<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
--------------------------------------------------------------------------------
(Mark one)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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)
2635 Camino del Rio, South, Suite 210, San Diego, CA 92108
----------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
--------------------------------------------------------------------------------
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: August 10, 2000: 88,078,445
Transitional Small Business Disclosure Format (check one): YES [ ] NO [X]
<PAGE> 2
BAOA, INC.
Form 10-QSB for the Quarter ended June 30, 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 17
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 18
Item 2 Changes in Securities 18
Item 3 Defaults Upon Senior Securities 18
Item 4 Submission of Matters to a Vote of Security Holders 18
Item 5 Other Information 18
Item 6 Exhibits and Reports on Form 8-K 18
SIGNATURES 18
</TABLE>
2
<PAGE> 3
[S. W. HATFIELD, CPA LETTERHEAD]
Item 1 - PART 1 - FINANCIAL STATEMENTS
ACCOUNTANT'S REVIEW REPORT
Board of Directors and Shareholders
BAOA, Inc.
We have reviewed the accompanying consolidated balance sheets of BAOA, Inc. (a
California corporation) and Subsidiaries as of June 30, 2000 and 1999 and the
accompanying consolidated statements of operations and comprehensive income for
the three months ended June 30, 2000 and 1999 and consolidated statements of
cash flows for the three months ended June 30, 2000 and 1999. These consolidated
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 consolidated 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 consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note A to the
financial statements, the Company had no viable operations or significant assets
prior to the quarter ended June 30, 2000 and continues to be dependent upon
significant shareholders to provide sufficient working capital to maintain the
integrity of the corporate entity. These circumstances create substantial doubt
about the Company's ability to continue as a going concern and are discussed in
Note A. The financial statements do not contain any adjustments that might
result from the outcome of these uncertainties.
S. W. HATFIELD, CPA
Dallas, Texas
August 10, 2000
3
<PAGE> 4
BAOA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 2000 and 1999
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, June 30,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash on hand and in bank $ 16,689 $ 7,726
Notes and advances receivable from shareholders 104,015 --
------------ ------------
TOTAL CURRENT ASSETS 120,884 7,726
------------ ------------
PROPERTY AND EQUIPMENT - AT COST 85,176 51,781
Accumulated depreciation (47,854) (43,196)
------------ ------------
NET PROPERTY AND EQUIPMENT 37,322 8,585
------------ ------------
OTHER ASSETS
Option to acquire real property -- 103,784
Deposits and other assets -- 12,960
------------ ------------
TOTAL OTHER ASSETS -- 116,744
------------ ------------
TOTAL ASSETS $ 158,206 $ 133,055
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Cash overdraft $ 5,585 $ --
Accounts payable 72,310 113,699
Accrued expenses 54,555 93,555
Advances and notes payable to affiliates and related parties -- 108,700
Interest payable to affiliates and related parties 34,824 10,677
Income taxes payable 4,363 4,363
------------ ------------
TOTAL CURRENT LIABILITIES 171,637 330,994
------------ ------------
LONG-TERM LIABILITIES
Notes payable to affiliates and related parties 168,700 --
------------ ------------
TOTAL LIABILITIES 340,337 330,994
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred stock - $0.001 par value. 10,000,000 shares
authorized, 160,000 and -0- shares issued and outstanding 160 --
Common stock - $0.001 par value 90,000,000
shares authorized, 88,078,445 and 63,172,013
shares issued and outstanding, respectively 88,078 63,172
Additional paid-in capital 7,116,034 4,873,210
Accumulated deficit (7,386,403) (5,134,321)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) (182,131) (197,939)
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 158,206 $ 133,055
============ ============
</TABLE>
The financial information presented herein has been prepared by management
without audit by independent certified public accountants. 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 and Six months ended June 30, 2000 and 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Six months Six months Three months Three months
ended ended ended ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES
Telemarketing revenues $ 59,565 $ -- $ -- $ --
------------ ------------ ------------ ------------
OPERATING EXPENSES
Marketing and consulting fees
to related parties 729,783 531,829 172,359 507,504
General and administrative expenses 404,239 60,096 319,425 38,389
Depreciation 1,875 2,766 1,147 1,393
