<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1994.
For the Quarterly period ended April, 30, 2000
[_] TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from____________to____________
Commission File Number: 33-20783-D
H-NET.COM INC.
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(Exact name of registrant as specified in its charter)
Colorado 84-1064958
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(State or other jurisdiction of I.R.S. Employer
Incorporation or organization) Identification Number)
345 THIRD STREET, SUITE 645, NIAGARA FALLS, NEW YORK 14303
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(Address of principal executive offices) (Zip Code)
905-475-3249
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(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 such reports), and (2) had been subject to
such filing requirements for the past 90 days.
[X] YES [_] NO
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by sections 12, 13, or 15 (d) of the Securities
exchange Act of 1934.
[_] YES [_] NO
APPLICABLE ONLY TO CORPORATE ISSUERS
There were 15,646,004 shares of common stock outstanding having no par value per
share as of April 30, 2000.
1
<PAGE>
INDEX
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<TABLE>
<CAPTION>
Part I Financial Information Page Number
------ --------------------- -----------
<S> <C> <C>
Item 1 Consolidated Balance Sheet, 3
April 30, 2000 (unaudited)
Consolidated Statement of Earnings for Quarter Ended 4
April 30, 2000 (unaudited)
Consolidated Statement of Stockholders Equity 5
Consolidated Statement of Cash Flow for Quarter Ended 6
April 30, 2000
Notes to Financial Statements 7 - 8
Item II Management Discussion and Analysis of Financial Conditions 9
And Results of Operations
Part II Other Information 10
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</TABLE>
2
<PAGE>
H-NET.COM INC.
CONSOLIDATED BALANCE SHEET
AS AT APRIL 30, 2000
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Apr. 30 Apr. 30
Note 2000 1999
---- ---- ----
<S> <C> <C> <C>
ASSETS
Current:
Cash $ 446,139 $ 414,913
Available-for-sale securities 2 549,550 772,698
Accounts receivable 76,018 125,258
Income taxes recoverable 146,001 17,144
Prepaid expenses and sundry assets 52,583 21,416
---------- ----------
1,270,291 1,351,429
Long term:
Deferred stock issuance costs 89,000 -
Capital assets 3 70,606 91,027
---------- ----------
159,606 91,027
---------- ----------
TOTAL ASSETS $ 1,429,897 $ 1,442,456
========== ==========
LIABILITIES
Current:
Accounts payable and accrued liabilities $ 44,750 $ 49,863
Deferred income taxes payable 62,262 66,180
---------- ----------
TOTAL LIABILITIES 107,012 116,043
---------- ----------
STOCKHOLDERS' EQUITY
Capital stock 4 500,377 320,731
Less Treasury Stock at cost (177,308) (118,959)
Share purchase warrants 1,090 18,000
Retained earnings 1,530,165 1,611,434
Unrealized holding gain (loss) on available-for-sale securities (370,040) (322,705)
Foreign exchange adjustment (161,399) (182,088)
---------- ----------
1,322,885 1,326,413
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,429,897 $ 1,442,456
========== ==========
</TABLE>
3
<PAGE>
H-NET.COM INC.
