<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 October 31, 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.NET INC.
-------------
Exact name of registrant as specified in its charter)
Colorado 84-1064958
---------------------------------------------------
(State or other jurisdiction of I.R.S. Employer
Incorporation or organization) Identification Number)
345 THIRD STREET, SUITE 645, NIAGARA FALLS, NEW YORK 14303
-------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
905-475-3249
------------
(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 October 31, 2000.
1
<PAGE>
INDEX
-----
<TABLE>
<CAPTION>
Part I Financial Information Page Number
------ --------------------- -----------
<S> <C> <C>
Item 1 Consolidated Balance Sheet, 3
October 31, 2000 (unaudited)
Consolidated Statement of Earnings for Quarter Ended 4
October 31, 2000 (unaudited)
Consolidated Statement of Stockholders Equity 5
Consolidated Statement of Cash Flow for Quarter Ended 6
October 31, 2000
Notes to Financial Statements 7 - 8
Item II Management Discussion and Analysis of Financial Conditions 9 - 10
And Results of Operations
Part II Other Information 11
------- -----------------
</TABLE>
2
<PAGE>
H-NET. NET INC.
CONSOLIDATED BALANCE SHEET
AS AT OCTOBER 31, 2000
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Oct 31 Oct 31
Note 2000 1999
---- ---- ----
<S> <C> <C> <C>
ASSETS
Current:
Cash $ 301,570 $ 435,119
Available-for-sale securities 2 359,143 619,570
Accounts receivable 250,844 219,222
Income taxes recoverable 229,824 82,257
Prepaid expenses and sundry assets 56,795 33,127
----------- -----------
1,198,176 1,389,295
Long term:
Deferred stock issuance costs 89,000 --
Capital assets 3 65,165 80,319
----------- -----------
154,165 80,319
----------- -----------
TOTAL ASSETS $ 1,352,341 $ 1,469,614
=========== ===========
LIABILITIES
Current:
Accounts payable and accrued liabilities $ 172,281 $ 29,509
Deferred income taxes payable 62,262 66,180
----------- -----------
TOTAL LIABILITIES 234,543 95,689
----------- -----------
STOCKHOLDERS' EQUITY
Capital stock 4 506,452 427,197
Less Treasury Stock at cost (164,030) (134,639)
Share purchase warrants 1,090 115
Retained earnings 1,322,217 1,642,226
Unrealized holding gain (loss) on available-for-sale securities (388,501) (379,256)
Foreign exchange adjustment (159,430) (181,718)
----------- -----------
1,117,798 1,373,925
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,352,341 $ 1,469,614
=========== ===========
</TABLE>
3
<PAGE>
H-NET.NET INC.
CONSOLIDATED STATEMENT OF EARNINGS
QUARTER ENDED OCTOBER 31, 2000
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Oct. 31 Oct. 31
2000 1999
---- ----
<S> <C> <C> <C>
REVENUE
Sales $ 402,396 $ 263,650
Investment income 8,037 9,886
----------- -----------
410,433 273,536
EXPENSES
Direct costs 519,597 0
Research and development 6 40,873 71,047
Wages, management and consulting fees 106,176 47,178
Professional fees 20,291 9,304
General and administrative 74,069 1,535
Travel and promotion 62,439 115,478
Amortization 5,563 7,823
----------- -----------
829,008 252,365
EARNINGS BEFORE INCOME TAXES (418,575) 21,171
Provision for income taxes: (173,150) 8,730
----------- -----------
NET EARNINGS (LOSS) $ (245,425) 12,441
=========== ===========
EARNINGS PER SHARE 7 $ (0.016) $ 0.002
=========== ===========
</TABLE>
4
<PAGE>
H-NET.NET INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
QUARTER ENDED OCTOBER 31, 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, 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 -- -- -- -- -- --
Unrealized loss on available for sale securities -- -- -- -- -- --
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 --
---------------------------------------------------------------------------
BALANCE AS AT APRIL 30, 2000 15,646,004 500,377 109,000 1,090 268,878 (177,308)
Net earnings for 3 months ended July 31, 2000 -- -- -- -- -- --
Foreign exchange adjustment -- -- -- -- -- --
Shares issued as compensation for services received -- -- -- -- (7,500) 3,267
Unrealized loss on available for sale securities -- -- -- -- -- --
---------------------------------------------------------------------------
BALANCE AS AT JULY 31, 2000 15,646,004 500,377 109,000 1,090 261,378 174,041
Net earnings for 3 months ended October 31, 2000 -- -- -- -- -- --
Foreign exchange adjustment -- -- -- -- -- --
Unrealized loss on available for sale securities -- -- -- -- -- --
Purchase of stock on open market -- -- -- -- 5,500 (9,937)
Sale of stock on open market -- 6,075 -- -- (6,000) 6,410
Given as compensation for services received -- -- -- -- (20,000) 13,538
---------------------------------------------------------------------------
BALANCE AS AT OCTOBER 31, 2000 15,646,004 506,452 109,000 1,090 240,878 (164,030)
===========================================================================
<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, 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)
Unrealized loss on available for sale securities -- (46,058) -- (46,058)
Purchase of stock on open market -- -- -- (9,210)
Sale of stock on open market -- -- -- 97,722
Stock split -- -- -- --
---------------------------------------------------------------------
BALANCE AS AT APRIL 30, 2000 1,530,165 (370,040) (161,399) 1,322,885
Net earnings for 3 months ended July 31, 2000 37,477 -- -- 37,477
Foreign exchange adjustment -- -- 549 549
Shares issued as compensation for services received -- -- -- 3,267
Unrealized loss on available for sale securities -- (28,274) -- (28,274)
---------------------------------------------------------------------
BALANCE AS AT JULY 31, 2000 1,567,642 (398,314) (160,850) 1,335,904
Net earnings for 3 months ended October 31, 2000 (245,425) -- -- (245,425)
Foreign exchange adjustment -- -- 1,420 1,420
Unrealized loss on available for sale securities -- 9,813 -- 9,813
Purchase of stock on open market -- -- -- (9,937)
Sale of stock on open market -- -- -- 12,485
Given as compensation for services received -- -- -- 13,538
---------------------------------------------------------------------
BALANCE AS AT OCTOBER 31, 2000 1,322,217 (388,501) (159,430) 1,117,798
=====================================================================
</TABLE>
5
<PAGE>
H-NET.NET INC.