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 1,135,897 594,691 492,931 547,286
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (1,076,332) (594,691) (492,931) (247,286)
OTHER INCOME (EXPENSE)
Interest expense (8,102) (241) (5,109) (120)
Compensation expense related
to common stock sales at less
than "fair value" (566,667) -- -- --
Forgiveness of debt 82,811 -- 82,811 --
------------ ------------ ------------ ------------
TOTAL OTHER INCOME (EXPENSE) (491,958) (241) 77,702 (120)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (1,568,290) (594,932) (415,229) (247,406)
Federal and state income taxes (800) (800) (800) (800)
------------ ------------ ------------ ------------
NET INCOME (LOSS) BEFORE
COMPREHENSIVE INCOME (1,569,090) (595,732) (416,029) (248,206)
OTHER COMPREHENSIVE INCOME -- -- -- --
------------ ------------ ------------ ------------
COMPREHENSIVE INCOME (LOSS) $ (1,569,090) $ (595,732) $ (416,029) $ (248,206)
============ ============ ============ ============
Income (Loss) per weighted-average
share of common stock outstanding,
computed on net loss
Basic and fully diluted $ (0.02) $ (0.01) $ (0.01) $ (0.01)
============ ============ ============ ============
Weighted-average number of shares
of common stock outstanding 85,796,145 49,056,248 88,682,645 52,878,729
============ ============ ============ ============
</TABLE>
The financial information presented herein has been prepared by management
without audit by independent certified public accountants. 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
Six months ended June 30, 2000 and 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Six months Six months
ended ended
June 30, June 30,
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) for the period $(1,569,090) $ (595,732)
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 1,875 2,766
Common stock issued for fees and services 556,000 479,750
Compensation expense related to common
stock sales at less than "fair value" 566,667 --
Forgiveness of debt (82,811) --
(Increase) decrease in
Accounts receivable (21,000) --
Deposits and other assets 10,703 (10,703)
Increase (decrease) in
Accounts payable (51,359) 3,146
Accrued liabilities and other 6,602 38,693
Income taxes payable -- 800
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (479,695) (81,280)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (33,396) (2,255)
Cash received on note receivable on sale of option 230,000 --
Cash paid for option to acquire real property (2,380) (9,567)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES 194,224 (11,822)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in cash overdrafts 5,585 (672)
Payments on advances from related parties (39,500) --
Proceeds from sale of common stock 331,500 101,500
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 297,585 100,828
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 12,114 7,726
Cash and cash equivalents at beginning of year 4,755 --
----------- -----------
Cash and cash equivalents at end of year $ 16,869 $ 7,726
============ ===========
SUPPLEMENTAL DISCLOSURES OF INTEREST AND INCOME TAXES PAID
Interest paid $ 1,500 $ --
=========== ===========
Income taxes paid (refunded), net $ 800 $ --
=========== ===========
</TABLE>
The financial information presented herein has been prepared by management
without audit by independent certified public accountants. 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
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 had no call centers in operation and was in negotiation
for the opening of call centers in Atlanta, Georgia and New York City, New York.
In Calendar 2000, the Company refined its business plan to emphasize its goal of
operating world-wide call center business locations. The Company opened, and
derived revenue from, its initial call center domiciled in Montego Bay, Jamaica
during the second quarter of Calendar 2000. The Company's business plan calls
for the expansion of the Jamaica call center to have more than fifty (50)
employees during the fourth quarter of Calendar 2000 and more than one hundred
(100) employees by the end of the first quarter of Calendar 2001.
In anticipation of opening the Atlanta and New York call centers and others to
be established, the Company has incorporated wholly-owned subsidiaries: Call
Atlanta, Inc. and Call Harlem, Inc. Call Atlanta, Inc. was incorporated on
January 7, 1998 under the laws of the State of Georgia to operate the Company's
telemarketing call center operations to be domiciled in the Atlanta Georgia
designated "Empowerment Zone". Call Harlem, Inc. was incorporated on September
29, 1998 under the laws of the State of Delaware to operate the Company's
telemarketing call center operations domiciled in the New York City designated
"Empowerment Zone". Neither of these entities has been capitalized or performed
any business operations since formation.
