U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
____________________
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended January 31, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
HOUSTON INTERWEB DESIGN, INC.
(Exact name of registrant as specified in its charter)
Commission file number: 000-67871
Texas 76-0532709
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1770 St. James Place, Suite 420 77056
(Address of Principal Executive Office) (Zip Code)
713-627-9494
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(Registrant's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [x] No [ ]
As of January 31, 2000 registrant 18,300,050 had shares of Common Stock
outstanding.
HOUSTON INTERWEB DESIGN, INC.
FORM 10-QSB REPORT INDEX
10-QSB PART AND ITEM NO.
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Part I Financial Information
Item 1. Financial Statements (Unaudited)
Balance Sheet as of January 31, 2001.......................... 3
Income Statements January 31, 2001 and 2000................... 4
Statements of Cash Flows for January 31, 2001
and 2000.................................................... 5
Notes to Financial Statements................................. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 6
Part II Other Information
Item 1. Legal Proceedings............................................. 8
Item 2. Changes in Securities......................................... 8
Item 3. Deleted....................................................... 8
Item 4. Deleted....................................................... 8
Item 5. Deleted....................................................... 8
Item 6. Exhibits and Reports on Form 8-K.............................. 9
Signature............................................................... 10
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PART I
HOUSTON INTERWEB DESIGN, INC.
BALANCE SHEET
January 31, July 31,
2001 2000
(Unaudited)
--------------- -----------
Current Assets
Cash $ 366 $ 18,655
Accounts receivable--trade 36,608 54,569
Other 1,132 725
Total Current Assets 38,106 73,950
Furniture and computer equipment, net of accumulated depreciation
of $41,380 and $28,760 respectively 43,932 56,552
Goodwill, net of accumulated amortization of $145,590 and $101,840
respectively 226,250 261,250
Other 300 707
Total Assets 308,588 392,459
Current Liabilities
Accounts payable 191,908 266,788
Accrued expenses 319,846 274,858
Short term Notes 107,706 -
Due to affiliates 951,018 838,822
Total Current Liabilities 1,570,477 1,380,468
Stockholders' Equity
Preferred stock, $01 par value, 5,000,000 shares authorized, no shares issued
or outstanding Common stock, no par value, 50,000,000 shares authorized,
18,300,050 shares issued and outstanding 4,941,945 4,830,537
Subscription receivable (7,050) (7,050)
Retained (deficit) (6,196,802) (5,811,496)
Total Stockholders' Equity (Deficit) (1,261,907) (988,009)
Total Liabilities and Stockholders' Equity $ 308,588 $ 392,459
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HOUSTON INTERWEB DESIGN, INC.
INCOME STATEMENTS
6 months 6 months 3 months 3 months
Ended Jan/01 Ended Jan/00 Ended Jan/01 Ended Jan/00
REVENUES
Affiliate $ - $ 213,746 $ - $ 91,534
Non-affiliate 604,908 584,593 112,209 214,781
TOTAL REVENUES 604,908 798,339 112,209 306,315
EXPENSES
Cost of Revenues 460,467 642,042 131,598 260,453
Selling 49,545 85,781 14,569 47,858
General and Administrative 410,235 745,751 138,756 395,234
Depreciation and Amortization 47,620 61,087 23,810 32,210
Bad Debt Expense 10,158 - 10,158 -
Interest Expense 12,191 - 6,036 -
Interest (Income) (2) (1,107) (1) (442)
TOTAL EXPENSES 990,214 1,533,554 324,926 735,313
NET (LOSS) (385,306) (735,214) (212,717) (428,997)
NET LOSS PER SHARE, BASIC
AND DILUTED $ (0.02) $ (0.04) $ (0.01) $ (0.02)
AVERAGE SHARES OUTSTANDING,
BASIC AND DILUTED 18,282,550 17,921,300 18,282,550 17,921,300
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HOUSTON INTERWEB DESIGN, INC.
