UNITEDSTATES

SECURITIESAND EXCHANGE COMMISSION

Washington,D.C. 20549

 

 

FORM10QSB

 

[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OFTHE SECURITIES EXCHANGE ACT OF 1934

 

[] TRANSITION REPORT PURSUANT TO SECTION 13 OR

15(d)OF THE SECURITIES EXCHANGE ACT OF 1934

 

Forthe Quarterly period ended March 31, 2004

 

Commissionfile number 000-30085

 

HESPERIAHOLDING, INC.

(Exactname of small business issuer as specified in its charter)

 

| **Nevada   **
** 88-04553327**
(State      or other jurisdiction of   
 (I.R.S.      Employer
incorporation      or organization)   
 Identification      Number)
    
   
**9780      E. Avenue**
**Hesperia,      California   **
** 92345**
(Address      of Principal Executive Offices)   
 (Zip      Code)** 

(760)244-8787**
(Issuer'stelephone number)

 

Checkwhether the issuer (1) filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the last 12 months (or forsuch 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 _____

 

Thenumber of shares of Common Stock, $0.001 par value, outstanding on April 30,2004 was 11,788,117 shares.

 

TransitionalSmall Business Disclosure Format (check one):

Yes______ No ___X___
ITEM1. FINANCIAL STATEMENTS

 
**HesperiaHolding, Inc.

CondensedConsolidated Balance Sheets**
 

 

(Unaudited)      March 31, 2004
(Audited)      December 31, 2003
ASSETS
Current      assets:
 

 

          Cash and cash equivalents
$      -
$      -
          Accounts receivable, net of allowance for doubtful accounts of $21,116 and      $9,311 at March 31, 2004 and December 31, 2003, respectively
 

395,350
 

339,897
          Inventories (Note F)
213,581
163,007
          Due from employees (Note E)
-
650
               Total current assets
608,931
503,554
  

 

 

Property,      Plant and equipment, net of accumulated depreciation of $185,189 and      $166,337 at March 31, 2004 and December 31, 2003, respectively
 

273,771
 

173,065
Total      assets
$      882,702
$      676,619
 

LIABILITIES      AND (DEFICIENCY) IN STOCKHOLDERS' EQUITY
Current      liabilities:
          Cash disbursed in excess of available funds
$      219,826
$      219,856
          Accounts payable and accrued liabilities
717,674
653,418
          Deferred revenue
254,218
190,678
          Notes payable, current portion (Note C)
38,712
56,450
          Notes payable to stockholders, current portion (Note C and E)
83,418
-
          Advances from related parties (Note E)
25,325
-
               Total current liabilities
1,339,173
1,120,402
Long      Term Liabilities:
Advances      from related parties (Note E)
-
235,825
Notes      payable, long-term portion (Note C)
45,352
-
Notes      payable to stockholders, long-term portion (Note C and E)
322,582
-
               Total long term liabilities
367,934
235,825
  

 

 

Commitments      and contingencies
-
-
  

 

 

(Deficiency)      in stockholders' equity:
Preferred      stock, par value; $.001; authorized 5,000,000 shares; none issued and      outstanding as of March 31, 2004 and December 31, 2003 (Note D)
-
-
Common      stock, par value; $.001, authorized 20,000,000 shares; 11,788,117 and      11,510,845 shares issued and outstanding as of March 31, 2004 and December      31, 2003, respectively (Note D)
11,788
11,511
Additional      paid-in capital
833,538
568,815
Accumulated      deficit
(1,669,731)
(1,259,934)
Total      (deficiency) in stockholders' equity
(824,405)
(679,608)
Total      liabilities and (deficiency) in stockholders' equity
$      882,702
$      676,619
 

Seeaccompanying notes to the unaudited condensed consolidated financialinformation.

2
**HesperiaHolding, Inc.

CondensedConsolidated Statements of Operations

(Unaudited)**
 

 

For      the three months ended

March      31,
 

2004
2003
  

 

 

Revenue,      net
$      2,241,236
$      1,704,886
  

 

 

Cost      of goods sold
1,837,052
1,129,409
  

 

 

Gross      Profit
404,184
575,477
  

 

 

Operating      Expenses:
Selling,      general, and administrative
792,906
427,903
Depreciation
18,852
13,114
Total      Operating Expenses
811,758
441,017
 

Income      (Loss) from Operations
(407,574)
134,460
 

Other      income (expense)
 

 

Interest      income
307
14
Interest      expense
(2,530)
-
 

(Loss)      Income Before Provision for Income Taxes
(409,797)
134,474
 

Provision      for income taxes
-
-
 

Net      (Loss) Income
$      (409,797)
$      134,474
 

(Loss)      Income per share (basic and fully diluted)
$      (0.04)
$      0.01
 

Basic      and diluted weighted average number of shares outstanding
11,552,503
10,201,845** **
Seeaccompanying notes to the unaudited condensed consolidated financialinformation.