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
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 initially planned call centers in Atlanta, Georgia
and New York City, New York. 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, was been executed. 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 August 10, 2000, neither call
center, or related development loan, has been opened and/or funded.
During the second quarter of Calendar 2000, the Company opened, and derived
revenue from, its initial call center domiciled in Montego Bay, Jamaica.
Management believes the Company will meet its business plan goals of relying
upon its international call center operations for its cash flow requirements by
the end of Calendar 2000.
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
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 June 30, 2000 and 1999, 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 June 30, 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 June 30,
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.
9
<PAGE> 10
BAOA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
8. Research and development
The Company expenses research and development costs as incurred.
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 1999 and 1998, 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 June 30, 2000 and 1999:
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Advances $ -- $108,700
Notes 168,700 --
-------- --------
168,700 108,700
Interest 34,824 10,677
-------- --------
$203,524 $119,377
======== ========
</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
NOTE E - OPTION TO ACQUIRE REAL PROPERTY - CONTINUED
During the second quarter of 2000, the Company sold this option to a shareholder
of the Company for a note receivable of $313,015, generating a gain on this
transaction of approximately $194,951. The gain on this transaction with a
shareholder of the Company was credited to additional paid-in capital and no
effect is recognized in the consolidated statement of operations.
NOTE F - INCOME TAXES
The components of income tax (benefit) expense for the years ended June 30, 2000
and 1999, respectively, are as follows:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Federal:
Current $ -- $ --
Deferred -- --
==== ====
-- --
---- ----
State:
Current 800 800
Deferred -- --
---- ----
800 800
---- ----
Total $800 $800
==== ====
</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 years ended June 30, 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 $(533,491) $(202,549)
Increase (decrease) in income taxes resulting from:
State income taxes 800 800
Other, including reserves for deferred tax asset 533,491 202,549
--------- ---------
Income tax expense $ 800 $ 800
========= =========
</TABLE>
The Company's deferred tax asset as of December 31, 1999 and 1998, respectively,
is as follows:
<TABLE>
<S> <C> <C>
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
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 June
30, 2000 and 1999, 160,000 and -0- 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.
Common stock issuances
During the period from January 1, 2000 through June 30, 2000, the Company has
sold a total of approximately 6,800,000 shares of common stock for gross
proceeds of approximately $179,000.
During the period from January 1, 2000 through June 23, 2000, the Company has
issued an aggregate 5,316,667 shares of common stock for various consulting
services. These transactions were valued at approximately $213,500, or $0.04 per
share, which approximates the fair market value of the shares given in payment
and the value of the services.
On July 9, 2000, approximately six (6) shareholders voluntarily surrendered an
aggregate 792,888 shares of issued and outstanding shares of common stock to the
Company. The effect of this transaction was to credit the par value of these
shares to additional paid-in capital.
During the years ended December 31, 1999 and 1998, respectively, the Company
issued 20,650,000 and 8,103,250 shares of common stock in exchange for various
marketing and consulting services. These transactions were valued at a
cumulative approximate $892,500 and $563,575, respectively, which approximates
the fair market value of the shares given in payment and the value of the
services.
During the years ended December 31, 1999 and 1998, respectively, the Company
sold an aggregate 9,980,720 and 6,441,659 shares of common stock to various
unrelated third party investors for gross aggregate proceeds of approximately
$214,500 and $339,300. The Company charged operations approximately $83,800 for
differences between the estimated fair value of the stock sold during 1999 and
the cash proceeds received by the Company.
12
<PAGE> 13
BAOA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE G - CAPITAL STOCK TRANSACTIONS - CONTINUED
It is the intent of the Company to price the sale of restricted securities at
or near the closing market price of the Company's securities. Differences may
occur due to the timing of the receipt of funds on restricted securities sales
and market fluctuations in the Company's quoted market prices. In conjunction
with the sale of common stock during 1998, the Company granted a cumulative
800,333 options to purchase an additional 800,333 shares of restricted,
unregistered common stock at prices ranging from $0.04 to $0.50 per share.
During 1999, these options expired and no options were exercised and,
accordingly, no shares of common stock were issued.
During the year ended December 31, 1999, the Company issued 260,000 shares of
restricted, unregistered common stock in payment of a $7,000 note payable and
$2,250 in accrued interest.