STATEMENTS OF CASH FLOWS
For the six months
Ended January 31
-----------------------------------
2001 2000
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Cash Flows from Operating Activities
Net (loss) $(385,306) $(735,214)
Adjustments to reconcile net loss to net cash provided by operating
activities
Bad Debt Expense 10,158 -
Depreciation and amortization 47,620 61,087
Common stock issued for services 103,909 424,500
Changes in:
Accounts Receivable-trade 7,803 (307,928)
Other current assets - (264,964)
Accounts payable (16,049) 81,468
Accrued expenses 90,000 89,112
Customer Deposits (13,843) 21,259
Cash flows (used by) Operating Activities (155,709) (630,681)
Cash flow from Investing and Financing activities
Purchase of assets - (64,736)
Common stock sale 7,500 530,000
Short-term notes 129,901 (249,584)
Cash flows provided (used by) investing and financing activities 137,401 215,681
Net increase in cash (18,308) (415,001)
Cash Balance -- Beginning of the period 18,655 18,988
Cash Balance -- End of the period $ 366 $ 483
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NOTE A - PRESENTATION
The unaudited consolidated financial statements of Houston Interweb Design, Inc.
have been prepared in accordance with generally accepted accounting principles
and the rules of the Securities and Exchange Commission ("SEC"), and should be
read in conjunction with the audited financial statements and note thereto
contained in the Company's latest Annual Report filed with the SEC on Form
10-KSB. In the opinion of management, all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of financial position
and the results of operations for the interim periods presented have been
reflected herein. The results of operations for interim periods are not
necessarily indicative of the results to be expected for the full year. Notes to
the financial statements which would substantially duplicate the disclosure
contained in the audited financial statements for the most recent fiscal year
2000 as reported in the Form 10-KSB, have been omitted.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The statements contained herein and other information contained in this
report may be based, in part, on management's estimates, projections, plans and
judgments. As such, these are forward looking statements and involve a number of
risks and uncertainties. A number of factors, which could cause actual results
to differ significantly include: general economic conditions, competitive market
influences, technology changes, and other influences beyond the control of
management.
GENERAL
The Company recognizes revenue as services are provided, in accordance with
customer agreements. For the quarter ended January 31, 2001, approximately 47%
of the Company's total revenues were derived from two customers Enron and
Houston Chronicle. Royalty income from software licensing agreements is
recognized as it is earned per the individual terms of each royalty agreement,
and is generally comprised of a minimum amount plus a stated percentage of the
applicable licensee's sales. The Company uses the direct write-off method in
accounting for bad debts, the results of which are not materially different from
the allowance method.
The Company accounts for property and equipment at cost with depreciation
calculated using the straight-line method over its estimated useful lives
ranging from five to ten years. When assets are retired or otherwise removed
from the accounts, any resulting gain or loss is reflected in income for the
period. The cost of maintenance and repairs is charged to expense as incurred
and significant renewals and improvements are capitalized.
The Company utilizes the liability method in accounting for income taxes.
Under the liability method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities and are measured using anticipated tax rates and laws that will be
in effect when the differences are expected to reverse. The reliability of
deferred tax assets are evaluated annually and a valuation allowance is provided
if it is likely that the deferred tax assets will not give rise to future
benefits in the Company's tax returns.
The company received notice on March 14, 2001 from Director Michael J. Minihan
of his intent to resign. The company has not yet held a special meeting to
formally accept his resignation.
The company secured an option on February 14, 2001 to:
1) purchase the 80% of OTCNN, Inc. outstanding common stock, or
2) purchase the assets of OTCNN, Inc.
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for cash and HITD shares.
Results of Operations
Results of operations for the six months ended January 31, 2000 compared with
the results of operations for six months ended January 31, 2001, and for the
three months ended January 31, 2000 compared with the three months ended
January 31, 2001.
Revenues decreased from $798,339 for the six months ended January 31, 2000
to $604,908 for the six months ended January 31, 2001. The decrease of $193,432
or 24% is due to general economic conditions. Revenues decreased from $306,315
for the three months ended January 31, 2000 to $112,209 for the three months
ended January 31, 2001. The decrease of $194,106 or 63% is due to general
economic conditions.
Cost of Revenues decreased from $642,042 for the six months ended January 31,
2000 to $460,467 for the six months ended January 31, 2001. The decrease of
$181,574 or 28% is due to increased efficiency and due to general economic
conditions. Cost of Revenues decreased from $260,453 for the three months ended
January 31, 2000 to $131,598 for the three months ended January 31, 2001. The
decrease of $128,855 or 49% is due to increased efficiency and due to general
economic conditions.
