UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 2000
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____ to _____
Commission file number: 0-13118
MIZAR ENERGY COMPANY
--------------------
(Exact name of registrant as specified in its charter)
Colorado 33-0231238
------------------------------ -----------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
2400 E. Commercial Blvd., Suite 221
Ft. Lauderdale, FL 33308
(Address of principal executive offices, including zip code)
(954) 938-8010
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
requirements for the past 90 days.
YES [X] NO [ ]
The number of issued and outstanding shares of the Registrant's Common Stock,
$0.001 par value, as of September 30, 2000 was 10,050,000.
<PAGE>
MIZAR ENERGY COMPANY
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30, 2000 and December 31, 1999..............................3
Consolidated Statements of Operations - For the Three Months and Nine
Months Ended September 30, 2000 and 1999 and For the Period from
December 11, 1996 (Inception) through September 30, 2000
(Unaudited)..............................................................................................5
Consolidated Statements of Changes in Shareholders' Equity - For
the Period from December 11, 1996 (Date of Inception) to September
30, 2000 (Unaudited).....................................................................................6
Consolidated Statements of Cash Flows for the Three Months and Nine
Months Ended September 30, 2000 and 1999 and For the Period from
December 11, 1996 (Inception) through September 30, 2000 (unaudited).....................................8
Notes to Consolidated Financial Statements............................................................9-13
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................................................14-23
PART II - OTHER INFORMATION
Item 1. Legal Proceedings..............................................................................24
Item 2. Changes in Securities..........................................................................24
Item 3. Defaults Upon Senior Securities................................................................24
Item 4. Submission of Matters to a Vote of Security Holders............................................24
Item 5. Other Information..............................................................................24
Item 6. Exhibits and Reports on Form 8-K...............................................................24
Signatures.......................................................................................................25
</TABLE>
<PAGE>
MIZAR ENERGY COMPANY AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED SEPTEMBER 30, 2000
<PAGE>
MIZAR ENERGY COMPANY AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
September 30, December 31,
2000 1999
(Unaudited) (Audited)
---------- ----------
Assets
Current assets
Cash $ 719,602 $ 3,842
Accounts receivable 832
Other receivables 7,080
Prepaid expenses 67,994
---------- ----------
Total current assets 795,508 3,842
Fixed assets (net of accumulated depreciation
of $ 2,730 and $1,191) 70,361 5290
Intangible assets net of accumulated
amortization of $ 309 and $126) 170,812 2102
Other assets
Deposits 7,980 470
Due from related parties 6,923 (22,892)
Investments -- 75,000
---------- ----------
14,903 52,578
---------- ----------
$1,051,584 $ 63,812
========== ==========
See notes to financial statements.
3
<PAGE>
MIZAR ENERGY COMPANY AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
September 30, December 31,
2000 1999
(Unaudited) (Audited)
----------- -----------
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 83,786 $ 34,190
----------- -----------
Total current liabilities 83,786 34,190
Shareholders' equity
Common stock, $0.001 par value, 25,000,000
shares authorized; 10,050,000 shares issued
and outstanding 10,050 100,000
Additional paid in capital 2,272,395 354,159
Deficit accumulation during the development stage (1,314,647) (424,537)
----------- -----------
967,798 29,622
----------- -----------
$ 1,051,584 $ 63,812
=========== ===========
See notes to financial statements.
4
<PAGE>
MIZAR ENERGY COMPANY AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the period from
December 11, 1996
(Date of inception)
to
For the period ended September 30, 2000 September 30, 2000
Three months Nine months (Unaudited)
----------- ----------- -----------
<S> <C> <C> <C>
Income
Sales net of returns $ 1,636 $ 4,191 $ 13,292
Management fees -- 11,778
Cost of sales (1,048) (1,379) (5,423)
----------- ----------- -----------
Gross profit 588 2,812 19,647
Expenses
Salaries 106,272 216,998 323,869
Consulting 43,500 204,109 285,676
Professional fees 36,484 63,568 93,158
Marketing and advertising 9,748 27,354 65,685
Loss web site design -- 24,128 49,317
Rent 30,038 60,620 67,463
Other general and administrative expenses 91,192 180,235 305,861
Impairment of oil and gas properties -- -- 17,876
Lease operating costs -- -- 8,162
Loss on purchase option (Note 9) 139,255 139,255 139,255
Depreciation and amortization 5,338 7,060 8,377
----------- ----------- -----------
461,827 923,327 1,364,699
Other income (expenses)
Interest income 13,283 30,405 30,405
----------- ----------- -----------
Net loss $ (447,956) $ (890,110) $(1,314,647)
=========== =========== ===========
Earnings per share
Net loss per common share $ (0.08) $ (0.16) $ (0.24)
----------- ----------- -----------
</TABLE>
See notes to financial statements.