3
**HesperiaHolding, Inc.

CondensedConsolidated Statements of Cash Flows

(unaudited)

 **
 

For      the three months ended

March      31,
 

2004
2003**Cash      flow from operating activities:
 

 

Net      income (loss)
$      (409,797)
$      134,474
Adjustments      to reconcile net income (loss) to cash provided by (used in) operations:
 

 

Provision      for sales returns and allowances
11,805
-
Depreciation
18,852
13,114
Common      stock issued in exchange for services rendered (Note D)
210,285
-
(Increase)      in accounts receivable, net
(67,258)
(124,419)
Decrease      in other receivables
650
125
(Increase)      in inventories
(50,574)
-
(Decrease)      in cash disbursed in excess of available funds
(30)
68,917
Increase      in deferred revenue
63,540
-
Increase      (decrease) in accounts payable and accrued liabilities
118,973
(40,696)
Net      cash provided by (used in) operating activities
(103,554)
51,515
 
**Cash      flows from investing activities:
 

 

Capital      expenditures
(62,910)
(25,927)
Net      cash (used in) investing activities
(62,910)
(25,927)
 
**Cash      flows from financing activities:
 

 

Proceeds      from related party advances, net of repayments
25,000
(2,002)
Proceeds      from notes payable-stockholders, net of repayments
170,500
-
Payments      for notes payable
(29,036)
(46,586)
Net      cash provided by (used in) financing activities
166,464
(48,588)
 
**Net      decrease in cash and cash equivalents
-
(23,000)
Cash      and cash equivalents at beginning of period
-
28,608
Cash      and cash equivalents at end of period
$      -
$      5,608
 

Supplemental      Disclosure of Cash Flows Information:
 

 

Cash      paid during the period for interest
$      2,530
$      -
  

 

 

Cash      paid during the period for income taxes
$      -
$      -
  

 

 

Non      Cash Investing and Financing Activities:
Expenses      paid by Company's principal stockholders
-
-
Notes      payable issued in connection with purchase of property and equipment (Note      C)
$      58,512
$      -
Repayment      of notes payable in connection with purchase of property and equipment      (Note C)
$      1,865
$      -
Common      stock issued in exchange for services rendered (Note D)
$      210,285
$      -
Common      stock issued in exchange for accrued service fees (Note D)
$      54,715
$      -
 

Seeaccompanying notes to the unaudited condensed consolidated financialinformation.

4
**HESPERIAHOLDING, INC

NOTESTO CONDENSED CONSOLIDATED FINANCIAL INFORMATION

MARCH31, 2004

(UNAUDITED)

 

NOTEA - SUMMARY OF ACCOUNTING POLICIES**
 

General

 

Theaccompanying unaudited condensed consolidated financial statements have beenprepared in accordance with accounting principles generally accepted in theUnited States of America for interim financial information and with theinstructions to Form 10-QSB. Accordingly, they do not include all of theinformation and footnotes required by generally accepted accounting principlesfor complete financial statements.

 

Inthe opinion of management, all adjustments (consisting of normal recurringaccruals) considered necessary for a fair presentation have been included.Accordingly, the results from operations for the three-month period ended March31, 2004 are not necessarily indicative of the results that may be expected forthe year ended December 31, 2004. The unaudited condensed consolidated financialstatements should be read in conjunction with the consolidated December 31, 2003financial statements and footnotes thereto included in the Company's SEC Form10-KSB.

 

Businessand Basis of Presentation

 

HesperiaHolding, Inc. (the "Company") was formed on March 3, 2000 under thelaws of the State of Nevada as Saveyoutime.com, Inc. ("SYC"). HesperiaHolding, Inc. is engaged in the business of manufacturing and distributingtrusses for residential home builders. On April 10, 2003, SYC, an inactivepublicy registered shell corporation with no significant assets or operationsorganized under the laws of Nevada, entered into an Agreement and Plan of Merger("Agreement") with Hesperia Holding Corp. a California Corp. ("HHC").As a result of the acquisition, HHC is the surviving entity and SYC is theacquiring entity. As a part of the merger, SYC changed its name to HesperiaHolding, Inc. (see Note B).

 

Theconsolidated financial statements include the accounts of the Company, and itswholly-owned subsidiaries, Hesperia Truss, Inc. ("Truss") and PahrumpValley Truss, Inc. ("PVT"). PVT is currently inactive. Significantintercompany transactions have been eliminated in consolidation.

 

RevenueRecognition

 

Forrevenue from product sales, the Company recognizes revenue in accordance withSEC Staff Accounting Bulletin No. 101, "Revenue Recognition in FinancialStatements" ("SAB 101"). SAB 101 requires that four basiccriteria must be met before revenue can be recognized: (1) persuasive evidenceof an arrangement exists; (2) delivery has occurred; (3) the selling price isfixed and determinable; and (4) collectibility is reasonably assured.Determination of criteria (3) and (4) are based on management's judgmentsregarding the fixed nature of the selling prices of the products delivered andthe collectibility of those amounts. Provisions for discounts and rebates tocustomers, estimated returns and allowances, and other adjustments are providedfor in the same period the related sales are recorded.