CONSOLIDATED STATEMENT OF EARNINGS
QUARTER ENDED APRIL, 30, 2000
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Apr. 30 Apr. 30
2000 1999
---- ----
<S> <C> <C> <C>
REVENUE
Sales $ 408,453 $ 152,571
Investment income 23,356 9,198
------------ ------------
431,809 161,769
EXPENSES
Research and development 6 58,355 82,281
Wages, management and consulting fees 94,911 57,969
Professional fees 5,544 7,718
General and administrative 90,077 59,347
Travel and promotion 19,827 15,218
Amortization 5,438 7,324
------------ ------------
274,152 229,857
EARNINGS BEFORE INCOME TAXES 157,657 (68,088)
Provision for income taxes: 69,984 (30,743)
------------ ------------
NET EARNINGS (LOSS) $ 87,674 $ (37,345)
============ ============
EARNINGS PER SHARE 7 $ 0.006 $ (0.005)
============ ============
</TABLE>
4
<PAGE>
H-NET.COM INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
QUARTER ENDED APRIL 30, 2000
----------------------------
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Capital Stock Options Treasury Stock
------------- ------- --------------
Number of Number of Number of
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AS AT JANUARY 31, 1999 7,468,002 250,968 364,000 18,000 172,500 (126,776)
Net earnings for 3 months ended April 30, 2000 - - - - - -
Foreign exchange adjustment for 2000 - - - - - -
Unrealized loss on available-for-sale securities - - - - - -
Employee share options issued for services received - - 100,000 1,000 - -
Exercise of employee share options 355,000 17,910 (355,000) (17,910) - -
Purchase of stock on open market - - - - 16,900 (88,513)
Sale of stock on open market - 158,204 - - (32,195) 22,764
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BALANCE AS AT JANUARY 31, 2000 7,823,002 427,082 109,000 1,090 157,205 (192,525)
Net earnings for 3 months ended April 30, 2000 - - - - - 18,350
Foreign exchange adjustment - - - - - -
Shares issued as compensation for services received - - - - - -
Unrealized loss on available for sale securities - - - - - -
Exercise of options - - - - - -
Purchase of stock on open market - - - - 1,900 (9,210)
Sale of stock on open market - 73,295 - - (24,666) 24,427
Stock split 7,823,002 - - - 134,439 -
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BALANCE AS AT APRIL 30, 2000 15,646,004 500,377 109,000 1,090 268,878 (177,308)
=================================================================
<CAPTION>
Unrealized
Holding Loss Foreign
Retained on Available Exchange
Earnings for Sale Securities Adjustment Total
-------- ------------------- ---------- -----
<S> <C> <C> <C> <C>
BALANCE AS AT JANUARY 31, 1999 1,648,779 (293,458) (161,265) 1,336,248
Net earnings for 3 months ended April 30, 2000 (37,345) - - (37,345)
Foreign exchange adjustment for 2000 - - (20,823) 20,823
Unrealized loss on available-for-sale securities - (29,247) - (29,247)
Employee share options issued for services received - - - 1,000
Exercise of employee share options - - - -
Purchase of stock on open market - - - (88,513)
Sale of stock on open market - - - 180,968
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BALANCE AS AT JANUARY 31, 2000 1,442,491 (323,982) (158,542) 1,195,614
Net earnings for 3 months ended April 30, 2000 87,674 - - 87,674
Foreign exchange adjustment - - (2,857) (2,857)
Shares issued as compensation for services received - - - -
Unrealized loss on available for sale securities - (40,058) - (40,058)
Exercise of options - - - -
Purchase of stock on open market - - - (9,210)
Sale of stock on open market - - - 97,722
Stock split - - - -
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BALANCE AS AT APRIL 30, 2000 1,530,165 (370,040) (161,399) 1,322,885
===================================================================
</TABLE>
5
<PAGE>
H-NET.COM INC.
CONSOLIDATED STATEMENT OF CASH FLOW
QUARTER ENDED APRIL 30, 2000
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Apr. 30 Apr. 30
2000 1999
---- ----
<S> <C> <C>
CASH WAS PROVIDED BY (USED FOR):
OPERATING ACTIVITIES
Net earnings $ 87,674 $ (37,345)
Amortization 5,438 7,324
--------- ----------
93,112 (30,021)
--------- ----------
Changes in non-cash working capital items:
Accounts receivable (17,235) 91,826
Prepaid expenses and sundry assets (30,959) 5,165
Accounts payable and accrued liabilities (7,661) 4,745
Income taxes payable (net of ITC) - -
Income taxes recoverable 41 (17,144)
--------- ----------
37,298 54,571
--------- ----------
FINANCING ACTIVITIES
Unrealized holding loss on available for sale securities (46,058) (29,247)
Gain on sale of treasury stock 97,720 69,763
Disposition (Purchase) of stock for treasury (9,210) 7,817
Deferred stock issuance costs (6,000) -
Foreign exchange adjustment (2,857) (20,823)
--------- ----------
33,595 27,510
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INVESTING ACTIVITIES
Net purchase of capital asset (2,130) (2,813)
Net purchase of available for sale securities - -
Marketable securities - restricted - -
--------- ----------
(2,130) (2,813)
--------- ----------
INCREASE IN CASH AND AVAILABLE-FOR-SALE
SECURITIES 68,763 79,268
Cash and available-for-sale securities at the beginning 926,926 1,242,908
--------- ----------
Of the period
CASH AND AVAILABLE-FOR-SALE SECURITIES
AT THE END OF THE PERIOD $ 995,689 $1,322,176
========= ==========
</TABLE>
6
<PAGE>
ALPHA BYTES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED OCTOBER 31, 1999
(Expressed in U.S. dollars)
1. CHANGE OF NAME
The Corporation changed its name from Alpha Bytes, INC to H-Net.Com Inc. by
Articles of Amendment dated November 1, 1999.
