) were amended
to increase the number of shares which may be issued. As amended in 1998, the
Articles increased the number of shares which may be issued from 50,000,000 to
100,000,000. Of the 100,000,000 shares authorized, 90,000,000 shares of $0.001
par value common stock and 10,000,000 shares of $0.001 preferred stock may be
issued. This amendment designated 4,000,000 shares of the authorized preferred
stock as "Series A Convertible Preferred Stock". The remaining undesignated
preferred stock may be designated and/or issued from time to time in one or more
series as determined by the Company's Board of Directors.

Series A Convertible Preferred Stock

The Company's Board of Directors has designated 4,000,000 shares of its
authorized preferred stock as "Series A Convertible Preferred Stock". As of
December 31, 1999 and 1998, no shares have been issued by the Company. Each
outstanding share of Class A Convertible Preferred Stock shall be converted, at
the sole option of the holder, at any time into common stock at an initial
conversion rate of one share of common stock for each share of preferred stock
outstanding. The conversion rate will be adjusted for the effects of any future
stock dividends, combinations or subdivisions of the Company's common stock
which may occur subsequent to the issuance of the Preferred Stock. Holders of
the Class A Convertible Preferred Stock shall also be entitled to receive, when
declared by the Company's Board of Directors, dividends at par with holders of
the Company's common stock had been converted into common stock as of the record
date of the dividend.

In the event of liquidation, dissolution or winding up of the Company, the
holders of Series A Convertible Preferred Stock shall be entitled to receive,
prior and in preference to any distribution to the holders of common stock,
$1.00 per share plus all declared and unpaid dividends on each issued and
outstanding share.


NOTE H - COMMITMENTS

Marketing and consulting contracts

In December 1998, the Company entered into an agreement with an independent
consultant to provide various business development services. The terms of this
agreement require the payment of an aggregate 250,000 shares of common stock, on
dates prescribed in the agreement, and the granting of 50,000 options to
purchase 50,000 shares of common stock at a price of not more than $0.35 per
share, commencing on August 5, 1999 and expiring on August 5, 2000. As of
December 31, 1999 and 1998, respectively, no shares have been issued pursuant to
this agreement.

In July 1997, the Company entered into two agreements with independent
consultants to establish marketing and distribution systems for the Company's
board game and telecommunication products. The terms of the agreements provide
for compensation through the issuance of 225,000 shares of the Company's common
stock, the granting of 200,000 options to acquire 200,000 shares of the
Company's common stock at exercise prices ranging from $0.25 to $0.50 per share,
and the reimbursement for approved travel expenses incurred on the Company's
behalf. Under one of the agreements, the consultant is entitled to receive a
5.0% commission on revenues received from corporate sponsors through the direct
efforts of the consultant. As of December 31, 1997, the Company has issued
50,000 shares of common stock valued at $0.10 per share and 50,000 valued at
$0.09 per share as compensation on these contracts. Further, as of December 31,
1998 and 1997, respectively, no options were exercised and all issued options
have expired and no commissions have been paid related to any Company products.


                                                                              12

<PAGE>   13

                           BAOA, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                             March 31, 2000 and 1999


NOTE H - COMMITMENTS - CONTINUED
Marketing and consulting contracts - continued

In July 1997, the Company entered into an agreement with an independent
consultant to establish and implement a distribution system for the Company's
board game and telecommunication products in the Southeastern United States. The
terms of the agreement provide for compensation through the issuance of 125,000
shares of the Company's common stock. The agreement may be terminated at any
time by either the consultant or the Company. As of December 31, 1997, the
Company has issued two blocks of 50,000 shares of the Company's common stock,
valued at $0.10 and $0.09 per share, respectively.

In May 1997, the Company entered into an agreement with an independent
consultant to provide advisory and marketing services for the Company. The terms
of the agreement provide for compensation through the issuance of 100,000 shares
of the Company's common stock, a 5.0% commission on gross sales to the
consultant which do not require payment of additional commissions to other third
party sales representatives, a 1.5% commission on sales which do require the
payment of additional commissions to other third party sales representatives and
a $1,500 per month advance against future commissions. This agreement may be
terminated at any time by either the consultant or the Company. As of December
31, 1997, the Company had issued the required 100,000 shares of common stock in
two blocks of 50,000 shares each, valued at $0.10 and $0.09 per share each.

In February 1997, the Company entered into an agreement with an individual to
serve as an advisory director and provide various business advisory services.
The agreement is for a period of two (2) years and provides for compensation
through the issuance of 100,000 shares of the Company's common stock. As of
December 31, 1997, 100,000 shares of common stock, valued at $0.10 per share,
had been issued pursuant to this agreement.

In January 1996, the Company entered into an agreement with an independent
consultant for the design and maintenance of an Internet web site and other
Internet-related consulting services. The contract provides for compensation
through the issuance of 150,000 shares of the Company's common stock. At
December 31, 1997, the Company has issued 87,500 and 37,500 shares of the
Company's common stock at $0.10 and $0.09 per share, respectively.