 

5
**HESPERIAHOLDING, INC

NOTESTO CONDENSED CONSOLIDATED FINANCIAL INFORMATION

MARCH31, 2004

(UNAUDITED)

 

NOTEA - SUMMARY OF ACCOUNTING POLICIES (Continued)**
 

RevenueRecognition (Continued)

 

OnDecember 17, 2003, the SEC staff released Staff Accounting Bulletin (SAB) No.104, Revenue Recognition.  The staff updated and revised the existingrevenue recognition in Topic 13, Revenue Recognition, to make its interpretiveguidance consistent with current accounting guidance, principally EITF Issue No.00-21, "Revenue Arrangements with Multiple Deliverables." Also, SAB104 incorporates portions of the Revenue Recognition in Financial Statements -Frequently Asked Questions and Answers document that the SEC staff consideredrelevant and rescinds the remainder. The company's revenue recognition policiesare consistent with this guidance; therefore, this guidance did not have animmediate impact on the company's financial statements.

 

TheCompany defers any revenue for which the product has not been delivered or issubject to refund until such time that the Company and the customer jointlydetermine that the product has been delivered or no refund will be required.Payments received in advance are deferred until the trusses are built andshipped to customers. Deferred revenues as of March 31, 2004 and December 31,2003 are $254,218 and $190,678, respectively.

 

StockBased Compensation

 

InDecember 2002, the FASB issued SFAS No. 148, "Accounting forStock-Based Compensation-Transition and Disclosure-an amendment of SFAS 123."This statement amends SFAS No. 123, "Accounting for Stock-BasedCompensation," to provide alternative methods of transition for a voluntarychange to the fair value based method of accounting for stock-based employeecompensation. In addition, this statement amends the disclosure requirements ofSFAS No. 123 to require prominent disclosures in both annual and interimfinancial statements about the method of accounting for stock-based employeecompensation and the effect of the method used on reported results. The Companyhas chosen to continue to account for stock-based compensation using theintrinsic value method prescribed in APB Opinion No. 25 and relatedinterpretations. Accordingly, compensation expense for stock options is measuredas the excess, if any, of the fair market value of the Company's stock at thedate of the grant over the exercise price of the related option. The Company hasadopted the annual disclosure provisions of SFAS No. 148 in its financialreports for the year ended December 31, 2003 and will adopt the interimdisclosure provisions for its financial reports for the subsequent periods. TheCompany does not have any awards of stock-based employee compensation issued andoutstanding at March 31, 2004.

 

Reclassifications

 

Certainreclassifications have been made in prior year's financial statements to conformto classifications used in the current year.
** **
6
** 

HESPERIAHOLDING, INC

NOTESTO CONDENSED CONSOLIDATED FINANCIAL INFORMATION

MARCH31, 2004

(UNAUDITED)

 

NOTEB - BUSINESS COMBINATION AND CORPORATE RESTRUCTURE**
 

OnApril 10, 2003, SYC entered into an Agreement and Plan of Merger("Agreement") with Hesperia Holding Corp. a California Corp. ("HHC").Saveyoutime.com, Inc. ("Saveyoutime.com"), an inactive publiclyregistered shell corporation with no significant assets or operations organizedunder the laws of the State of Nevada. As a result of the acquisition, there wasa change in control of the public entity. As part of the merger, Saveyoutime.comchanged its name to Hesperia Holding, Inc.

 

Foraccounting purposes, HHC is the surviving entity and Saveyoutime.com is theacquiring entity. The transaction is accounted for using the purchase method ofaccounting. As Saveyoutime.com was an inactive corporation with no significantoperations, the Company recorded the carryover historical basis of net tangibleassets acquired, which did not differ materially from their historical cost. Theresults of operations subsequent to the date of merger are included in theCompany's consolidated statements of losses.

 

Effectivewith the Agreement, all but 50,000 shares previously outstanding common stock,preferred stock, options and warrants owned by Saveyoutime.com's solestockholder were returned to the Company for cancellation. The value of the50,000 shares of common stock that were retained by the Saveyoutime.comstockholder was based upon management's estimate of the fair value of HesperiaHolding, Inc.'s common stock of $1.00 per share. In accordance with SOP 98-5,the Company expensed $50,000 as organization costs.

