<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 July 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.COM 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 July 31, 2000.
1
<PAGE>
INDEX
-----
<TABLE>
<CAPTION>
Part I Financial Information Page Number
------ --------------------- -----------
<S> <C> <C>
Item 1 Consolidated Balance Sheet, 3
July 31, 2000 (unaudited)
Consolidated Statement of Earnings for Quarter Ended 4
July 31, 2000 (unaudited)
Consolidated Statement of Stockholders Equity 5
Consolidated Statement of Cash Flow for Quarter Ended 6
July 31, 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
------- -----------------
</TABLE>
2
<PAGE>
H-NET.COM INC.
CONSOLIDATED BALANCE SHEET
AS AT JULY 31, 2000
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Jul. 30 Jul. 30
Note 2000 1999
---- ---- ----
<S> <C> <C> <C>
ASSETS
Current:
Cash $ 462,253 $ 214,466
Available-for-sale securities 2 428,371 903,152
Accounts receivable 337,259 193,084
Income taxes recoverable 34,977 65,522
Prepaid expenses and sundry assets 55,048 33,770
----------- -----------
1,317,908 1,409,994
Long term:
Deferred stock issuance costs 89,000 -
Capital assets 3 70,726 83,704
----------- -----------
159,726 83,704
----------- -----------
TOTAL ASSETS $ 1,477,634 $ 1,493,698
=========== ===========
LIABILITIES
Current:
Accounts payable and accrued liabilities $ 79,468 $ 26,208
Deferred income taxes payable 62,262 66,180
----------- -----------
TOTAL LIABILITIES 141,730 92,388
----------- -----------
STOCKHOLDERS' EQUITY
Capital stock 4 500,377 385,427
Less Treasury Stock at cost (174,041) (109,195)
Share purchase warrants 1,090 18,000
Retained earnings 1,567,642 1,629,784
Unrealized holding gain (loss) on available-for-sale securities (398,314) (337,174)
Foreign exchange adjustment (160,850) (185,532)
----------- -----------
1,335,904 1,401,310
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,477,634 $ 1,493,698
=========== ===========
</TABLE>
3
<PAGE>
H-NET.COM INC.
CONSOLIDATED STATEMENT OF EARNINGS
QUARTER ENDED JULY 31, 2000
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Jul. 31 Jul. 31
2000 1999
---- ----
<S> <C> <C>
REVENUE
Sales $ 384,113 $ 220,907
Investment income 20,761 (817)
----------- -----------
404,874 220,090
EXPENSES
Research and development 6 74,530 86,368
Wages, management and consulting fees 94,772 54,800
Professional fees 12,990 9,542
General and administrative 105,342 12,488
Travel and promotion 48,725 13,727
Amortization 5,705 7,323
----------- -----------
342,064 184,248
EARNINGS BEFORE INCOME TAXES 62,810 35,842
Provision for income taxes: 25,333 17,492
----------- -----------
NET EARNINGS (LOSS) $ 37,477 $ 18,350
=========== ===========
EARNINGS PER SHARE 7 $ 0.002 $ 0.002
=========== ===========
</TABLE>
4
<PAGE>
H-NET.COM INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
QUARTER ENDED JULY 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, 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
-----------------------------------------------------------------------------
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 -
-----------------------------------------------------------------------------
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 - - - - - -
Exercise of options - - - - - -
-----------------------------------------------------------------------------
BALANCE AS AT JULY 31, 2000 15,646,004 500,377 109,000 1,090 261,378 (174,041)
=============================================================================
<CAPTION>
Unrealized
Holding Loss Foreign
Retained on Available Exchange
Earnings for Sale of 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 (206,288) - - (206,288)
Foreign exchange adjustment for 2000 - - (2,723) 2,723
Unrealized loss on available-for-sale securities - (30,524) - (30,524)
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
---------------------------------------------------------------------
BALANCE AS AT JANUARY 31, 2000 1,442,491 (323,982) (158,542) 1,195,614
Net earnings for 3 months ended April 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 - (46,058) - (46,058)
Exercise of options - - - -
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) 1,322,884
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)
Exercise of options - - - -
---------------------------------------------------------------------
BALANCE AS AT JULY 31, 2000 1,567,642 (398,314) (160,850) 1,335,904
=====================================================================
</TABLE>
5
<PAGE>
H-NET.COM INC.