Call center contracts

In August 1997, the Company entered into an agreement with a telecommunications
company to design, develop, set-up and managing a completely functioning
teleservice center (Call Center) for the Company. This agreement is for a period
of three (3) years, beginning August 22, 1997. The Company is required to pay
$50,000 in advance for services and work to be performed plus travel advances
for expenses to be incurred on behalf of the Company. This agreement requires
additional compensation through the issuance of 3,000,000 shares of the
Company's unregistered, restricted common stock as follows: 1,000,000 shares
upon submission of a business plan for the initial Call Center; 1,000,000 shares
upon delivery of a completely functioning Call Center; and 1,000,000 shares upon
delivery of a purchase order for telemarketing services representing collectable
revenue of at least $2,400,000. Further, the Company will issue an additional
1,000,000 shares of unregistered, restricted common stock upon the opening of a
second Call Center and an additional 1,000,000 shares of unregistered,
restricted common stock when the second Call Center earns an annual gross
revenue of $900,000. The telecommunications company will also provide ongoing
management on the Call Center for $20,000 per month plus 10.0% of the gross
telemarketing billings. Additionally, this agreement requires future issuances
of common stock and warrants to purchase common stock in amounts and at prices
to be mutually agreed upon at a future date not specified in this agreement. In
the event that the telecommunications company fails to provide an initial Call
Center, all rights to common stock pursuant to this agreement shall be
forfeited. As of July 14, 1999, performance on this agreement had not begun,
and, accordingly, no common stock has been issued nor had any required payments
been made.


                                                                              13

<PAGE>   14

                           BAOA, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                             March 31, 2000 and 1999


NOTE H  - COMMITMENTS - CONTINUED

Financial services contracts

In March 1999, the Company formalized an agreement with an entity to provide
capital development services. The contractor is to raise approximately
$1,000,000 through the sale of equity securities to new and existing investors.
For these services, the Company is obligated to pay the contractor 7,000,000
shares of common stock and a sum of money equal to 5.0% of the gross money
received. This agreement is for a period of five (5) years from January 1997.

In March 1998, the Company entered into an underwriting contract with a
brokerage firm whereby the brokerage firm was to use its best efforts in raising
approximately $600,000 for the Company through a Private Placement Memorandum.
The funds were to be raised through the sale of Units, consisting of 100,000
shares of common stock, 100,000 Class A Warrants and 100,000 Class B Warrants,
at a price of $25,000 per Unit. Pursuant to the terms of the Agreement, these
efforts were not completed by May 15, 1998 and the Agreement terminated with no
further obligation to the Company.



               (Remainder of this page left blank intentionally.)




                                                                              14

<PAGE>   15

PART I - ITEM 2

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

(1) CAUTION REGARDING FORWARD-LOOKING INFORMATION

This quarterly report contains certain forward-looking statements and
information relating to the Company that are based on the beliefs of the Company
or management as well as assumptions made by and information currently available
to the Company or management. When used in this document, the words
"anticipate," "believe," "estimate," "expect" and "intend" and similar
expressions, as they relate to the Company or its management, are intended to
identify forward- looking statements. Such statements reflect the current view
of the Company regarding future events and are subject to certain risks,
uncertainties and assumptions, including the risks and uncertainties noted.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those described herein as anticipated, believed, estimated, expected or
intended. In each instance, forward-looking information should be considered in
light of the accompanying meaningful cautionary statements herein.

(2) RESULTS OF OPERATIONS, LIQUIDITY AND CAPITAL RESOURCES

As of March 31,2000 the Company had $99,862 cash on hand and in the bank. The
primary source of cash and financing for the Company for the three months then
ended was $331,500 from sales of common stock and preferred stock. The primary
uses of cash during that period were approximately $183,000 to finance the
Company's operations, approximately $2,400 for an option to acquire real
property and approximately $11,000 for leasehold improvements. The Company
currently maintains a positive cash balance through sales of common stock.

The Company has customer contracts to provide telemarketing services commencing
with the opening of its planned call centers in Atlanta, Georgia and New York.
The Cities of Atlanta, Georgia and New York have each issued final site and
financial assistance approvals to BAOA for its call center locations. The BAOA
Atlanta Call Center will be a leading distributor of products and services
through direct-to-consumer telemarketing for corporate clients and for BAOA's
own line of future products.

BAOA has formed a business alliance with a major telemarketing management and
call center operating company, MKT Communications Corp., to assist BAOA in
marketing and managing its call center.

BAOA's strategy is to operate its call centers in federally designated
empowerment zones. These empowerment zones are designed to help inner-cities and
the residents of the empowerment zones, as well as provide substantial revenues
to the Company. The Company's niche in the call center business will be enhanced
by the empowerment zone benefits that include job training subsidies, grants,
loans, investment tax credits and energy credits. These incentives significantly
reduce start up and direct costs of operations.

BAOA has secured a centrally located building in downtown Atlanta for its call
center business. With over 40,000 square feet available, BAOA intends to operate
its call center and sublease facilities for job training, day care, and after
school youth development centers. These additional centers combined with planned
commercial ventures such as food and other service outlets should enable BAOA to
dramatically improve the quality of life and the economic conditions in the
surrounding neighborhood. The intent is for BAOA to greatly benefit the people
in the neighborhood empowerment zone through its role as a major employer and
neighborhood developer, while generating a reasonable return for its investors.



                                                                              15

<PAGE>   16

PART II - OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

      None

ITEM 2 - CHANGES IN SECURITIES

      None

ITEM 3 - DEFAULTS ON SENIOR SECURITIES

      None

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      The Company has held no regularly scheduled, called or special meetings of
      shareholders during the reporting period.

ITEM 5 - OTHER INFORMATION

      None

ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

      Exhibit 27 - Financial Data Schedule
      Reports on Form 8-K
          March 1, 2000 - Reported changes in the Registrant's certifying
          independent public accountant.

================================================================================

                                   SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                                                     BAOA, Inc.

May    22   , 2000                        /s/ Peter Van Brunt
    --------                            ---------------------------------------
                                                                Peter Van Brunt
                                                            President, Director
                                                and Principal Executive Officer



                                                                              16


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