 

Thetotal consideration paid was $50,000 and the significant components of thetransaction are as follows:

 

Common      stock retained
$      50,000
Excess      of liabilities assumed over assets acquired
-
Total      consideration paid
$      50,000** **
7
**HESPERIAHOLDING, INC

NOTESTO CONDENSED CONSOLIDATED FINANCIAL INFORMATION

MARCH31, 2004

(UNAUDITED)

 

NOTEC - NOTES PAYABLE**
 

Notespayable at March 31, 2004 and December 31, 2003 are as follows:

 

 
March      31, 2004
December      31, 2003
Notes      payable to stockholders in weekly installments of $574 including interest      at 6% per annum, unsecured; maturity date is in April 2008. (Note E)
 

$      106,000
 

$      -
Notes      payable to stockholders in weekly installments of $1,623 including      interest at 6% per annum, unsecured; maturity date is in April 2008. (Note      E)
 

300,000
 

-
Note      payable to former Company founder in weekly installments of $2,000; non      interest bearing; secured by interest in subsidiary; maturity date is in      June 2004
 

25,463
 

51,463
Note      payable in monthly installments of $514 including interest at 1.9% per      annum; secured by transportation equipment; maturity date is in January      2009
 

28,428
 

-
Note      payable in monthly installments of $510 including interest at 1.9% per      annum; secured by transportation equipment; maturity date is in January      2009
 

28,220
 

-
Note      payable in monthly installments of $375 including interest at 2.9% per      annum; secured by transportation equipment; maturity date is in July 2004.
 

864
 

2,312
Note      payable in monthly installments of $375 including interest at 7.9% per      annum; secured by transportation equipment; maturity date is in July 2004.
 

1,088
 

2,675
490,063
56,450
Less:      current portion
(122,130)
(56,450)
$      367,933
$      -** 

NOTED - CAPITAL STOCK

 **
TheCompany has authorized 5,000,000 shares of preferred stock, with a par value of$.001 per share. As of March 31, 2004 and December 31, 2003, the Company has nopreferred stock issued and outstanding. The Company has authorized 20,000,000shares of common stock, with a par value of $.001 per share. As of March 31,2004 and December 31, 2003, the Company has 11,788,117 and 11,510,845 shares ofcommon stock issued and outstanding.

 

InJanuary 2004, the Company issued 27,272 shares of common stock to a consultantin exchange for service fees of $15,000. Valuation of common stock issued forservices was based upon the value of the services rendered, which did not differmaterially from the fair value of the Company's common stock during the periodthe services were rendered.

 

8
**HESPERIAHOLDING, INC

NOTESTO CONDENSED CONSOLIDATED FINANCIAL INFORMATION

MARCH31, 2004

(UNAUDITED)**
 
**NOTED - CAPITAL STOCK (Continued)

 **
InMarch 2004, the Company issued an aggregate of 250,000 shares of common stock toconsultants in exchange for $195,285 of service fees and $54,715 of accruedservices fees. Valuation of common stock issued for services was based upon thevalue of the services rendered, which did not differ materially from the fairvalue of the Company's common stock during the period the services wererendered.

 
**NOTEE - RELATED PARTY TRANSACTIONS

 **
TheCompany leases office spaces and manufacturing fields from its principalstockholders on a month-to-month basis in California and Nevada.

 

TheCompany has advanced funds to an employee and the outstanding balance is $650 asof December 31, 2003. The Employee repaid the amount in full to the Company asof March 31, 2004.

 

Significantstockholders of the Company have advanced funds on a non-interest bearing basisto the Company for working capital purposes. The amount of the advances atDecember 31, 2003 is $235,825. The stockholders agreed not to demand anypayments for funds personally advanced to the Company until fiscal year 2005.During the three-month period ended March 31, 2004, the stockholders advancedadditional $173,000 to the Company for working capital purpose. The Companyrepaid $2,500 to the stockholders in January 2004. On March 31, 2004, theCompany entered into two formal note agreements with the stockholders and$406,000 of outstanding balance of advances from stockholders are converted intotwo promissory notes in the amount of $300,000 and $106,000 (Note C). Theremaining $325 of advances that was not converted to notes payable are paid infull subsequently to the date of financial statements.

 

Duringthe period ended March 31, 2004, one of the Company's officers has advancedfunds on a non-interest bearing basis to the Company for working capitalpurposes. The amount of the advances at March 31, 2004 is $25,000. No formalrepayment terms or arrangements exist.
** 

NOTEF - INVENTORIES**
 

Inventoriesare stated at the lower of cost or market determined by the first-in, first-out(FIFO) method. Inventories consist of trusses available for sale to contractcustomers along with raw materials and work-in progress.

 

Componentsof inventories as of March 31, 2004 and December 31, 2003 are as follows:

 

 
March      31, 2004
December      31, 2003
Raw      materials
$      99,930
$      71,139
Work-in      progress
47,088
9,200
Finished      goods
66,563
82,668
$      213,581
$      163,007** **
9
**Item2. Management's Discussion and Analysis**
 

Thisreport contains forward-looking statements. Actual results and events coulddiffer materially from those projected, anticipated, or implicit, in theforward-looking statements as a result of the risk factors set forth below andelsewhere in this report.