5
<PAGE>
MIZAR ENERGY COMPANY AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM DECEMBER 11, 1996 (DATE OF INCEPTION)
TO SEPTEMBER 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional
Shares Amount Paid in Capital
----------- ----------- -----------
<S> <C> <C> <C>
Issuance of common stock to founders for the period
ended December 1996, in exchange for $30,000 in cash 1,400,000 $ 30,000 $ --
Issuance of common stock according to the private
offering in effect, through December 1997 ($ 1 per share) 4,100 4,100
Net loss for the year ----------- ----------- -----------
Balance - December 31, 1997 1,404,100 $ 34,100 $ --
Issuance of common stock according to the private
offering in effect, through December 1998 net of
offering cost of $ 15,831. ($1 per share) 26,600 10,769
Net loss for the year
----------- ----------- -----------
Balance - December 31, 1998 1,430,700 $ 44,869 $ --
Net loss for the year
----------- ----------- -----------
Balance - December 31, 1999 (Audited) 1,430,700 $ 44,869 $ --
Issuance of shares of common stock in connection
with the merger of Ingenu Incorporated and HBOA
Com, Inc., on May 24, 2000 8,569,300 2,161,576
----------- ----------- -----------
Sub-total 10,000,000 $ 2,206,445 $ --
</TABLE>
[RESTUBBED]
<TABLE>
<CAPTION>
Deficit Accumulated
Through the
Development Stage TOTAL
----------------- -----------
<S> <C> <C>
Issuance of common stock to founders for the period
ended December 1996, in exchange for $30,000 in cash $ -- $ 30,000
Issuance of common stock according to the private
offering in effect, through December 1997 ($ 1 per share) 4,100
Net loss for the year (24,278) (24,278)
----------- -----------
Balance - December 31, 1997 $ (24,278) $ 9,822
Issuance of common stock according to the private
offering in effect, through December 1998 net of
offering cost of $ 15,831. ($1 per share) 10,769
Net loss for the year (14,263) (14,263)
----------- -----------
Balance - December 31, 1998 $ (38,541) $ 6,328
Net loss for the year (5,818) (5,818)
----------- -----------
Balance - December 31, 1999 (Audited) $ (44,359) $ 510
Issuance of shares of common stock in connection
with the merger of Ingenu Incorporated and HBOA
Com, Inc., on May 24, 2000 (380,178) 1,781,398
----------- -----------
Sub-total $ (424,537) $ 1,781,908
</TABLE>
See notes to financial statements.
6
<PAGE>
MIZAR ENERGY COMPANY AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM DECEMBER 11, 1996 (DATE OF INCEPTION)
TO SEPTEMBER 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
Deficit Accumulated
Common Stock Additional Through the
Shares Amount Paid in Capital Development Stage TOTAL
---------- ----------- ----------- ---------------- ----------
<S> <C> <C> <C> <C> <C>
Sub-total 10,000,000 $ 2,206,445 $ -- $ (424,537) $ 1,781,908
On June 5, 2000, 50,000 shares of common stock
were issued to an office as signing bonus shares. 50,000 11,000 11,000
Additional capital paid in from shareholders 65,000 65,000
Par value of common stock at $ 0.001 (2,207,395) 2,207,395 --
Net loss for the nine months ended September 30, 2000 (890,110) (890,110)
---------- ----------- ----------- ----------- -----------
Balance - September 30, 2000 (Unaudited) 10,050,000 $ 10,050 $ 2,272,395 $(1,314,647) $ 967,798
========== =========== =========== =========== ===========
</TABLE>
See notes to financial statements.
7
<PAGE>
MIZAR ENERGY COMPANY AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the period from
December 11, 1996
(Date of inception)
For the nine to
months ended September 30, 2000
September 30, 2000 (Unadited)
------------------ --------------------
<S> <C> <C>
Cash flows from operating activities
Net Loss $ (890,110) $(1,314,647)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 7,060 8,377
Loss on investments 139,255 139,255
(Increase) decrease in loans to/from affiliates (29,815) (6,923)
(Increase) decrease in deposits and advances (7,510) (7,980)
(Increase) decrease in accounts receivables (832) (832)
(Increase) decrease in other receivables (7,405) (7,080)
(Increase) decrease in prepaid expenses (67,993) (67,994)
Increase (decrease) in accounts payable 49,596 83,788
----------- -----------
Total adjustments 82,356 140,611
----------- -----------
Net cash used by operating activities (807,754) (1,174,036)
----------- -----------
Cash flow from investing activities:
Cash payments for the purchase of investments (63,930) (139,255)
Cash payments for the purchase of property (240,843) (249,550)
----------- -----------
Net cash used by investing activities (304,773) (388,805)
Cash flow from financing activities:
Proceeds from issuance of common stock 1,828,287 2,282,443
----------- -----------
Net cash provided by financing activities 1,828,287 2,282,443
----------- -----------
Net increase in cash and cash equivalents 715,760 719,602
Cash and cash equivalents, beginning of the period 3,842 --
----------- -----------
Cash and cash equivalents, end of the period $ 719,602 $ 719,602
</TABLE>
See notes to financial statements.
8
<PAGE>
MIZAR ENERGY COMPANY AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED SEPTEMBER 30, 2000
NOTE 1 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted
accounting principles for interim financial information and
with the instructions to Form 10-Q and Rule 310(b) of
Regulation SB. Accordingly, they do not include all of the
information and footnote disclosures normally included in
complete consolidated financial statements prepared in
accordance with generally accepted accounting principles. For
further information, such as significant accounting policies
followed by the Company, refer to the notes to the Company's
audited consolidated financial statements.
In the opinion of management, the unaudited consolidated
financial statements include all necessary adjustments
(consisting of normal, recurring accruals) for a fair
presentation of the financial position, results of operations
and cash flow for the interim periods presented. Preparing
financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets,
liabilities and revenue and expenses. Actual results may
differ from these estimates. Interim results are not
necessarily indicative of results for a full year.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Description
--------------------
Mizar Energy Company (the Company) was incorporated in the
state of Colorado on December 11, 1996, and had no previous
operations. From its inception through December 28, 1999, the
Company was involved in the business of acquiring, developing
and operating oil and gas properties. On December 28, 1999,
the Company's founders sold 59% of the Company's issued and
outstanding common stock to HBOA.Com, Inc., a District of
Columbia corporation. Pursuant to this stock sale, there was a
change in the Company's business and management team. The
Company will now be focusing on developing the premier
Internet portal through which home based business owners
obtain the products, services and information necessary to
start, expand and profitably run their businesses.
On May 24, 2000, Ingenu Incorporated was incorporated under
the laws of the state of Florida. Ingenu Incorporated was
formed to engage in the business of Internet services.