CONSOLIDATED STATEMENT OF CASH FLOW
QUARTER ENDED OCTOBER 31, 2000
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Oct 31 Oct 31
2000 1999
---- ----
<S> <C> <C>
CASH WAS PROVIDED BY (USED FOR):
OPERATING ACTIVITIES
Net earning $(245,425) $ 12,442
Amortization 5,563 7,823
--------- ---------
(239,862) 20,265
--------- ---------
Changes in non-cash working capital items:
Accounts receivable 86,415 (26,136)
Prepaid expenses and sundry assets (1,747) 643
Accounts payable and accrued liabilities 92,813 3,301
Income taxes payable (net of ITC) -- --
Income taxes recoverable (194,847) (16,735)
--------- ---------
(257,228) (18,663)
--------- ---------
FINANCING ACTIVITIES
Unrealized holding loss on available for sale securities 9,813 (42,082)
Gain on sale of treasury stock 26,021 --
Disposition (Purchase) of stock for treasury (9,937) (1,560)
Deferred stock issuance costs -- --
Foreign exchange adjustment 1,420 3,814
--------- ---------
27,317 (39,828)
--------- ---------
INVESTING ACTIVITIES
Net purchase of capital assets -- (4,438)
Net disposal of available for sale securities 283,582
--------- ---------
279,144
--------- ---------
INCREASE IN CASH AND AVAILABLE-FOR-SALE
SECURITIES (229,911) 220,653
Cash and available-for-sale securities at the beginning 890,624 214,466
--------- ---------
Of the period
CASH AND AVAILABLE-FOR-SALE SECURITIES
AT THE END OF THE PERIOD $ 660,713 $ 435,119
========= =========
</TABLE>
6
<PAGE>
H-NET.NET, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED OCTOBER 31, 2000
(Expressed in U.S. dollars)
1. CHANGE OF NAME
The Public Corporation changed its name from H-Net.Com Inc. to H-NET.NET
Inc. by Articles of Amendment dated August 6, 2000.
2. ACCOUNTING POLICIES
(a) Principles of consolidation
All subsidiaries have been included in the consolidated financial
statements. The consolidated wholly owned subsidiaries at October 31, 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
<TABLE>
<CAPTION>
Accumulated Balance
Cost Depreciation 31 Oct, 00 31 Oct, 99
<S> <C> <C> <C> <C>
Furniture & equipment $ 58,211 $ 43,418 $ 14,793 $ 18,490
Leasehold Improvements 1,163 873 290 523
Vehicles 38,315 36,427 1,888 2,697
Computer hardware 125,238 77,232 48,006 57,480
Computer software 21,476 21,288 188 1,129
-------- -------- -------- --------
$244,403 $179,238 $ 65,165 $ 80,319
-------- -------- -------- --------
</TABLE>
7
<PAGE>
H-NET.NET, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED OCTOBER 31, 2000
(Expressed in U.S. dollars)
4. CAPITAL STOCK
The company is authorized to issue 100,000,000 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 Oct 31, 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>
H-NET.NET, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED OCTOBER 31, 2000
(Expressed in U.S. dollars)
PART I
------
Item 2. Management's Discussion and Analysis of Financial condition and Results
------ ------------------------------------------------------------------------
of Operations
-------------
Introduction
------------
Our disclosure and analysis in this report contain forward-looking statements,
which provide our current expectations or forecasts of future events. In
particular, these include statements relating to future actions, prospective
products, future performance or results of current and anticipated products,
sales efforts, expected performance of third-parties, expected completion dates
for new product releases, expenses, the outcome of contingencies such as legal
proceedings, and financial results. From time to time, we also may provide oral
or written forward-looking statements in other materials we release to the
public. Any or all of our forward-looking statements in this report and in any
other public statements we make may turn out to be incorrect. We may make
inaccurate assumptions and known or unknown risks and uncertainties can affect
our forward-looking statements. Consequently, these statements cannot be
guaranteed and our actual results may differ materially.