 

Withthe exception of historical matters, the matters discussed herein areforward-looking statements that involve risks and uncertainties. Forward-lookingstatements include, but are not limited to, statements concerning anticipatedtrends in revenues and net income, projections concerning operations andavailable cash flow. Our actual results could differ materially from the resultsdiscussed in such forward-looking statements. The following discussion of ourfinancial condition and results of operations should be read in conjunction withour financial statements and the related notes thereto appearing elsewhereherein.

 

CriticalAccounting Policies

 

Thepreparation of our consolidated financial statements in conformity withaccounting principles generally accepted in the United States requires us tomake estimates and judgments that affect our reported assets, liabilities,revenues, and expenses, and the disclosure of contingent assets and liabilities.We base our estimates and judgments on historical experience and on variousother assumptions we believe to be reasonable under the circumstances. Futureevents, however, may differ markedly from our current expectations andassumptions. While there are a number of significant accounting policiesaffecting our consolidated financial statements; we believe the followingcritical accounting policies involve the most complex, difficult and subjectiveestimates and judgments:
-  stock-based    compensationrevenue    recognition
Stock-BasedCompensation

 

InDecember 2002, the FASB issued SFAS No. 148 - Accounting for Stock-BasedCompensation - Transition and Disclosure. This statement amends SFAS No. 123 -Accounting for Stock-Based Compensation, providing alternative methods ofvoluntarily transitioning to the fair market value based method of accountingfor stock based employee compensation. FAS 148 also requires disclosure of themethod used to account for stock-based employee compensation and the effect ofthe method in both the annual and interim financial statements. The provisionsof this statement related to transition methods are effective for fiscal yearsending after December 15, 2002, while provisions related to disclosurerequirements are effective in financial reports for interim periods beginningafter December 31, 2003.

 

TheCompany elected to continue to account for stock-based compensation plans usingthe intrinsic value-based method of accounting prescribed by APB No. 25,"Accounting for Stock Issued to Employees," and relatedinterpretations. Under the provisions of APB No. 25, compensation expense ismeasured at the grant date for the difference between the fair value of thestock and the exercise price.

 

10

RevenueRecognition

 

Forrevenue from product sales, the Company recognizes revenue in accordance withSEC Staff Accounting Bulletin No. 101, "Revenue Recognition in FinancialStatements" ("SAB 101"). SAB 101 requires that four basiccriteria must be met before revenue can be recognized: (1) persuasive evidenceof an arrangement exists; (2) delivery has occurred; (3) the selling price isfixed and determinable; and (4) collectibility is reasonably assured.Determination of criteria (3) and (4) are based on management's judgmentsregarding the fixed nature of the selling prices of the products delivered andthe collectibility of those amounts. Provisions for discounts and rebates tocustomers, estimated returns and allowances, and other adjustments are providedfor in the same period the related sales are recorded. The Company defers anyrevenue for which the product has not been delivered or is subject to refunduntil such time that the Company and the customer jointly determine that theproduct has been delivered or no refund will be required. Payments received inadvance are deferred until the trusses are built and shipped to customers.Deferred revenue as of March 31, 2004 was $254,218.
** 

Overview**
HesperiaHolding, Inc. (formerly Saveyoutime.com, Inc.) entered into a merger agreementdated January 20, 2003 (the "Merger Agreement") with Hesperia HoldingCorp., a California corporation. Pursuant to the terms of the Merger AgreementHesperia Holding Corp. merged with and into Hesperia Holding, Inc. on April 10,2003.

 

Underthe terms of the Merger, the Company issued 10,415,845 shares of its commonstock to the stockholders of Hesperia Holding Corp. in exchange for 100% of theissued and outstanding common stock of Hesperia Holding Corp. The then solestockholder of the Company retained 50,000 shares of common stock and cancelled6,454,370 shares resulting in 10,465,845 being issued and outstanding.

 
**Resultsof Operations for the Three Months Ended March 31, 2004 and March 31, 2003.**
 

Three      Months Ended March 31, 2004Three      Months Ended March 31, 2003
Revenues
$      2,241,236
$      1,704,886
Cost      of Goods Sold
(1,837,052)
(1,129,409)
Operating      Expenses
(811,757)
(441,017)
Other      Income
307
14
Other      Expense
(2,530)
-
Net      Income (Loss)
$      (409,797)
$      134,474** **
11
**Revenue

 **
**Increase/(decrease)****2004****2003****$****%**
For      the three months ended March 31:
Revenue
$      2,241,236
$      1,704,886
$      536,350
31%
 

Revenuesfor the three months ended March 31, 2004 were $2,241,236 compared to revenuesof $1,704,886 in the three months ended March 31, 2003. This resulted in anincrease in revenues of $536,350, or 31%, from $1,704,886 in the same period oneyear ago. The increase in revenues was due to increased market activity with thegrowth from the tract home building market.