On May 24, 2000, the Company approved the merger of HBOA.Com,
Inc. with and into its wholly owned subsidiary, Ingenu
Incorporated, which took place May 31, 2000. The surviving
corporation changed its name to HBOA.Com, Inc.
The Company is considered to be in the development stage and
the accompanying financials represent those of a development
stage company.
9
<PAGE>
MIZAR ENERGY COMPANY AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED SEPTEMBER 30, 2000
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Principles of Consolidation
---------------------------
The consolidated financial statements of the Company include
those accounts of Mizar Energy Company, a development stage
company, and HBOA.Com, Inc., a wholly owned subsidiary. All
significant intercompany transactions and balances have been
eliminated in the consolidation.
Cash and Cash Equivalents
-------------------------
For purposes of the statement of cash flows, the Company
treats all short-term investments with maturities of three
months or less at acquisition to be cash equivalents.
Use of Estimates
----------------
The preparation of consolidated 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 consolidated financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Revenue Recognition
-------------------
Revenues of HBOA.Com, Inc. are recognized at the time the
services are rendered to customers. Services are rendered when
the Company's representatives receive the customers' requests
and complete the customers' orders.
Property and Equipment
----------------------
Property and equipment are stated at cost. Depreciation of
depreciable assets is computed using the straight-line method
of depreciation over the estimated useful lives of the assets.
The estimated useful life is 5-10 years.
Amortization
------------
Amortization of trademarks and copyrights is determined
utilizing the straight-line method based generally on the
estimated useful lives of the intangibles as follows:
Trademarks 15 years
Internet Website 3 years
Advertising Costs
-----------------
Advertising and marketing costs are expensed as incurred.
During the nine months ended September 30, 2000, advertising
cost expenses totaled $27,354.
10
<PAGE>
MIZAR ENERGY COMPANY AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED SEPTEMBER 30, 2000
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Basic Loss Per Share and Diluted Loss Per Share
-----------------------------------------------
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128,
Earnings Per Share (SFAS No. 128), which specifies the
computation, presentation and disclosure requirements for
earnings per share. SFAS No. 128 supercedes Accounting
Principle Board Opinion No. 15 entitled Earnings Per Share.
Basic earnings per share are computing by dividing income
available to common stockholders (the numerator) by the
weighted-average number of common shares (the denominator) for
the period. The computation of diluted earnings per share is
similar to basic earnings per share, except that the
denominator is increased to include the number of additional
common shares that would have been outstanding if the
potentially dilutive common shares had been issued.
The numerator in calculating basic earnings per share is
reported net loss. The denominator is based on the following
weighted-average number of common shares:
Basic 5,501,358
Concentration of Risk
---------------------
Financial instruments that potentially subject the Company to
credit risk include cash on deposit with three financial
institutions amounting to $719,602 at September 30, 2000. Each
financial institution insures its depositors for up to
$100,000 through the U.S. Federal Deposit Insurance
Corporation.
NOTE 3 CAPITAL STOCK TRANSACTIONS
Common Stock
------------
Authorized 25,000,00 shares of common stock, $0.001 par value
per share. Issued and outstanding 10,050,000 shares of common
stock at September 30, 2000.
Preferred Stock
---------------
Authorized 10,000,000 shares of preferred stock, no par value
per share. None issued as of September 30, 2000.
NOTE 4 INCOME TAXES
At September 30, 2000, the Company had a net operating loss
carryforward for income tax purposes of approximately
$1,175,392 available to offset future income taxes, expiring
through 2020.
11
<PAGE>
MIZAR ENERGY COMPANY AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED SEPTEMBER 30, 2000
NOTE 5 OTHER FINANCING ARRANGEMENTS
On November 10, 1999, the Company, with the approval of the
board of directors, granted the option to convert 100% of the
current loan payable to Dundas Systems, Inc. for shares of
common stock at a price of $1.00 per share. At June 30, 2000,
223,149 shares have been exchanged for $223,149 in loans
payable.
NOTE 6 RELATED PARTY TRANSACTIONS
The Company is provided with office space on a rent-free basis
from HBOA.Com, Inc. (see Note 8).
The Company has receivables/payables from related third party
companies at September 30, 2000 as follows:
Due from Dundas Systems, Inc. $ 6,923
Such loans occurred during the ordinary course of business,
bearing no interest, and due on demand. These loans, in the
opinion of management, do not involve more than normal credit
risk or other unfavorable areas of concern.
NOTE 7 GOING CONCERN
The Company's consolidated financial statements are prepared
using the generally accepted accounting principles applicable
to a going concern, which contemplates the realization of
assets and liquidation of liabilities in the normal course of
business. However, the Company has no current source of
revenue. Without realization of additional capital it would be
unlikely for the Company to continue as a going concern. It is
Management's plan to seek additional capital through a merger
with an existing operating company (see Note 8).
NOTE 8 MERGER
On May 24, 2000 the Company approved the merger of HBOA.Com,
Inc., a District of Columbia corporation, with and into
HBOA.Com, Inc., a Florida corporation, (f/k/a Ingenu
Incorporated), its wholly owned subsidiary. The surviving
company was HBOA.Com, Inc, a Florida corporation, (f/k/a
Ingenu Incorporated), and the name of the combined foundation
is HBOA.Com, Inc. The combination was accounted for as a
pooling of interest under which net assets of both foundations
were combined at book value and neither entity recognized a
gain or loss. The merger shall qualify as a transaction in
securities exempt from registration or qualification under the
Securities Act of 1933, as amended ("the Securities Act"), and
under applicable state securities law, and the merger shall
qualify as a tax-free reorganization under Section
386(a)(1)(A) of the Internal Revenue Code of 1986, as amended
("the code").