We undertake no obligation to publicly update any forward-looking statements,
whether as a result of new information, future events or otherwise. You are
advised, however, to consult any further disclosures we make on related subjects
in our Quarterly Reports on Form 10Q, Form 8-K and Annual Reports on Form 10-K.
Also note that we provide a cautionary discussion of risks, uncertainties and
possibly inaccurate assumptions relevant to our business under the caption Risks
within Item 2 of this report. These are risks that we think could cause our
actual results to differ materially from expected and or historical results.
About H-NET
-----------
H-NET.NET offers Web design, various development services and business
application software for the vision care industry over its Web site,
http://www.h-net.net, as well as a continuing education program for license
--------------------
maintenance and training of optometrists, opticians, technicians and other eye
care professionals. Other offerings provide supply chain automation and hosted
services, information on new technologies, available products and industry news
and advertising opportunities in the company's Web magazine, "Visions."
-------
Results Of Operations
---------------------
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 and portal services and producing, marketing,
installing and supporting the software produced by these companies. The
financial information regarding the parent company and its subsidiaries are
presented on a consolidated basis.
Revenues were $410,433 for the quarter ended Oct 31, 2000 compared to revenues
of $273,536 for the quarter ended Oct 31, 1999. This revenue increase of over
50% reflecting a growing revenue stream from the previous comparative quarter,
showing a strong continuation to providing comprehensive e-commerce and related
services to the optical industry on a global basis.
Earnings (losses) before income taxes for the quarter ended Oct 31, 2000 were
$(418,575) in comparison with $21,171 for the quarter ended Oct 31, 1999. The
expected R&D credits, which would increase the earnings in this quarter, were
not calculated. The expenses of $309,411 and the direct costs of $519,597
increased for the quarter ended Oct 31, 2000 as compared to expenses of $252,365
for the period ending on Oct 31, 1999. This increase in the overall expenses was
primarily attributed to Web related hardware costs and the purchase of a `state
of the art' booth in order to project the new H-NET image at trade shows. These
extraordinary costs are expected to be significantly lower in future quarters.
In addition, across the board higher expenses were incurred in this quarter, to
promote, expand and secure global contracts. Due to these efforts, significant
developments are expected in 2001 when these pending global contracts get
underway.
In comparison with the previous year, the expected consolidation of revenue and
the subsequent ramp up accompanied by improvements in the bottom line are now
underway with large scale developments expected in 2001.
9
<PAGE>
H-NET.NET, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED OCTOBER 31, 2000
(Expressed in U.S. dollars)
Item 2. Management's Discussion and Analysis of Financial condition and Results
------ -----------------------------------------------------------------------
of Operations continued..
-----------------------
Overall, the major costs were Research & Development for the H-NET(R) project,
wages and commissions, management fees, office and general, and rents for both
periods. The company invested $40,873 in R&D in this quarter and through careful
cost tracking, the company was able to reduce the expenses compared with the
comparable quarter an year ago. 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 consolidate these efforts
and make significant progress towards providing a global solution.
Despite making significant investments into expanding the company, its products
and awareness on a global basis, the company remains debt free. The cash
position of the company decreased to $660,713 from the $1,054,689 of the
previous comparative quarter, maintaining a healthy cash reserve. Retained
earnings declined marginally to $1,322,217 from $1,642,226 on a comparative
basis. Current assets as a whole changed from $1,389,295 to $1,198,176.
The company's disciplined approach to controlling expenses coupled with a
significant effort by key personnel has been beneficial in assisting to maintain
a solid revenue flow while promoting H-NET services on a global basis and
distributing the new H-NET services. The company is encouraged by the growth
seen from its various website services. The company continued its development of
an Internet based transaction processor and various web-related services, H-
NET(R).
The company continued development of the H-NET portal with additional services
for the Vision Care Industry. It is anticipated that further strategic
partnerships established with providers, payors, suppliers and laboratories will
substantially strengthen H-NET's relationships with key players and trading
partners as well as broaden H-NET's offerings and assist in aggregating a
critical mass of users on a global basis.
All H-NET products continued to be marketed through fiscal 2000, where the
impact is expected to provide significant gains in 2001. Expected R&D credits,
which typically impact the bottom line, were not calculated into this quarter.
The company remains debt free.
10
<PAGE>
H-NET.NET, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED OCTOBER 31, 2000
(Expressed in U.S. dollars)
PART II
-------
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 $425,000, including
interest.
While the Judgement has now been registered, the company continues its battle
with the Courts to reconsider the decision of the Arbitrator whereby 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.
Courts in Niagara Falls, New York have scheduled further hearings to determine
the outcome. 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.
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.
11
<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 Dec 13, 2000
By
Christine Stephens
Secretary and Director
Date: Dec 13, 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: Dec 13, 2000
By
Christine Stephens
Secretary and Director
Date: Dec 13, 2000
12