 
**Costof goods sold/Gross profit percentage of revenue**
 

**Increase/(decrease)****2004****2003****$****%**
For      the three months ended March 31:
Cost      of goods sold
$      1,837,052
$      1,129,409
$      707,643
63%
Gross      profit % of revenue
18%
34%
 

Costof goods sold for the three months ended March 31, 2004 was $1,837,052, anincrease of $707,643, or 63%, from $1,129,409 for the three months ended March31, 2003. The increase in cost of goods sold was primarily due to the increasein revenues and sales in the tract home building market coupled with asignificant increase in truss manufacturing materials.

 

Grossprofit as a percentage of revenue decreased from 34% for the three months endedMarch 31, 2003 to 18% for the three months ended March 31, 2004. The reductionin gross profit margin was due to a higher workers compensation insurance costsand a significant increase in material costs.
** 

Selling,General and Administrative expenses**
 

**Increase/(decrease)****2004****2003****$****%**
For      the three months ended March
Selling,      General & Administrative expenses
$      792,906
$      427,903
$      365,003
85%
 

12

Generaland administrative expenses were $792,906 for the three months ended March 31,2004 versus $427,903 for the three months ended March 31, 2003, which resultedin an increase of $365,003 or 85%. The increase in selling and administrativeexpenses was primarily due to the increase in the Company adding additionaloperational and administrative personnel, legal and other professionalassistance. Stock based compensation paid to consultants and professionalsreflective in the Selling, General & Administrative expense for the quarterended March 31, 2004 amounted to $210,285.

 
**NetIncome (Loss)**
 

**Increase/(decrease)****2004****2003****$****%**
For      the three months ended March
Net      Income (loss)
$      (409,797)
$      134,474
$      (544,271)
(405%)
 

Thenet loss for the three months ended March 31, 2004 was $409,797, versus a netincome of $134,474 for the three months ended March 31, 2003, a change in netloss of $544,271 or 405%. The significant part of the net loss was primarily dueto the substantial increase in Selling, General and Administrative expenses.

 

**Liquidityand Capital Resources at March 31, 2004 Compared with December 31,2003.**
 

Thefollowing table summarizes total assets, accumulated deficit and stockholders'equity.

 
March      31, 2004
December      31, 2003
Total      Assets
$882,702
$676,619
Accumulated      Deficit
$(1,669,731)
$(1,259,934)
Stockholders'      Equity (Deficit)
$(824,405)
$(679,608)** **
Whilewe have raised capital to meet our working capital and financing needs in thepast, additional financing is required in order to meet our current andprojected cash flow deficits from operations and development. For the quarterended March 31, 2004; principal stockholders assisted in meeting the workingcapital requirements with loans totalling $198,000. We are seeking financing inthe form of equity in order to provide necessary working capital for ouroperations. We currently have no commitments for financing. There is noguarantee that we will be successful in raising the funds required.

 

13

Byadjusting our operations and development to the level of capitalization,management believes it has sufficent capital resources to meet projected cashflow deficits through the next twelve months. However, if thereafter, we are notsuccessful in generating sufficient liquidity from operations or in raisingsufficient capital resources, on terms acceptable to us, this could have amaterial adverse effect on our business, results of operations, liquidity andfinancial condition.

 

Theeffect of inflation on our revenues and operating results was not significant.The Company's operations are located in California and Nevada and there are noseasonal aspects that would have a material effect on our financial condition orresults of operations.

 
**Off-BalanceSheet Arrangements**
 

Wedo not have any off-balance sheet arrangements that have or are reasonablylikely to have a current or future effect on our financial condition, changes infinancial condition, revenues or expenses, results or operations, liquidity,capital expenditures or capital resources that is material to investors.

 
**CertainRelationships and Related Transactions*** 

Facilities*
 

HesperiaHolding, Inc.'s wholly-owned subsidiary Hesperia Truss (HTI) occupies a 3,900square-foot building and warehouse on five acres in Hesperia, California. Thebuilding and land are owned by two of the Company's directors and stockholders,Mark Presgraves and Donald Shimp. The Company rents the facility and surroundingland for $36,000 per year.

 

HesperiaHolding, Inc.'s second wholly-owned subsidiary, Pahrump Valley Truss, Inc (PVT)originally leased a 5 acre plot of land in Pahrump, Nevada which was owned bythree of the Company's directors and stockholders, Mark Presgraves, Donald Shimp,Fred Smith and one officer, Steve Chaussy. The Company rented the land forapproximately $31,000 per year. Effective April 1, 2004. The Company relocatedPVT's location to a leased facility with a two year lease with payments of$54,000 per year payable in monthly increments.

 
*LoansPayable/Receivable*
 

TheCompany had outstanding loans payable to Donald Shimp, Mark Presgraves and SteveChaussy; the Company's current President, Secretary and Treasurer and ChiefFinancial Officers, respectively in the amount of $431,325 as of March 31, 2004.