12
<PAGE>
MIZAR ENERGY COMPANY AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED SEPTEMBER 30, 2000
NOTE 8 MERGER (continued)
The shareholders of HBOA.Com, Inc. received 8,569,300 shares
of Mizar Energy Company common stock in exchange for 100%
shares of the Company. After the merger, Mizar Energy Company
retained 10,000,000 shares of its common stock. The operations
of HBOA.Com, Inc. have been consolidated into Mizar Energy
Company.
NOTE 9 CONTINGENCIES
On June 8, 2000, the Company entered into an option to
purchase 510 shares of Song 1, Inc. by August 15, 2000. The
Company did not exercise the option for various reasons. The
total amount paid at September 30, 2000 was $139,255. The
Company is currently in litigation to recover this initial
deposit of $139,255.
The ultimate outcome of this litigation is unknown at this
time. While management believes that they will prevail in
litigation, to be conservative the investment asset in Song 1,
Inc. has been reduced by $139,255.
NOTE 10 SUBSEQUENT EVENT
Equity Compensation Plan
-------------------------
On October 10, 2000, the board of directors approved an Equity
Compensation Plan, authorizing up to 2,700,000 shares of
common stock in the form of incentive stock options,
non-qualifying stock options, and restricted stock grants for
its employees, board members, key personnel and consultants
under certain terms and conditions set forth in the plan.
On the same day the board of directors approved grants of
incentive stock options for 1,250,000 shares at a price of
$1.50 per share. The vesting period commences after one year
of service, and participants are fully vested after three
years.
Other Financing Arrangements
----------------------------
The Company, with the approval of the board of directors,
granted the option to convert certain future expenses for
shares of common stock at a price of $0.10 per share. The
total amount of common stock included in the option was
900,000 shares.
13
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following "Management's Discussion and Analysis of Financial
Condition and Results of Operations" includes "forward-looking statements"
within the meaning of the Private Securities Litigation Reform act of 1995. This
Act provides a "safe harbor" for forward-looking statements to encourage
companies to provide prospective information about themselves so long as they
identify these statements as forward-looking and provide meaningful cautionary
statements identifying important factors that could cause actual results to
differ from the projected results. All statements other than statements of
historical fact we make in this Form 10-QSB are forward- looking. In particular,
the statements herein regarding industry prospects and our future results of
operations or financial position are forward-looking statements. Forward-looking
statements reflect our current expectations and are inherently uncertain. Our
actual results may differ significantly from our expectation. The section
entitled "Additional Factors That May Affect Future Results" describes some, but
not all, of the factors that could cause these differences.
Overview
Mizar Energy Company, a Colorado company (the "Company") was
incorporated in the state of Colorado on December 11, 1996. From our inception
through December 28, 1999, the Company was involved in the business of
acquiring, developing and operating oil and gas properties. On December 28,
1999, the Company's founders sold 60% of the Company's issued and outstanding
common stock to HBOA.Com, Inc., a District of Columbia corporation, which
engaged in the sale of products and services to the owners of home based
businesses through its Internet web site ("HBOA-DC"). Pursuant to this stock
sale, there was a change in the Company's business and management team. The
Company is now focusing on developing its web site into the premier Internet
portal through which home based business owners obtain the products, services
and information necessary to start, expand and profitably run their businesses.
On May 31, 2000, HBOA-DC was merged with and into HBOA.Com, Inc., a
wholly-owned subsidiary of the Company ("HBOA-FL"). In the aggregate, the
HBOA-DC shareholders received 8,569,300 shares of the Company's common stock. As
a result of the merger, HBOA-DC's operations were consolidated into the
Company's business and the Company has 10,050,000 shares of its common stock
issued and outstanding as of September 30, 2000.
The Company's common stock was listed for trading on the OTC Bulletin
Board in October 2000. At a meeting of the Company's shareholders held on
November 10, 2000, the shareholders approved a proposal to reincorporate the
company from Colorado to Florida and to change the company's name to HBOA
Holdings, Inc. The reincorporation will be effectuated by merging the Company
into HBOA Holdings, Inc., a wholly-owned Florida subsidiary of the Company. The
Company expects that all of this paperwork to formalize the reincorporation and
name change proposal will be processed by the Florida Secretary of State and the
Colorado Secretary of State by November 14, 2000.
Except where the context indicates otherwise, the term "Company" shall
refer to Mizar Energy Company, whose name will be changed to HBOA Holdings, Inc.
and HBOA-FL, a wholly- owned subsidiary of HBOA Holdings, Inc.
14
<PAGE>
Results of Operations
The merger of HBOA-DC with and into the Company's wholly owned
subsidiary, HBOA-FL, was accounted for as a pooling of interest transaction. As
a result of the pooling of interest accounting, the Company's historical
financial statements from the previous periods have been restated to include the
operations of HBOA-DC. Prior to the merger, the Company's revenues and expenses
were nominal. The majority of the changes in the Company's results of
operations, liquidity and capital resources are due to the merger of HBOA-DC
with and into the Company on May 31, 2000 and the accounting treatment of the
merger as a pooling of interest.
Sales, net of returns, were $1,636 during the three month period ended
September 30, 2000 and $4,191 during the nine month period ended September 30,
2000. These revenues were generated from the sale of memberships on HBOA's web
site. During the almost 5 year period since incorporation of the Company on
December 11, 1996, sales, net of returns, have totaled $13,292. HBOA-DC realized
management fees of $11,778 during the period from its inception through
September 30, 2000. As a result of the foregoing, the Company's total revenues
were $25,070 for the period from inception through September 30, 2000. HBOA-DC's
operations, are reflected in the Company's financial statements due to the
accounting treatment of the merger as a pooling of interest.