During the year ended December 31, 1998, the Company issued 200,000 shares of
restricted, unregistered common stock as payment for accrued interest in the
amount of $12,500.
NOTE H - STOCK OPTIONS
The Company granted various stock options to purchase shares of the Company's
common stock at specified prices in 1998 and 1997 as compensation for services.
The options generally expire one year from the date of the grant and become
exercisable immediately. At December 31, 1999 and 1998, a total of 50,000 and
840,333 options were outstanding, respectively. The following table lists the
status of the various option and warrant programs in effect at December 31, 1999
and 1998, respectively:
<TABLE>
<CAPTION>
Expired or
Balance at Granted Exercised Balance at Exercise price
Program December 31, 1997 during 1998 during 1998 December 31, 1998 per share
------- ----------------- ----------- ----------- ----------------- ---------
<S> <C> <C> <C> <C> <C>
1997 Consultant options 200,000 -- (200,000) -- N/A
1998 Consultant options -- 50,000 -- 50,000 $ 0.35
1998 Stock sale options -- 800,333 (10,000) 799,333 $0.04 - $0.50
-------- -------- -------- --------
Totals at December 31, 1998 200,000 850,333 (210,000) 840,333 $0.25 - $0.50
======== ======== ======== ========
</TABLE>
Weighted average price of outstanding options at December 31, 1998: $0.22 per
share.
<TABLE>
<CAPTION>
Expired or
Balance at Granted Exercised Balance at Exercise price
Program December 31, 1998 during 1999 during 1999 December 31, 1999 per share
------- ----------------- ----------- ----------- ----------------- ---------
<S> <C> <C> <C> <C> <C>
1998 Consultant options 50,000 -- -- 50,000 $ 0.35
1998 Stock sale options 799,333 -- (799,333) -- $0.04 - $0.50
------- ------- -------- ------
Totals at December 31, 1999 840,333 -- (799,333) 50,000 $0.25 - $0.50
======= ======== ======== ======
</TABLE>
Weighted average price of outstanding options at December 31, 1998: $0.35 per
share.
13
<PAGE> 14
BAOA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE H - STOCK OPTIONS - CONTINUED
As of March 23, 2000, the Company had the following outstanding options.
Additionally, none of the options issued and outstanding as of March 23, 2000
and/or December 31, 1999 had been exercised by the option holders.
<TABLE>
<CAPTION>
Expiring as of Options outstanding
-------------- -------------------
<S> <C>
August 31, 2000 50,000
------
50,000
======
</TABLE>
Had compensation cost for options granted in 1999 and 1998, respectively, been
determined based on the fair values at the grant dates, as prescribed by SFAS
123, the Company's net loss and net loss per share would not have changed due to
the fact that the exercise price of the options was substantially higher than
the market price at the grant date.
The calculations to estimate the fair value of the options were made using the
Black-Scholes pricing model which required making significant assumptions. These
assumptions include the expected life of the options, which was determined to be
one year, the expected volatility, which was based on fluctuations of the stock
price over a 12 month period, the expected dividends, determined to be zero
based on past performance, and the risk free interest rate, which was estimated
using the bond equivalent yield of 6.0% at December 31, 1999 and 1998,
respectively.
NOTE I - COMMITMENTS
Operating leases
The Company leases office facilities in Atlanta, Georgia under an operating
lease. The lease was for an initial term of 180 days from March 13, 1999 and
contained a single renewal term of an additional 180 days, which was exercised.
The lease requires monthly payments of $5,703 per month plus, as additional
rent, one half of all real estate taxes, general assessments, utility billings,
maintenance, cleaning, security and trash bills imposed upon the property.
During the second quarter of 2000, the landlord forgave all amounts due in
conjunction with this lease.
As of December 31, 1999, the Company had terminated and settled all other lease
agreements which were previously in effect. The accompanying financial
statements include rent expense for operating leases of approximately $84,493
and $47,415, as a component of general and administrative expenses, for the year
ended December 31, 1999 and 1998, respectively. Future minimum lease payments
due under noncancellable leases as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Year ending
December 31, Amount
------------ ------
<S> <C>
2000 $17,109
=======
</TABLE>
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.