CONSOLIDATED STATEMENT OF CASH FLOW
QUARTER ENDED JULY 31, 2000
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Jul 31 Jul 31
2000 1999
---- ----
<S> <C> <C>
CASH WAS PROVIDED BY (USED FOR):
OPERATING ACTIVITIES
Net earnings $ 37,477 $ 18,350
Amortization 5,705 7,323
---------- ----------
43,182 25,673
---------- ----------
Changes in non-cash working capital items:
Accounts receivable (261,241) (67,826)
Prepaid expenses and sundry assets (2,465) (12,354)
Accounts payable and accrued liabilities 34,718 (23,655)
Income taxes payable (net of ITC) - -
Income taxes recoverable 111,024 (48,378)
---------- ----------
(74,782) (126,540)
---------- ----------
FINANCING ACTIVITIES
Unrealized holding loss on available for sale securities (28,274) ( 14,469)
Gain on sale of treasury stock 3,267 74,460
Disposition (Purchase) of stock for treasury - -
Deferred stock issuance costs - -
Foreign exchange adjustment 549 (3,444)
---------- ----------
(24,458) 56,547
---------- ----------
INVESTING ACTIVITIES
Net purchase of capital asset (5,825) -
Net purchase of available for sale securities - -
Marketable securities - restricted - -
---------- ----------
(5,825) -
---------- ----------
INCREASE IN CASH AND AVAILABLE-FOR-SALE
SECURITIES (105,065) (69,993)
Cash and available-for-sale securities at the beginning 995,689 1,187,611
Of the period ---------- ----------
CASH AND AVAILABLE-FOR-SALE SECURITIES
AT THE END OF THE PERIOD $ 890,624 $1,117,618
========== ==========
</TABLE>
6
<PAGE>
H-NET.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED JULY 31, 2000
(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 July 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 Jul, 00 31 Jul, 99
<S> <C> <C> <C> <C>
Furniture & equipment $ 58,208 $ 42,548 $ 15,660 $ 20,159
Leasehold Improvements 1,163 814 349 640
Vehicles 38,315 36,244 2,071 2,958
Computer hardware 125,238 72,967 52,271 58,615
Computer software 21,476 21,101 562 1,972
-------- -------- -------- --------
$234,790 $173,674 $ 70,726 $ 91,027
-------- -------- -------- --------
</TABLE>
7
<PAGE>
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 July 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>
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 July 31, 2000 and July 31, 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 $404,874 for the quarter year ended Jul 31, 2000 generating a
gross profit of $62,810 as compared to revenues of $35,842 for the quarter ended
Jul 31, 1999, which generated a gross profit of $35,482. 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 $342,064 for the quarter ended Jul 31, 2000 as
compared to $184,248 for the period ending on Jul 31, 1999. Despite the higher
expenses, the net earnings were $ 37,477 for the quarter ended Jul 31, 2000 as
compared to $18,350 for the period ending Jul 31, 1999. The expected ramp up in
the company's revenue and accompanying improvement in the bottom line are now
underway. A profitable global revenue model is generating promising early
results.
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 $74,530 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 some of th
anticipated financial benefits. This profitable new global revenue model
The company remains debt free. The cash position of the company decreased to
$890,624, from the $1,117,618 of the previous comparative quarter, however a
healthy cash reserve is still provided. Retained earnings declined marginally to
$1,567,642 from $1,629,784 on a comparative basis. Current assets as a whole
changed from $1,409,994 to $1,317,908.
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 continued 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 H-NET's
relationships with key players and trading partners as well as broaden H-NET's
offering and assist in aggregating a critical mass of users. H-NET will continue
to roll out new services such as Internet/Website services, advanced hosting and
communications gateways, call center and telephone auto-attendant technologies
and business applications services.
All H-NET products will be marketed aggressively throughout this year, 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
-------
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 Sep 13, 2000
By
Christine Stephens
Secretary and Director
Date: Sep 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: Sep 13, 2000
By
Christine Stephens
Secretary and Director
Date: Sep 13, 2000
11