Costs of sales was $1,048 during the three month period ended
September 30, 2000 and $1,379 during the nine month period ended September 30,
2000. During the almost 5 year period since inception of the Company, cost of
sales has totaled $5,423. These increases in cost of sales are from HBOA-DC's
operations, which are reflected in the Company's financial statements due to the
accounting treatment of the merger as a pooling of interest.
As a result of the forgoing, gross profit was $588 during the three
month period ended September 30, 2000 and $2,812 during the nine month period
ended September 30, 1999. During the almost 5 year period since incorporation of
the Company, gross profit has totaled $19,647.
Operating expenses totaled $461,827 during the three month period ended
September 30, 2000 and $923,327 during the nine month period ended September 30,
2000. During the almost 5 year period since incorporation of the Company,
operating expenses have totaled $1,364,699. The Company's operating expenses
consist of (1) salaries, (2) consulting fees, (3) professional fees, (4)
marketing and advertising expenses, (5) web site design, (6) rent, (7) other
general and administrative expenses, (8) impairment of oil and gas properties,
(9) lease operating costs, (10) a loss on a purchase option and (11)
depreciation and amortization. During the nine month period ended September 30,
2000, the most significant operating expenses were (1) a loss on a purchase
option relating to the Company's proposed acquisition of Song 1, Inc.
($139,225), (2) salaries (equal to $110,726) and (3) other general and
administrative expenses ($91,192). The increases in operating expenses are
primarily from HBOA-DC's operations, which are reflected in the Company's
financial statements due to the accounting treatment of the merger as a pooling
of interest.
Interest income totaled $13,283 during the three month period ended
September 30, 2000 and $30,405 during the nine month period ended September 30,
2000. During the almost 5 year period since incorporation of the Company,
interest income has totaled $30,405.
As a result of the forgoing, the Company's net loss was $447,956 during
the three month period ended September 30, 2000 and $890,110 during the nine
month period ended September 30, 2000. During the almost 5 year period since
incorporation of the Company, the Company's net loss has totaled $1,314,647.
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Plan of Operations
At the present time, the Company is primarily focused on the operations
of HBOA.Com, Inc., its wholly-owned Florida subsidiary. HBOA is an
Internet-based membership organization which acts as a resource center, educator
and advocate for home-based business owners. The Company has focused on
developing HBOA's web site (www.hboa.com) into the premier Internet portal
through which home based business owners can obtain the products, services and
information necessary to start, expand and profitably run their businesses.
HBOA expects to generate revenues from three sources: (1) the sale of
products and services from its Internet web site, (2) advertising revenues and
(3) fees to be a member of the HBOA web site. In order to develop these sources
of revenues, HBOA plans on taking the following actions:
*HBOA intends to increase the scope of products and services that it
offers on its web site. HBOA currently has nine categories of products and
services, which are as follows (1) Advice, (2) Advocacy, (3) Reference, (4)
Products, (5) Services, (6) Insurance, (7) Shipping, (8) Communications and (9)
Business Mall.
* HBOA intends to enter into co-branding and vendor agreements with a
wide variety of companies.
*HBOA plans on increasing its membership base. HBOA currently has three
levels of membership: (1) Free (no cost), (2) Executive Level ($50 annually) and
(3) Board Level ($125 annually.)
* HBOA plans on increasing the quality and scope of its content on its
web site by (1) retaining outside content providers, (2) entering into strategic
relationships with content providers and (3) developing content in-house.
*HBOA intends to hire a team of senior managers who have experience
with Internet companies.
The Company is also exploring strategic relationships and joint
ventures with other companies.
Liquidity and Capital Resources
As of September 30, 2000, the Company had cash on hand of $1,051,584
compared with cash on hand of $63,812 on December 31, 1999. The Company's cash
on hand increased as a result of the merger of HBOA-DC with and into the Company
on May 31, 2000. The Company expects that this cash on hand will allow it to
continue operations for approximately 9 months. During the next twelve months,
the Company expects to make significant expenditures on developing its web site,
marketing and advertising expenses and may hire additional employees.
As of September 30, 2000, the Company's total assets were $795,508
compared with total assets of $3,842 on December 31, 1999. Total liabilities
were $83,786 on September 30, 2000 compared with total liabilities of $34,190 on
December 31, 1999. Working capital was $711.722 on September 30, 2000 compared
with negative working capital on $30,700 on December 31, 1999. The significant
increase in liquidity is primarily from HBOA-DC's operations, which are
reflected in the Company's financial statements due to the accounting treatment
of the merger as a pooling of interest transaction.
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Cash flows used in operating activities were $890,110 during the nine
month period ended September 30, 2000. Cash flows used in investing activities
were $304,773 during the nine month period ended September 30, 2000, which
included a $240,843 purchase of property and $63,930 for the purchase of an
investment. Cash flows from financing activities were $1,828,287 during the nine
month period ended September 30, 2000, which resulted from HBOA's sale of common
stock in a private offering. Again, these changes in cash flows are primarily
from HBOA-DC's operations, which are reflected in the Company's financial
statements due to the accounting treatment of the merger as a pooling of
interest transaction.
Additional Factors that May Affect Operating Results
In evaluating the Company, the following risk factors should be
considered:
The Company has a limited operating history
Mr. Davis and Mr. Lee's sale of 850,000 shares of the Company's common
stock to HBOA on December 28, 1999 resulted in a change in control of the
Company and a change in the Company's management. At this time, the Company
began to focus on HBOA's internet operations. Accordingly, you have a relatively
short operating history upon which you can evaluate the Company's business and
prospects. You should consider our prospects in light of the risks, expenses and
difficulties frequently encountered by early-stage Internet companies. As an
early-stage company, the Company has an evolving and unpredictable business
model, the Company faces intense competition and must effectively manage its
growth and respond quickly to rapid changes in customer demands and industry
standards. The Company may not succeed in addressing these challenges and risks.
