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 April 30, 2002
[ ] 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)
5599 San Felipe, Suite 975 77056
- --------------------------------------- ---------
(Address of Principal Executive Office) (Zip Code)
713-627-9494
--------------------------------------------------
(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 April 30, 2002 registrant had 24,435,477 shares of Common Stock
outstanding.
HOUSTON INTERWEB DESIGN, INC.
FORM 10-QSB REPORT INDEX
10-QSB PART AND ITEM NO.
- ------------------------
Part I Financial Information
Item 1. Financial Statements (Unaudited)
Balance Sheet as of April 30, 2002 ........................... 3
Income Statements April 30, 2002 and 2001 .................... 4
Statements of Cash Flows for April 30, 2002
and 2001 ................................................... 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
2
PART I
HOUSTON INTERWEB DESIGN, INC.
BALANCE SHEET
April 30, July 31,
2002 2001
(Unaudited)
--------------- -----------
Current Assets
Cash $ 1,204 $ 846
Accounts receivable--trade 20,142 39,720
Other 10,300 11,025
Total Current Assets 31,646 51,591
Other 407 407
Total Assets 32,053 51,998
Current Liabilities
Accounts payable 329,010 177,972
Accrued expenses 388,715 378,442
Short term Notes 81,397 36,569
Due to affiliates 953,198 904,041
Total Current Liabilities 1,752,320 1,497,024
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,
24,435,477 shares issued and outstanding 5,232,826 5,232,826
Retained (deficit) (6,953,093) (6,677,852)
Total Stockholders' Equity (Deficit) (1,720,267) (1,445,026)
Total Liabilities and Stockholders' Equity $ 32,053 $ 51,998
3
HOUSTON INTERWEB DESIGN, INC.
INCOME STATEMENTS
(Unaudited)
9 months 9 months 3 months 3 months
Ended Apr/02 Ended Apr/01 Ended Apr/02 Ended Apr/01
------------ ------------ ------------ ------------
REVENUES
Affiliate $ - $ - $ - $ -
Non-affiliate 128,089 680,053 49,427 75,145
TOTAL REVENUES 128,089 680,053 49,427 75,145
EXPENSES
Cost of Revenues 93,600 558,155 30,000 98,413
Selling - 55,283 - 5,972
General and Administrative 295,204 552,683 91,050 146,288
Depreciation and Amortization - 71,430 - 23,810
Bad Debt Expense - 19,003 - 17,421
Interest Expense 14,526 18,227 4,842 6,036
Interest (Income) - (2) - (0)
TOTAL EXPENSES 403,330 1,274,779 125,892 297,940
NET (LOSS) (275,241) (594,726) (76,465) (222,795)
NET LOSS PER SHARE, BASIC
AND DILUTED $ (0.01) $ (0.02) $ (0.00) $ (0.01)
AVERAGE SHARES OUTSTANDING,
BASIC AND DILUTED 24,435,477 24,420,477 24,435,477 24,420,477
4
HOUSTON INTERWEB DESIGN, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
For the nine months
Ended April 30,
---------------------------------
2002 2001
------------ -----------
Cash Flows from Operating Activities
Net (loss) $(275,241) $(595,746)
Adjustments to reconcile net loss to net cash
Provided by operating activities
Bad Debt Expense - 19,003
Depreciation and amortization - 71,430
Common stock issued for services - 167,609
Changes in:
Accounts Receivable-trade 19,578 (579,498)
Other current asets 725 (143,165)
Accounts payable 151,038 31,754
Accrued expenses 10,273 130,256
Customer Deposits - -
Cash flows (used by) Operating Activities (93,627) (993,606)
Cash flow from Financing activities
Common stock sale - 730,625
Short-term notes 44,828 -
Due to affiliates 49,157 (10,200)
Purchase of assets (4,736)
Cash flows provided by financing
activities 93,985 715,689
Net increase (decrease) in cash 358 (277,917)
Cash Balance -- Beginning of the period 846 282,359
Cash Balance -- End of the period $ 1,204 $ 4,442
5
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
2001 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 April 30, 2002, approximately 43%
of the Company's total revenues were derived from four customers. 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.
6
Results of Operations
Results of operations for the nine months ended April 30, 2001 compared with the
results of operations for nine months ended April 30, 2002, and for the three
months ended April 30, 2001 compared with the three months ended April 30, 2002.
Revenues decreased from $680,053 for the nine months ended April 30, 2001 to $
128,089 for the nine months ended April 30, 2002. The decrease of $551,964 or
81% is due to general economic conditions. Revenues decreased from $75,145 for
the three months ended April 30, 2001 to $49,427 for the three months ended
April 30, 2002. The decrease of $25,718 or 34% is due to general economic
conditions.