Selling expenses decreased from $85,781 for the six months ended January 31,
2000 to $49,545 for the six months ended January 31, 2001. The decrease of
$36,236 or 42% is due to decreases in advertising expense and salaries. Selling
expenses decreased from $47,858 for the three months ended January 31, 2000 to
$14,569 for the three months ended January 31, 2001. The decrease of $33,288 or
70% is due to decreases in advertising expenses and salaries.
General and administrative expenses decreased from $745,751 for the six
months ended January 31, 2000 to $410,235 for the six months ended January 31,
2001. The decrease of $335,516 or 45% is due to decreases in professional fees
and officers' salary expenses. General and administrative expense decreased from
$395,234 for the three months ended January 31, 2000 to $138,756 for the three
months ended January 31, 2001. The decrease of $256,477 or 65% is due to
decreases in professional fees and officers' salary expenses.
Depreciation and amortization decreased from $61,087 for the six months
ended January 31, 2000 to $47,620 for the six months ended January 31, 2001.
The decrease of $13,467 or 22% is due to a decrease in goodwill amortization
associated with the acquisition of Axis Technologies. In July 2000, the company
re-evaluated goodwill associated with acquisition of Axis Technologies that
resulted in a decrease of goodwill by $128,360. Depreciation and amortization
decreased from $32,210 for the three months ended January 31, 2000 to $23,810
for the three months ended January 31, 2001. The decrease of $8,400 or 26% is
due to a decrease in goodwill amortization associated with the acquisition of
Axis Technologies.
Bad Debt Expense increased from $0 for the six months ended January 31, 2000 to
$10,158 for the six months ended January 31, 2001. Bad Debt Expense increased
from $0 for the three months ended January 31, 2000 to $10,158 for the three
months ended January 31, 2001.
Interest expense increased from $0 for the six months ended January 31, 2000 to
$12,191 for the six months ended January 31, 2001. The increase is due to an
increase in short-term convertible loans. Interest expense increased from $0 for
the three months ended January 31, 2000 to $6,036 for the six months ended
January 31, 2001. The increase is due to an increase in short-term convertible
loans.
The Company had a net loss of $735,214 for the period six months ended
January 31, 2000 compared to a net loss of $385,306 for the six months ended
January 31, 2001. The decreased net loss of $349,908 or 48% was due to decreases
in salary expenses, G&A expenses and an increase in operational efficiency. Net
loss per share of common stock decreased from $ (.04) for the six months ended
January 31, 2000, compared to $ (.02) for six months ended January 31, 2001. The
Company had a net loss of $428,997 for the three months ended January 31, 2000
compared to a net
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loss of $212,717 for the three months ended January 31, 2001. The decreased net
loss of $216,218 or 50% was due to decreases in salary expenses, G&A expenses
and an increase in operational efficiency. Net loss per share of common stock
decreased from $(.02) for three months ended January 31, 2000, to $ (.01) for
three months ended January 31, 2001.
The Company may in the future experience significant fluctuations in its
results of operations. Such fluctuations may result in volatility in the price
and/or value of the Company's common stock. Results of operations may fluctuate
as a result of a variety of factors, including demand for the Company's design
and creation of Internet web sites, the introduction of new products and
services, the timing of significant marketing programs, the success of reseller
and license agreements, the number and timing of the hiring of additional
personnel, competitive conditions in the industry and general economic
conditions. Shortfalls in revenues may adversely and disproportionately affect
the Company's results of operations because a high percentage of the Company's
operating expenses are relatively fixed. Accordingly, the Company believes that
period to period comparisons of results of operations should not be relied upon
as an indication of future results of operations. There can be no assurance that
the Company will be profitable. Due to the foregoing factors, it is likely that
in one or more future periods the Company's operating results will be below
expectations.
The Company had a working capital deficit of $1,532,371. Current liabilities are
$1,570,477 of which $951,018 are due to affiliates and officers of the company.
Stockholders' equity deficit was $1,261,907 at January 31, 2001.
LIQUIDITY AND CAPITAL RESOURCES
As of January 31, 2001, the Company's primary source of liquidity was
$366 of cash and $36,608 of accounts receivable.