The Company has a history of operating losses and expectation of future losses
For the period from inception through September 30, 2000, the Company
has a net loss of $1,314,647. The Company does not anticipate that it will earn
a profit during the 2000 fiscal year. Although the Company has been developing
its HBOA web site and seeking strategic alliances or acquisitions, there can be
no assurances that the Company will be able to finalize any definitive
agreements with any third parties. There can be no assurances that the Company's
plans will ever be achieved or that any of the assumption made in its favor will
prove to be correct. Even if the assumptions in the Company's business plan
prove to be correct, there can be no assurance that the Company will not incur
substantial operating losses. Furthermore, there can be no assurances that the
combined business strategy of the Company and HBOA will enable the combined
companies to achieve profitable operations in the future.
Risks of Entering New Business Areas, Strategic Alliances and Acquisitions
The Company intends to expand its operations by expanding its product
and service offerings, entering into strategic alliances with other companies
and/or by making acquisitions of other companies. This will require significant
additional expense and could strain our management, financial and operational
resources. The process of expanding our product and service offerings,
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entering into strategic alliances or integrating an acquired business into the
Company may result in the unforeseen operating difficulties and expenditures and
may absorb significant management attention that would otherwise be available
for ongoing development of the Company's business. Moreover, there can be no
assurances that the anticipated benefits of any acquisition will be realized.
Further, strategic alliances of acquisitions could result in potentially
dilutive issuances of equity securities, the incurrence of debt, contingent
liabilities and or amortization expenses related to goodwill and other
intangible assets, which could materially adversely affect the Company's
business, technologies, services or products and might require the Company to
obtain additional equity or debt financing, which might not be available on
terms favorable to the Company, or at all, and such financing, if available,
might be dilutive.
Need for Additional Capital
As of September 30, 2000, the Company had cash on hand of $719,602.
Management expect that the cash on hand will last approximately 9 months. In the
event the Company plans change or its assumptions prove to be inaccurate (due to
unanticipated expenses, difficulties, delays or otherwise) the Company could be
required to seek additional financing. There can be no assurances that any
additional financing will be available to the Company and HBOA when needed, on
commercially reasonable terms, or at all. Any inability to obtain additional
financing when needed would have a material adverse effect on the Company and
HBOA's business, financial operations and results of operations.
Our Methods of Generating Revenue are Relatively New and Largely Untested
The Company intends to generate revenue through (1) membership fees,
(2) the facilitation of electronic commerce and (3) advertising revenues. These
methods of revenues generation are relatively new and largely untested. In
addition, the Company is also exploring strategic alliances and potential
acquisitions or business combinations.
A portion of HBOA revenues for the foreseeable future are expected to
be derived from the use of electronic commerce transactions. HBOA will facility
electronic commerce by directing users who ask a shopping question to electronic
commerce merchants, some of who will compensate HBOA for the referral. The
market for Internet products and services has only recently begun to develop and
is rapidly changing. Therefore, the success of the business of HBOA and the
Company depends upon the adoption of the Internet as a medium for commerce for a
broad base of customers. If this market fails to develop or develops more slowly
than expected, or if electronic commerce services to not achieve market
acceptance, the combined operations of HBOA and the Company could suffer.
Substantial Competition
The industry in which HBOA competes is highly competitive and highly
fragmented. The industry is characterized by the frequent introduction of new
web sites often accompanied by major advertising and promotional programs.
HBOA's primary competition at the present time is various associations' sites,
which generally have been formed to promote such things as books/tapes, speaking
engagements or selling business opportunities. These include the American
Association of Home Based Businesses, American Home Business Association, Fran
Tarkenton Small Business Network, Home Business Institute and the Home Office
Association of America. None of the existing sites have the level of content
anticipated to be provided by HBOA. Additionally, HBOA faces competition from a
number of small businesses sites currently on the web or in various states
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of development. New entrants to this market include Staples, Office Depot and
Onvia further validating the marketplace. While many of these competitors have
significantly greater financial, technical and marketing resources than HBOA,
none focuses on the home business owner. HBOA offers a "single source"
vertically integrated portal for home based businesses which gives it a distinct
competitive advantage. HBOA believe providing a user friendly technically rich
and product/service complete site will attract and retain home business owners.
HBOA, however, always faces the risk that competitors will introduce better
services and resources. This could also affect HBOA's ability to keep existing
customers or acquire new customers and could result in lower net revenue and/or
profits.
The Company's historical results may not be indicative of future performance
The Company's historical results of operations are not useful as a
basis for predicting future operating results of the Company. The merger of
HBOA-DC with and into the Company's wholly owned subsidiary, HBOA-FL, was
accounted for as a pooling of interest transaction. As a result of the pooling
of interest accounting, the Company's historical financial statements from the
previous periods have been restated to include the operations of HBOA-DC. Prior
to the merger, the Company's revenues and expenses were nominal. The majority of
the changes in the Company's results of operations, liquidity and capital
resources are due to the merger of HBOA-DC with and into the Company on May 31,
2000 and the accounting treatment of the merger as a pooling of interest.
Security Risks
A party who is able to circumvent our security measures could
misappropriate proprietary information or cause interruptions in HBOA's Internet
operations. HBOA may be required to expend significant capital and resources to
protect against the threat of such security breaches or to alleviate problems
caused by such breaches. Consumer concern over Internet security has been, and
could continue to be, a barrier to commercial activities requiring consumers to
send their credit card information over the Internet. Computer viruses,
break-ins, or other security problems could lead to misappropriation of
proprietary information and interruptions, delays, or cessation in service to
HBOA's customers. Moreover, until more comprehensive security technologies are
developed, the security and privacy concerns of existing and potential customers
may inhibit the growth of the Internet as a merchandising medium.