2. ACCOUNTING POLICIES
(a) Principles of consolidation
All subsidiaries have been included in the consolidated financial
statements. The consolidated wholly owned subsidiaries at April 30, 2000
were as follows:
H-Net.Com Inc. (Canada)
H-Net.Com Inc. (New York)
Alphabytes Computer Corporation (Canada) - ("Alphabytes Canada")
Alpha Bytes Computer Corporation (USA) - ("Alpha Bytes US")
(b) Capital assets
Capital assets are stated at cost less accumulated amortization.
Amortization is calculated at the following annual rates:
Furniture and equipment - 20% declining balance
Vehicles - 30% declining balance
Computer hardware - 30% declining balance
Computer software - 100% declining balance
(c) Foreign currency
The financial statements are expressed in U.S. dollars. Current assets and
liabilities denominated in Canadian dollars at quarter end are translated
into U.S. dollars at the rates of exchange prevailing on that date.
Transactions in foreign currencies are recorded in U.S. dollars at the
rates of exchange prevailing on the date of transactions. Exchange gains
and losses are reflected in the income.
Exchange gains and losses resulting from the consolidation of the Canadian
subsidiary are reflected as an adjustment to the stockholders equity.
(d) Investment tax credits Investment tax credits are accounted for as a
reduction of research and development costs in the year the credits become
available, provided there is reasonable assurance that they will be
realized. Otherwise they are reflected in the year claimed as a reduction
of other expresses.
3. CAPITAL ASSETS
Accumulated Balance
Cost Depreciation 30 Apr, 00 30 Apr, 99
Furniture & equipment $ 58,209 $ 39,719 $ 16,531 $ 20,665
Leasehold Improvements 1,163 640 407 640
Vehicles 38,315 35,618 2,253 3,218
Computer hardware 116,554 59,074 50,852 63,688
Computer software 20,549 19,420 562 2,815
-------- ---------- --------- ---------
$234,790 $ 154,471 $ 70,606 $ 91,027
-------- ---------- --------- ---------
7
<PAGE>
4. CAPITAL STOCK
The company is authorized to issue 30,000,000 common shares. The company
has granted outstanding options to purchase shares as follows:
2,250 employee share options with an exercise price of $0.01 per share
expiring October 31, 2000
2,250 employee share options with an exercise price of $0.01 per share
expiring May 31, 2001
4,500 employee share options with an exercise price of $0.01 per share
expiring October 31, 2001
5. EARNINGS (LOSS) PER SHARE
Earnings per share is calculated using the weighted average number of
common shares outstanding and common share equivalents. The average number
of shares outstanding under this assumption would be as follows:
Quarter Ended April 30, 2000 - 15,646,004
6. COMMENTS - Leases of premises
The company is committed under existing leases to the following minimum
annual rents:
Year ending January 31, 2000 - $ 30,000
January 31, 2001 - $ 24,000
January 31, 2002 - $ 4,000
8
<PAGE>
PART I
------
Item 2. Management's Discussion and Analysis of Financial condition and
------------------------------------------------------------------------
Results of Operations
---------------------
The following discussion and analysis relates to factors, which have affected
the financial condition and results of operations of the Company for its quarter
ended April 30, 2000 and April 30, 1999.
H-NET.COM INC. (Canada), H-NET.COM INC (New York), Alpha Bytes Computer
Corporation (Canada), and Alphabytes Computer Corporation (New York), together
called H-NET Group work in conjunction with each other in maintaining the H-NET
portal, e-commerce activity, portal services, producing, marketing, installing
and supporting the software produced by these companies. H-NET.COM, INC. has no
active income save for the activities of the H-NET Group. Therefore, the
financial information regarding the parent company and its subsidiaries are
presented on a consolidated basis.