 
*CorporateReacquisition of Stock

 *
OnJune 14, 2000, HTI entered into an Agreement for the Corporate Reacquisition ofStock to purchase 1,000 shares of common stock from Donald Keith Jones, one ofthe co-founders of HTI. As consideration for Mr. Jones' shares and a covenant tonot compete with HTI for a period of 4 years, HTI agreed to compensate Mr. Joneswith $480,000, plus pay for automobile insurance coverage for Mr. Jones for theoperation of a certain 1999 Ford Taurus, which ended on June 14, 2003.

 

14

Atthe time of the execution of the Agreement, Mr. Jones had received from HTI$35,838.58 in cash and a corporate asset (1999 Ford Taurus) valued at $20,698.95leaving $423,463.37 to be paid by HTI over the following 4-year period in theform of a Secured Promissory Note. The shares of common stock purchased by HTIwere pledged as security for payments due under the Note. Such payments arepayable in weekly installments in the amount of $2,000, with the first paymentbeing made on June 16, 2000 and the last payment due on July 2, 2004.

 

IfHTI defaults on a weekly payment, Mr. Jones shall have the right, upon five (5)days written notice, to demand immediate payment of the remaining balance dueunder the Note. The default provisions outlined in the Note would allow Mr.Jones to dispose of all or any part of the collateral security property (the1,000 shares of common stock) at public or private sale, without advertisement,or notice to HTI. Should HTI default on the Note and Mr. Jones exercise hisdefault remedies as they pertain to the foreclosure or sale of the shares, HTIwould no longer be a wholly-owned subsidiary of the Company as their ownershipwould be reduced to 90%. HTI is current on its payments to Mr. Jones.

 

Mr.Jones has received $398,000 pursuant to the terms of this agreement, with abalance due of $25,463 to be paid through July 2, 2004 at the rate of $2,000 perweek.
**RISKFACTORS**
Muchof the information included in this quarterly report includes or is based uponestimates, projections or other "forward-looking statements". Suchforward-looking statements include any projections or estimates made by us andour management in connection with our business operations. While theseforward-looking statements, and any assumptions upon which they are based, aremade in good faith and reflect our current judgment regarding the direction ofour business, actual results will almost always vary, sometimes materially, fromany estimates, predictions, projections, assumptions or other future performancesuggested herein.

 

Suchestimates, projections or other "forward-looking statements" involvevarious risks and uncertainties as outlined below. We caution the reader thatimportant factors in some cases have affected and, in the future, couldmaterially affect actual results and cause actual results to differ materiallyfrom the results expressed in any such estimates, projections or other"forward-looking statements".

 

Ourcommon shares are considered speculative. Prospective investors should considercarefully the risk factors set out below.

 

WEARE UNCERTAIN WE WILL BE ABLE TO OBTAIN ADDITIONAL CAPITAL NECESSARY TO CONTINUEOUR BUSINESS.

 

Weincurred a net loss for the year ended December 31, 2003 of $677,462, and forthe period ended March 31, 2004 of $409,797. As a result of these losses andnegative cash flows from operations, our ability to continue operations will bedependent upon the availability of capital from outside sources unless and untilwe achieve profitability.

 

15

Wewill depend almost exclusively on outside capital to pay for the deficit in ourworking capital. Such outside capital may include the sale of additional stock,loans from our officers and directors, and/or commercial borrowing. There can beno assurance that capital will continue to be available if necessary to meetthese continuing operational costs or, if the capital is available, it will beon terms acceptable to our company. The issuances of additional equitysecurities by our company could result in a significant dilution in the equityinterests of our current stockholders. Obtaining commercial loans, assumingthose loans would be available, will increase our company's liabilities andfuture cash commitments. If we are unable to obtain financing in the amounts andon terms deemed acceptable, our business and future success may be adverselyaffected.

 

SINCEOUR SHARES ARE THINLY TRADED, AND TRADING ON THE OTC BULLETIN BOARD MAY BESPORADIC BECAUSE IT IS NOT AN EXCHANGE, STOCKHOLDERS MAY HAVE DIFFICULTYRESELLING THEIR SHARES.

 

Ourcommon shares are currently listed for public trading on the Over-the-CounterBulletin Board. The trading price of our common shares has been subject to widefluctuations. Trading prices of our common shares may fluctuate in response to anumber of factors, many of which will be beyond our control. The stock markethas generally experienced extreme price and volume fluctuations that have oftenbeen unrelated or disproportionate to the operating performance of companieswith limited business operations. There can be no assurance that trading pricesand price earnings ratios previously experienced by our common shares will bematched or maintained. These broad market and industry factors may adverselyaffect the market price of our common shares, regardless of our operatingperformance.