Governmental Regulation and Legal Uncertainties
HBOA is not currently subject to direct federal, state, or local
regulation, and laws or regulations applicable to access to or commerce on the
Internet, other than regulations applicable to businesses generally. However,
due to the increasing popularity and use of the Internet and other online
services, it is possible that a number of laws and regulations may be adopted
with respect to the Internet or other online services covering issues such as
user privacy, "indecent" materials, freedom of expression, pricing, content and
quality of products and services, taxation, advertising, intellectual property
rights and information security. The adoption of any such laws or regulations
might also decrease the rate of growth of Internet use, which in turn could
decrease the demand for HBOA's products and services or increase the cost of
doing business or in some other manner have a material adverse effect on HBOA's
business, results of operations, and financial condition. In addition,
applicability to the Internet of existing laws governing issues such as property
ownership, copyrights and other intellectual property issues, taxation, libel,
obscenity, and personal privacy is uncertain. The vast majority of such laws
were adopted prior to the advent of the Internet and related
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technologies and, as a result, do not contemplate or address the unique issues
of the Internet and related technologies. HBOA does not believe that such
regulations, which were adopted prior to the advent of the Internet, govern the
operations of HBOA's business nor have any claims been filed by any state
implying that HBOA is subject to such legislation. There can be no assurance,
however, that a state will not attempt to impose these regulations upon HBOA in
the future or that such imposition will not have a material adverse effect on
HBOA's business, results of operations, and financial condition.
Several states have also proposed legislation that would limit the uses
of personal user information gathered online or require online services to
establish privacy policies. The Federal Trade Commission has also initiated
action against at least one online service regarding the manner in which
personal information is collected from users and provided to third parties.
Changes to existing laws or the passage of new laws intended to address these
issues, including some recently proposed changes, could create uncertainty in
the marketplace that could reduce demand for the services of HBOA or increase
the cost of doing business as a result of litigation costs or increased service
delivery costs, or could in some other manner have a material adverse effect on
the HBOA's business, results of operations, and financial condition. In
addition, because HBOA's services are accessible worldwide, and HBOA facilitates
sales of goods to users worldwide, other jurisdictions may claim that HBOA is
required to qualify to do business as a foreign corporation in a particular
state or foreign country. HBOA is qualified to do business in Florida, and
failure by the HBOA to qualify as a foreign corporation in a jurisdiction where
it is required to do so could subject the HBOA to taxes and penalties for the
failure to quality and could result in the inability of the HBOA to enforce
contracts in such jurisdictions. Any such new legislation or regulation, or the
application of laws or regulations from jurisdictions whose laws do not
currently apply to HBOA's business, could have a material adverse effect on
HBOA's business, results of operations, and financial condition.
Potential Liability for Sales and Other Taxes
HBOA does not currently collect sales or other similar taxes in respect
of the delivery of its products into states other than California where HBOA
collects sales taxes for sales of tangible products. New state tax regulations
may subject HBOA to the assessment of sales and income taxes in additional
states. Although the Internet Tax Freedom Act precludes for a period of three
years the imposition of state and local taxes that discriminate against or
single out the Internet, it does not impact currently existing taxes. Tax
authorities in a number of states are currently reviewing the appropriate tax
treatment of companies engaged in Internet retailing and are currently
considering an agreement with certain of these companies regarding the
assessment and collection of sales taxes.
HBOA is not a party to any such discussions.
Rapid Technological Change
The market in which HBOA competes is characterized by frequent new
product introductions, rapidly changing technology, and the emergence of new
industry standards. The rapid development of new technologies increases the risk
that current or new competitors will develop products or services that reduce
the competitiveness and are superior to HBOA's products and services. HBOA's
future success will depend to a substantial degree upon its ability to develop
and introduce in a timely fashion new products and services and enhancements to
its existing products and services that meet changing customer requirements and
emerging industry standards. The development of new, technologically advanced
products and services is a complex and uncertain process requiring high levels
of innovation, as well as the accurate anticipation of technological and
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market trends. There is a potential for product development delay due to the
need to comply with new or modified standards. There can be no assurance that
HBOA will be able to identify, develop, market, support, or manage the
transition to new or enhanced products or services successfully or on a timely
basis, that new products or services will be responsible to technological
changes or will gain market acceptance, or that HBOA will be able to respond
effectively to announcements by competitors, technological changes, or emerging
industry standards. HBOA's business, results of operations, and financial
condition would be materially and adversely affected if HBOA were to be
unsuccessful, or to incur significant delays in developing and introducing new
products, services, or enhancements.
Dependence on Continued Growth In Use of the Internet
Our market is new and rapidly evolving. Our business would be adversely
affected if Internet usage does not continue to grow, particularly usage by home
business owners. A number of factors may inhibit Internet usage, including
inadequate network infrastructure, security concerns, inconsistent quality of
service, and lack of availability of cost-effective, high-speed service. If
Internet usage grows, the Internet infrastructure may not be able to support the
demands placed on it by this growth and its performance and reliability may
decline. In addition, web sites have experienced interruptions in their service
as a result of outages and other delays occurring throughout the Internet
network infrastructure. If these outages or delays frequently occur in the
future, Internet usage, as well as the usage of our web sites, could grow more
slowly or decline.
Our Liability for Information Retrieved from the Web
Because users of HBOA's web site may distribute our content to others,
third parties might sue HBOA for defamation, negligence, copyright or trademark
infringement, personal injury or other matters. These types of claims have been
brought, sometimes successfully, against online services in the past. Others
could also sue HBOA for the content that is accessible from our web site through
links to other web sites or through content and materials that may be posed by
members in chat rooms or bulletin boards. HBOA also intends to offer e-mail
services, which may subject the HBOA to potential risks, such as liabilities or
claims resulting from unsolicited e-mail (spamming), lost or misdirected
messages, illegal or fraudulent use of e-mail or interruptions or delays in
e-mail service.