Revenues were $431,809 for the quarter year ended Apr 30, 2000 generating a
gross profit of $157,657 as compared to revenues of $161,769 for the quarter
ended Apr 30, 2000, which generated a gross loss of $68,088. The expected R&D
credits, which would increase the profitability in this quarter, were not
calculated. This shows a very strong start to providing a comprehensive e-
commerce program to the optical industry on a global basis.
The expenses increased to $274,152 for the quarter ended Apr 30, 2000 as
compared to $229,857 for the period ending on Apr 30, 2000. Despite the higher
expenses, the net earnings were $ 87,674 for the quarter ended Apr 30, 2000 as
compared to $(37,345) for the period ending Apr 30, 2000. The expected ramp up
in the company's revenue and accompanying improvement in the bottom line are now
underway.
Overall, the major costs were R&D for the H-NET(R) project, wages and
commissions, management fees, office and general, and rents for both periods.
The company invested $58,355 in R&D in this quarter and through careful cost
tracking, the company made a profit. Following a year of large-scale investment,
in the H-NET transaction network, the H-Net website portal, technology and sales
and marketing activities, the company has now begun to realize the anticipated
financial benefits.
The company remains debt free. The cash position of the company decreased to
$995,689, from the $1,187,611of the previous comparative quarter, however a
healthy cash reserve is still provided. Retained earnings declined marginally to
$1,530,165 from $1,611,434 on a comparative basis. Current assets as a whole
changed from $1,351,429 to $1,270,291.
The companies disciplined approach to controlling expenses continues to be
highly beneficial in helping realize net income even while rolling out new H-NET
services. The company is very encouraged by the growth seen from the various
website services. The company continued its development of the Internet based
transaction processor and various web-related services, H-NET(R).
The company initiated development of the H-NET portal for the Vision Care
Industry. It is anticipated strategic partnerships established with Providers,
Payors, Suppliers and Laboratories will substantially strengthen Alpha Bytes'
relationships with key players and trading partners as well as broaden Alpha
Bytes' offering and assist in aggregating a critical mass of users.
All H-NET products will be marketed aggressively through fiscal 2000, where the
impact will be even greater. Expected R&D credits, which would increase the
profitability, were not calculated into this quarter.
"Year 2000 Issue"
---------------
All of the companies new systems are year 2000 compatible and the company does
not expect the "Year 2000" issue to affect its operations, networks, operating
systems or the computers.
9
<PAGE>
PART II
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Item 1. Legal Proceedings
--------------------------
AlphaBytes Computer Corporation (AB), the Canadian subsidiary of Alpha Bytes
INC., is a party to litigation against Gunther Slaton, Sally Engle and
Profitable Packaging Concepts (PPC) Inc. stemming from perpetrated agreements
relating to the operations of Systems By Design Inc (SDI), a company in the
packaging business. In April 1997, an arbitrator in NY issued an award in favor
of Slaton, Engle and PPC, against AB, Anton Stephens, SDI and Peter Markus
jointly and severally. This award totals approximately $405,000, including
interest.
A motion to vacate the award of the arbitrator has been granted by the New York
Supreme Court in part, with reference by the Court to the Arbitrator to consider
whether a previously undisclosed judgment held by Slaton against Peter Markus,
who was to have represented Alpha Bytes and Stephens at the original
arbitration, prejudiced their defense in that proceeding. Mr. Markus, purporting
to be a New York attorney, failed to submit any documents in the defense of the
claim and failed to put forth any counterclaim on behalf of Alpha Bytes or
Stephens even though there was strong evidence available of losses sustained in
this transaction, which had been brokered by Markus.
In the event the order is not vacated, according to Canadian Law any order
against a Canadian company will need to be re-heard in a Canadian Court prior to
enforcement. In the opinion of Management, the ultimate disposition of these
matters will have no material adverse effect on the company's financial
position, results of operations or liquidity.
This matter is in a state of limbo in the court system.
Item 2. Changes in Securities
------------------------------
There were no changes in the Security position of the Company during
the current quarter.
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
-----------------------------------------
NONE.
10
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act 1934, the Registrant duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
H-NET.COM INC.
By
Anton Stephens
President and Director
(Principal Executive Officer)
Date June 01, 2000
By
Christine Stephens
Secretary and Director
Date: June 01, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934. This report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
By
Anton Stephens
President and Director
(Principal Executive Officer)
Date: June 01, 2000
By
Christine Stephens
Secretary and Director
Date: June 01, 2000
11