Net cash used by operating activities for six months ended January 31, 2000
was $630,681 as compared to net cash used in operating activities of $155,709
for the six months ended January 31, 2001. The decrease in net cash used was
primarily attributed to lower net loss for the period, increases in accrued
expenses and decreases in other current assets.
Net cash flow from financing and investing activities decreased from $215,681
for the six months ended January 31, 2000 to $137,401 for the six months ended
January 31, 2001.
The Company's internally generated cash flows from operations have
historically been and continue to be insufficient for its cash needs. As of
January 31, 2001, the Company's sources of external and internal financing were
limited. It is not expected that the internal source of liquidity will improve
until significant net cash is provided by operating activities, and until such
time, the Company will rely upon external sources for liquidity. Until the
Company can obtain monthly sales levels of approximately $70,000 which would be
sufficient to fund current working capital needs, there is uncertainty as to the
ability of the Company to expand its business and continue its current
operations. Management believes that the Company will be able to satisfy its
cash requirements for the next 12 months. Historically, revenues have covered
costs. Management believes that projected revenues from licensees will cover
costs. There is no assurance that the current working capital will be sufficient
to cover cash requirements for the balance of the current fiscal year or to
bring the Company to a positive cash flow position. Lower than expected earnings
resulting from adverse economic conditions or otherwise, could restrict the
Company's ability to expand its business as planned, and if severe enough may
shorten the period in which the current working capital may be expected to
satisfy the Company's requirements, force curtailed operations, or cause the
Company to sell assets.
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PART II
Pursuant to the Instructions to Part II of the Form 10-QSB, Items 3-5 are
omitted.
ITEM 1. LEGAL PROCEEDINGS
The company received a judgement in case No.99-58234 in the District Court of
Harris County 190th Judicial District on February 26, 2001. The judgement of
$516,826 plus pre-judgement interest from November 23, 1999 until February 26,
2001, was awarded for services performed for defendants. The company was also
awarded its attorneys fees in the amount of $25,000. The company is attempting
to negotiate an amicable settlement of all remaining suits against defendants
AMP3.com.
ITEM 2. CHANGES IN SECURITIES
The following information sets forth certain information, as of January 31,
2001, for all securities the Company issued since February 1, 1999, without
registration under the Act, excluding any information "previously reported" as
defined in Rule 12b-2 of the Securities Exchange Act of 1934. There were no
underwriters in any of these transactions.
In December 2000, the Company issued 35,000 shares of company common stock for
professional services rendered. The Company believes these transactions were
exempt from registration pursuant to Section 4(2) of the Securities Act as
isolated transactions by an issuer not involving a public offering. As
accredited investors these individuals were able to fend for themselves due to
their exceptional business experience.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are to be filed as part of this Form 10-QSB:
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
- ----------- -------------------------
3.1/1/ Amended and Restated Articles of Incorporation
3.2/1/ Articles of Amendment to the Articles of Incorporation
3.3/1/ By-Laws of the company
3.4/1/ Articles of Correction to the Amended and Restated Articles of
Incorporation
3.5/1/ Articles of Correction to the Articles of Amendment to the
Articles of Incorporation
4.1/1/ Form of Specimen of common stock
10.1/1/ Letter Agreement between the company and PinkMonkey.com, Inc.
10.2/1/ Software License and Marketing Agreement between the company and
Websource Media, L.L.C.
10.3/1/ Software Reseller Agreement between the company and Harry Bauge
10.4/1/ Letter Agreement between the company and Harry Bauge
10.5/1/ Agreement between the company and NetTrade Online, L.L.C.
10.6/1/ Employment Agreement between the company and Harry White
10.7/1/ Employment Agreement between the company and Richard Finn
10.8/1/ Employment Agreement between the company and Lee Magness
10.9/1/ Lease Agreement
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/1/ Filed as an Exhibit to the company's registration statement on Form SB-2
(File No. 67871) on June 15, 1999, and herein incorporated by reference.
/2/ Filed herewith.
(b) There have been no reports filed on Form 8-K.
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SIGNATURES
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the undersigned, thereunto duly authorized.
Houston Interweb Design, Inc.
Date: March 26, 2001 /s/ HARRY L. WHITE
-----------------------------
Harry L. White
President and Chief Executive Officer
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