14
<PAGE> 15
BAOA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE I - COMMITMENTS - CONTINUED
Marketing and consulting contracts - continued
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.
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.
15
<PAGE> 16
BAOA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE I - COMMITMENTS - CONTINUED
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.
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.
16
<PAGE> 17
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, PLAN OF OPERATION, LIQUIDITY AND CAPITAL RESOURCES
As of June 30,2000 the Company had $16,689 cash on hand and in the bank. The
primary sources of cash and financing for the Company for the six months then
ended was $59,565 from call center telemarketing revenues, $230,000 building
option income, and $331,500 from sales of common and preferred stock. The
primary uses of cash during that period were $611,146 to finance the Company's
operations, $2,380 for investments, and $33,396 for fixed assets. The Company
currently maintains a positive cash balance through sales of common stock and
call center revenues.
The Company operates a call center business division under the operating name
of' Call Solutions.com. Call- Solutions.com currently maintains its first
teleservices center in Montego Bay, Jamaica.
Call-Solutions.com intends to open call centers throughout the world in
locations that provide positive business regulations and labor conditions that
are encouraging to labor intensive businesses. The Company intends to become a
world leader in "direct-to-consumer" distribution of goods and services by using
its call center operation. The Company's goal is to be the first choice of
corporate business customers who wish to out-source their company's teleservice
needs
Recent dynamic changes in the telecommunications industry have caused long
distance phone rates to drastically decrease over the past three years.
Consequently, in many instances, bulk long distance phone calls can be made
off-shore into the U.S.A. in a commercially efficient manner. This phenomenon
has created an opportunity for labor-intensive businesses that incur extensive
long distance telephone service costs in their revenue generating process. The
Company's primary business strategy has shifted to take advantage of this
phenomenon by using its Call-Solutions.com division to open call centers
offshore in countries with lower costs of living, lower labor rates, and large
labor pools of educated, English speaking populations. As training and continual
retraining of call center employees represent two of the most significant costs
of call center businesses, the Company believes the labor cost benefits
available in these offshore markets will significantly increase its
profitability on call center projects.
In order to accelerate the Company's call center business focus, the Company has
formed strategic alliances with various call center operators and managers to
establish new Company owned call centers The Company has a strategic alliance
with Jake Kresge & Associates to provide time-share appointment-setting projects
for some of the nation's largest time-share developers. Kresge & Associates have
over twenty-five years of success in the time-share marketing business. The
Company also has a strategic alliance with MKT Communications to provide call
center management and out-bound teleservice work to domestic call centers.
Through its alliances, the Company has obtained purchase orders worth more than
thirty-one million dollars for outsource teleservice work to be preformed.
Management anticipates the Company's Jamaica call center may have gross revenue
in excess of five million dollars per year if the center is able to reach its
full capacity.
The Company is also secondarily focused on opening call centers in federally
designated Empowerment Zones throughout the United States. Empowerment Zones
businesses have access to economic benefits such as reduced interest rate loans,
investment tax credits, and energy credits. These benefits add significant
incentives that enhance potential profitability during the start-up and
developmental stages of new businesses.
17
<PAGE> 18
The Company has received a commitment letter for $3.5 million in debt financing
by the Atlanta Empowerment Zone for a call center project. The company plans to
open call centers in Atlanta, New York, and Los Angeles based upon commercial
feasibility. Call center projects substantially meet one of the primary
Empowerment Zone prerequisites of urban area job creation. Each of these
domestic call centers could potentially create up to 500 new teleservice jobs.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
None
ITEM 2 - CHANGES IN SECURITIES
On July 9, 2000, approximately six (6) shareholders voluntarily
surrendered an aggregate 792,888 shares of issued and outstanding shares
of common stock to the Company. The effect of this transaction was to
credit the par value of these shares to additional paid-in capital.
ITEM 3 - DEFAULTS ON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 27 - Financial Data Schedule
Reports on Form 8-K - None
--------------------------------------------------------------------------------
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.
August 10 , 2000 /s/ Peter Van Brunt
-------- -------------------------------------
Peter Van Brunt
President, Chief Executive Officer,
Director and Chief Accounting Officer
18