 

Inthe past, following periods of volatility in the market price of a company'ssecurities, securities class-action litigation has often been instituted. Suchlitigation, if instituted, could result in substantial costs for us and adiversion of management's attention and resources.
*** ***
BECAUSEOUR COMMON STOCK IS DEEMED A LOW-PRICED "PENNY" STOCK, AN INVESTMENTIN OUR COMMON STOCK SHOULD BE CONSIDERED HIGH RISK AND SUBJECT TO MARKETABILITYRESTRICTIONS.******
 

Sinceour common stock is a penny stock, as defined in Rule 3a51-1 under theSecurities Exchange Act, it will be more difficult for investors to liquidatetheir investment. Until the trading price of the common stock rises above $5.00per share, if ever, trading in the common stock is subject to the penny stockrules of the Securities Exchange Act specified in rules 15g-1 through 15g-10.Those rules require broker-dealers, before effecting transactions in any pennystock, to:
-  Deliver    to the customer, and obtain a written receipt for, a disclosure document;Disclose    certain price information about the stock;Disclose    the amount of compensation received by the broker-dealer or any associated    person of the broker-dealer;Send    monthly statements to customers with market and price information about the    penny stock; andIn    some circumstances, approve the purchaser's account under certain standards    and deliver written statements to the customer with information specified in    the rules.
16

Consequently,the penny stock rules may restrict the ability or willingness of broker-dealersto sell the common stock and may affect the ability of holders to sell theircommon stock in the secondary market and the price at which such holders cansell any such securities. These additional procedures could also limit ourability to raise additional capital in the future.
** 

Trends,Risks and Uncertainties**
 

Wehave sought to identify what we believe to be the most significant risks to ourbusiness, but we cannot predict whether, or to what extent, any of such risksmay be realized nor can we guarantee that we have identified all possible risksthat might arise. Investors should carefully consider all of such risk factorsbefore making an investment decision with respect to our Common Stock.

 
**Item3. Controls and Procedures**
 

Wehave implemented and maintain disclosure controls and procedures which consistof: the control environment, risk assessment, control activities, informationand communication and monitoring. Our scope of internal control thereforeextends to policies, plans procedures, processes, systems, activities,initiatives, and endeavors required of a company . These controls and proceduresare designed to ensure that the information required to be disclosed in ourExchange Act reports is recorded, processed, summarized and reported within thetime periods specified in the SEC's rules.

 

Therehave been no significant changes (including corrective actions with regard tosignificant deficiencies or material weaknesses) in our internal controls or inother factors that could significantly affect the controls subsequent to thedate of the evaluation referenced below.

 

Within90 days prior to the date of this report, we carried out an evaluation, underthe supervision of Don Shimp, our President and Steve Chaussy, our ChiefFinancial Officer of the effectiveness of the design and operation of theCompany's disclosure controls and procedures. Based on the foregoing, Mr. Shimpand Mr. Chaussy concluded our disclosure controls and procedures were effective.

 
**PARTII--OTHER INFORMATION

 

Item1. Legal Proceedings**
 

None
** 

Item2. Changes in Securities**
 

OnJanuary 10, 2004, we issued 27,272 shares of restricted common stock to IR Plus,Inc for services that were performed under a Consulting Agreement entered intoon April 10, 2003 between the Company and IR Plus, Inc. The shares were issuedpursuant to an exemption provided by Section 4(2) of the Securities Act. (The IRPlus agreement was filed as Exhibit 10 to a Form 8-K filed on February 6, 2004).

 

17

OnMarch 15, 2004, the Company issued 150,000 shares of restricted common stock toTheSUBWAY.com for services that they will perform under a Consulting Agreemententered into on March 12, 2004. The shares were issued pursuant to an exemptionprovided by Section 4(2) of the Securities Act. (The SUBWAY.com agreement wasfiled as Exhibit 10 to the Form 10-KSB filed on March 29, 2004)

 

OnMarch 31, 2004, the Company issued 100,000 shares of its $0.001 par value commonstock valued at $100,000 for legal services. The shares issued were unrestrictedpursuant to an S-8 Registration filed with the SEC on March 31, 2004.

 
**Item3. Defaults by the Company upon its Senior Securities**
 

None

 
**Item4. Submission of Matters to a Vote of Security Holders**
 

None

 
**Item5. Other Information**
 

None

 
**Item6. Exhibits and Reports of Form 8-K**
 

Exhibits

Ex31 -Certification pursuant to Section 302 of the Sarbanes-Oxley Act

Ex32 -Certification pursuant to Section 906 of the Sarbanes-Oxley Act

 

(b)Form 8-K
a)Form 8-K filed on February 6, 2004 - Cleared for Trading on the OTC BulletinBoard and Consulting agreement with IR Plus, Inc.

 

Form8-K filed Subsequent to quarter end

a)None

 

18

SIGNATURES

 

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 

 

HESPERIAHOLDING, INC.

(Registrant)

 

 

 

By:/s/Donald Shimp                   
DonaldShimp, President

 

 

 

By:/s/Steve Chaussy                               

SteveChaussy, Chief Financial Officer

 

 

Date:May 14, 2004

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