HBOA also may enter into agreements with commerce partners and
sponsors that entitle the HBOA to receive a share of any revenue from the
purchase of goods and services through direct links from HBOA's web sites to
their web sites. Such arrangements may subject HBOA to additional claims,
including potential liabilities to consumers of such products and services,
because HBOA provide access to such products or services, even if HBOA does not
provide such products or services itself. While HBOA's agreements with these
parties often provide that HBOA will be indemnified against such liabilities,
such indemnification, if available, may not be adequate. HBOA's insurance may
not adequately protect the Company against these types of claims.
E-Commerce and Potential Product Liability
HBOA plans to develop a range of products targeted specifically at home
business owners. HBOA also may foster relationships with manufacturers or
companies to offer such products directly on its web site. Such a strategy
involves numerous risks and uncertainties. HBOA has very limited experience in
the sale of products online and the development of relationships with
manufacturers or suppliers of such products. Consumers may sue HBOA if any of
the products that it sells are defective, fail to perform properly or injure the
user. HBOA's agreements with manufacturers will
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typically contain provisions intended to limit HBOA's exposure to liability
claims. These limitations may not however prevent all potential claims.
Liability claims could require HBOA to spend significant time and money in
litigation or to pay significant damages. As a result, any such claims, whether
or not successful, could seriously damage our reputation and our business.
Reliability of Web Site and Technology; Risk of Capacity Constraints
The performance, reliability and availability of HBOA's web site,
systems and network infrastructure will be critical to HBOA's business and its
ability to promote the business of the HBOA. HBOA's web site is hosted by a
server owned and operated by a third party, limiting the extent to which HBOA
will have control over, or the ability to cure, technical problems, which may
arise. Any systems problems that result in the unavailability of HBOA's web site
or interruption of information or access of information to members through the
web site would diminish its effectiveness as a means of promoting HBOA's
business.
If the volume of traffic on HBOA's web site is greater than
anticipated, HBOA will be required to expand and upgrade its web site and
related infrastructure. Although HBOA intends that its systems will be designed
for scalability, the can be no assurance that the systems will be fully
scalable. Any inability to add additional software and hardware to accommodate
increased usage may cause unanticipated systems disruptions and degradation in
levels of service to customers. There can be no assurance that HBOA will be able
to effectively upgrade and expand its web site in a timely manner or to
integrate smoothly any newly developed or purchased technology with its existing
systems. Any inability to do so would have a material adverse effect on HBOA's
business, prospects, financial condition and results of operations.
Dependence on Key Personnel
The Company and HBOA will be dependent upon the services of the
executive officers and principal employees and consultants of the Company
(particularly Gary Verdier and Edward Saludes) for management of the Company and
HBOA and implementation of its business strategy. The loss of services of Gary
Verdier and Edward Saludes could have a material adverse effect on the business
operations, financial conditions and results of operations of the Company or
HBOA. If its operations expand, the Company and HBOA will also be dependent upon
its ability to attract and retain additional qualified employees and
consultants. There is significant competition for qualified personnel, and there
can be no assurances that the Company and HBOA will be successful in recruiting,
retaining or training the management personnel it requires.
No Private or Public Market for Shares
There is currently no private or public market for the Company's common
stock. To date, there has not been an active market in the Company's stock. The
Company cannot predict the extent to which investor interest in the Company will
lead to the development of a trading market or how liquid that trading market
might become. If a trading market does not develop or is not sustained, it may
be difficult for investors to sell shares of the Company's common stock at a
price that is attractive. As a result, an investment in the Company's common
stock may be totally illiquid and investors may not be able to liquidate their
investment readily or at all when he/she desires to sell. First Level Capital,
Inc., a NASD registered broker-dealer, filed a Form 15c-211 application to have
the Company's shares of common stock listed on the OTC Bulletin Board. However,
there can be no assurances, that the NASD will approve the Company's Form
15c-211 application.
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Dilution.
The Company's Articles of Incorporation authorizes the issuance of 25
million shares of common stock and 10 million shares of preferred stock. As of
September 30, 2000, the Company had 10,050,000 shares of its common stock issued
and outstanding. This issuance of any additional shares of common stock or
preferred stock may result in a reduction of the book value or market price, if
any of the outstanding common or preferred shares. Issuance of additional common
stock and preferred stock will reduce the proportionate ownership and voting
power of the then existing shareholders.
Anti-Takeover Provisions.
The foregoing provision in the Company's Articles of Incorporation
(namely the ability, without further shareholder approval) to issue additional
shares of common stock could be used as anti-takeover measures. These provisions
could prevent or discourage or delay a non-negotiated change in control and
result in shareholders receiving less for their common stock than they otherwise
might in the event of a takeover attempt.
No Dividends
The Company anticipates that all future, earnings, if any, will be
retained for the development of its business and will not be distributed to
shareholders as cash dividends. The declaration and payment of cash dividends,
if any, at some future time will depend upon the Company's results of
operations, financial condition, cash requirements, future prospects,
limitations imposed by credit agreements or senior securities and any other
factors deemed relevant by the Company's Board of Directors. The declaration and
payment of cash dividends, if at all, by the Company will be at the discretion
of the Board of Directors.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON 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.
A. Exhibits
27.1 Financial Data Schedule
B. Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 13, 2000 MIZAR ENERGY COMPANY
By /s/ Edward Saludes
-----------------------
Edward Saludes
President and Chief Executive Officer
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