<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB/A
--------------------------------------------------------------------------------
(Mark one)
[X] 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> <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 17
</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 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
3
<PAGE> 4
BAOA, INC. AND SUBSIDIARIES
BALANCE SHEETS
March 31, 2000 and 1999
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, March 31,
ASSETS 2000 1999
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 99,862 $ 1,374
------------ ------------
TOTAL CURRENT ASSETS 99,862 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 $ 234,150 $ 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 5,320,804
Accumulated deficit (7,029,939) (5,596,778)
------------ ------------
(20,618) (230,983)
Stock subscription receivable (21,000) --
------------ ------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) (41,618) (230,983)
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 234,150 $ 125,717
============ ============
</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 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
Compensation expense related
to common stock sales at less
than "fair value" 566,667 --
------------ ------------
TOTAL OPERATING EXPENSES 1,209,633 47,405
------------ ------------
LOSS FROM OPERATIONS (1,209,633) (47,405)
OTHER INCOME (EXPENSE)
Interest expense (2,993) (121)
------------ ------------
TOTAL OTHER INCOME (EXPENSE) (2,993) (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>
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
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 527,000 --
Compensation expense related to common
stock sales at less than "fair value" 566,667 --
(Increase) decrease in
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 (191,362) 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 (12,500) --
Proceeds from sale of preferred and common stock 312,500 --
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 300,000 (672)
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 95,107 1,374
Cash and cash equivalents at beginning of period 4,755 --
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 99,862 $ 1,374
----------- ===========
SUPPLEMENTAL DISCLOSURES OF INTEREST AND INCOME TAXES PAID
Interest paid $ -- $ --
=========== ===========
Income taxes paid (refunded), net $ -- $ --
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Issuance of 900,000 shares of restricted, unregistered common stock
as repayment of outstanding debt to related party $ 27,000 $ --
=========== ===========
</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
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 $ -- $ --
========= =========
</TABLE>
The Company's deferred tax asset as of March 31, 2000 and 1999, 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
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.
On March 31, 2000, the Company sold 160,000 shares of Series A Convertible
Preferred Stock at a price of $1.00 per share for total proceeds of
approximately $160,000.
Common Stock Transactions
During the first quarter of 2000, the Company issued an aggregate 5,450,000
shares of common stock to various related and unrelated parties for various
financial consulting and other professional services. These transactions were
valued at prices ranging between $0.06 and $0.16 per share, for a total
aggregate valuation of approximately $527,000, which approximated the "fair
value" of the shares on the date of issue and the related value of the services
provided.
In March 2000, the Company issued 900,000 shares of restricted, unregistered
common stock in satisfaction of a $27,000 note payable to a related party. The
valuation of the shares ($0.03 per share) was approximately the "fair value" of
the shares issued based on the discounted closing market price on the respective
date of the transaction.
During the first quarter of 2000, the Company sold an aggregate 13,689,288
shares of restricted, unregistered common stock at prices ranging between $0.02
and $0.14 per share, for total aggregate proceeds received of approximately
$312,000, which approximated the "fair value" of the shares issued based on the
discounted closing market price on the respective date of each transaction.
12
<PAGE> 13
BAOA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 2000 and 1999
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.
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.
13
<PAGE> 14
BAOA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 2000 and 1999
NOTE H - 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.
(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
During the first quarter of 2000, the Company experienced a net loss from
operations of approximately $1,212,626 as compared to approximately $57,526 for
the comparable period of 1999. Included in the charges to operations for the
first quarter of 2000 was approximately $527,000 for various financial
consulting and other professional fees paid in common stock and a one-time
charge of approximately $566,667 for the recognition of the "fair value" charge
related to the differential between the quoted closing market price of the
Company's common stock and the proceeds received on the related sales on the
respective date of each transaction.
For comparative purposes, the Company experienced a proforma net loss for the
first quarter of 2000 of approximately $118,959 as compared to approximately
$57,526 for the first quarter of 1999. The Company experienced increases in
general and administrative costs, principally in legal and professional fees and
travel expenses, related to the start-up and development of the Company's
telemarketing call centers.
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
On March 31, 2000, the Company sold 160,000 shares of Series A Convertible
Preferred Stock at a price of $1.00 per share for total proceeds of
approximately $160,000.
During the first quarter of 2000, the Company issued an aggregate
5,450,000 shares of common stock to various related and unrelated parties
for various financial consulting and other professional services. These
transactions were valued at prices ranging between $0.06 and $0.16 per
share, for a total aggregate valuation of approximately $527,000, which
approximated the "fair value" of the shares on the date of issue and the
related value of the services provided.
In March 2000, the Company issued 900,000 shares of restricted,
unregistered common stock in satisfaction of a $27,000 note payable to a
related party. The valuation of the shares $(0.03) was approximately
the "fair value" of the shares issued based on the discounted closing
market price on the respective date of the transaction.
During the first quarter of 2000, the Company sold an aggregate 13,689,288
shares of restricted, unregistered common stock at prices ranging between
$0.02 and $0.14 per share, for total aggregate proceeds received of
approximately $312,000, which approximated the "fair value" of the shares
issued based on the discounted closing market price on the respective date
of each transaction.
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.
16
<PAGE> 17
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 31 , 2000 /s/ Peter Van Brunt
-------- -------------------------------------
Peter Van Brunt
President, Director
and Principal Executive Officer
17