Cost of Revenues decreased from $558,155 for the nine months ended April 30,
2001 to $93,600 for the nine months ended April 30, 2002. The decrease of
$464,555 or 83% is due to increased efficiency and decreased personnel costs.
Cost of Revenues decreased from $98,413 for the three months ended April 30,
2001 to $30,000 for the three months ended April 30, 2002. The decrease of
$68,413 or 70% is due to increased efficiency and decreased personnel costs.
Selling expenses decreased from $55,283 for the nine months ended April 30, 2001
to $0 for the nine months ended April 30, 2002. The decrease of $55,283 or 100%
is due to decreases in advertising expense and salaries. Selling expenses
decreased from $5,972 for the three months ended April 30, 2001 to $0 for the
three months ended April 30, 2002. The decrease of $5,972 or 100% is due to
decreases in advertising expenses and salaries.
General and administrative expenses decreased from $552,683 for the nine months
ended April 30, 2001 to $295,204 for the nine months ended April 30, 2002. The
decrease of $257,479 or 47% is due to decreases in professional fees and
officers' salary expenses. General and administrative expense decreased from
$146,288 for the three months ended April 30, 2001 to $91,050 for the three
months ended April 30, 2002. The decrease of $55,238 or 38% is due to decreases
in professional fees and officers' salary expenses.
Depreciation and amortization decreased from $71,430 for the nine months ended
April 30, 2001 to $0 for the nine months ended April 30, 2002. The decrease of
$71,430 or 100% is due to the write down of goodwill associated with the
acquisitions of Axis Technologies and Team Productions, Inc. and the liquidation
of all furniture, fixtures and equipment owned by the company. Depreciation and
amortization decreased from $23,810 for the three months ended April 30, 2001 to
$0 for the three months ended April 30, 2002. The decrease of $23,810 or 100% is
due to the write down of goodwill associated with the acquisitions of Axis
Technologies and Team Productions, Inc. and the liquidation of all furniture,
fixtures and equipment owned by the company.
Bad Debt Expense decreased from $10,158 for the nine months ended April 30, 2001
to $0 for the nine months ended April 30, 2002. Bad Debt Expense decreased from
$10,158 for the three months ended April 30, 2001 to $0 for the three months
ended April 30, 2002.
Interest expense decreased from $18,227 for the nine months ended April 30, 2001
to $14,526 for the nine months ended April 30, 2002. The decrease is due to a
decrease in short-term convertible loans. Interest expense decreased from $6,036
for the three months ended April 30, 2001 to $4,842 for the three months ended
April 30, 2002. The decrease is due to an decrease in short-term convertible
loans.
The Company had a net loss of $594,726 for the period nine months ended April
30, 2001 compared to a net loss of $275,241 for the nine months ended April 30,
2002. The decreased net loss of $319,485 or 54% 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 the nine months ended April 30,
2001, compared to $ (.01) for nine months ended April 30, 2002. The Company had
a net loss of $222,795 for the three months ended April 30, 2001 compared to a
net loss of $76,465 for the three months ended April 30, 2002.
7
The decreased net loss of $146,330 or 66% 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 $(.01) for three months ended April 30,
2001, to $ (.00) for three months ended April 30, 2002.
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 $1,720,674. Current liabilities are
$1,752,320 of which $953,198 are due to affiliates and officers of the company.
Stockholders' equity deficit was $1,720,267 at April 30, 2002.
LIQUIDITY AND CAPITAL RESOURCES
As of April 30, 2002, the Company's primary source of liquidity was $1,204 of
cash and $20,142 of accounts receivable.
Net cash used by operating activities for nine months ended April 30, 2001 was
$993,606 as compared to net cash used in operating activities of $93,627 for the
nine months ended April 30, 2002. The decrease in net cash used was primarily
attributed to lower net loss for the period and increases in accounts payable.
Net cash flow from financing and investing activities decreased from $715,689
for the nine months ended April 30, 2001 to $93,985 for the nine months ended
April 30, 2002.
The Company's internally generated cash flows from operations have historically
been and continue to be insufficient for its cash needs. As of April 30, 2002
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 $50,000, 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.
8
PART II
Pursuant to the Instructions to Part II of the Form 10-QSB, Items 3-5 are
omitted.
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
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
- ---------------
/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.
9
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: June 18, 2002 /s/ LEE A. MAGNESS
-----------------------------
Lee A. Magness
President and Chief Executive Officer
10