U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended October 31, 1999
[ ] 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
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1770 St. James Place, Suite 420 77056
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(Address of Principal Executive Office) (Zip Code)
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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 October 31, 1999 registrant had 17,780,800 shares of Common Stock outstanding.
HOUSTON INTERWEB DESIGN, INC.
FORM 10-QSB REPORT INDEX
Part I Financial Information
Item 1. Financial Statements (Unaudited)
Balance Sheet as of October 31, 1999.......................... 1
Statements of Operations October 31, 1999 and 1998............ 2
Statements of Cash Flows for October 31, 1999
and 1998................................................. 3
Notes to Financial Statements................................. 4
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 5
Part II Other Information
Item 1. Deleted........................................................ 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............................... 8 Signature................................................................ 9 |
Houston Interweb Design, Inc.
Statement of Operations
(Unaudited)
Three Months
Ended October 31,
1999 1998
REVENUES
Affiliates 142,983 97,699
Nonaffiliates 316,147 35,503
TOTAL REVENUES 459,130 133,202
EXPENSES
Advertising 18,659 16,691
Computer equipment 25,277 14,473
Consulting costs 118,576 0
Contract labor 5,560 6,535
Depreciation and amortization 28,877 0
General and administrative 15,923 24,353
Interest 6,053 1,320
Internet Service 17,228 9,040
LEC fees 63,686 0
Professional fees 68,331 66,328
Rent 33,715 18,636
Repairs and maintenance 1,231 722
Salaries and benefits 297,472 119,657
Supplies 4,739 2,739
Telephone 8,482 2,928
Travel 21,678 5,906
TOTAL EXPENSES 735,486 289,328
LOSS BEFORE FEDERAL INCOME TAXES (276,356) (156,126)
NET LOSS (276,356) (156,126)
NET LOSS PER SHARE, BASIC AND DILUTED (0.02) (0.01)
AVERAGE SHARES OUTSTANDING, BASIC AND
DILUTED 17,389,800 16,181,595
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Houston Interweb Design, Inc
Balance Sheets
31-Oct-99 31-Jul-99
(unaudited)
Assets
Current Assets
Cash 134,111 412,614
Accounts Receivable 703,077 424,952
Other 8,087 (291,917)
Total Current Assets 845,276 545,650
Equipment & Fixtures 62,921 45,919
Net Intangible Assets 481,257 462,400
Other Assets 407 407
Total Assets 1,389,860 1,054,376
Liabilities and stockholders' equity
Current Liabilities 253,891 441,550
Long Term Liabilities 273,000 273,000
Total Liabilities 526,891 714,550
Stockholders' Equity
Common Stock, no par value, 50,000,000
shares authorized, 17,389,800 and
17,780,800 shares issued and outstanding
at July 31, 1999 and October 31, 1999
respectively 3,095,650 2,296,150
Retained Earnings (2,232,681) (1,956,325)
Total Liabilities and stockholders' equity 1,389,860 1,054,375
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Statements of Cash Flows (Unaudited)
Three Months Ended
Oct. 31
1998 1999
Net Income (loss) (156,127) (276,356)
Depreciation and Amortization 0 29,799
Gains on Sales 0 0
Account Receivables (745) (278,124)
Other current Assets 7,660 (300,004)
Current Liabilities 35,097 (187,659)
Net Cash Flow From Operations (114,115) (1,012,344)
Financing
Common Stock issued 136,825 799,500
Long-Term Financing
Net Cash from Financing 136,825 799,500
Investing
Increases in Fixed Assets (8,053) (65,658)
Purchases of Invesments
Net Cash used for investing (8,053) (65,658)
Net Change in cash and quivalents 14,657 (278,503)
Cash and Equivalents, beginning pof period 18,988 412,614
Cash and Equivalents, end of period 33,645 134,111
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PART I
NOTE A - PRESENTATION
The balance sheet of the Company as of October 31, 1999, the related statements of operations and cash flows for the three months ended October 31, 1999 included in the financial statements have been prepared by the Company without audit. In the opinion of management, the accompanying financial statements include all adjustments (consisting of normal, recurring adjustments) necessary to summarize fairly the Company's financial position and results of operations. The results of operations for the three months ended October 31, 1999 are not necessarily indicative of the results of operations for the full year or any other interim period.
NOTE B - NATURE OF OPERATIONS
Houston InterWeb Design, Inc. (the "Company") was incorporated in the State of Texas in August 1996. The Company is engaged in the design and creation of internet websites for customers. The Company uses internally developed technology for the creation of websites, which it licenses to customers, which ensures that customers websites are brought up in front of an internet user irrespective of the search engine used.
NOTE C - PREFERRED STOCK AND OUTSTANDING STOCK WARRANTS
Preferred Stock: The Company is authorized to issue up to 5,000,000 shares of preferred stock, $.01 par value per share. The preferred stock may be issued in one or more series, the terms of which may be determined at the time of issuance by the Board of Directors, without further action by stockholders, and may include voting rights (including the right to vote as a series on particular matters), preferences as to dividends and liquidation, conversion, redemption rights and sinking fund provisions. The issuance of any such preferred stock could adversely affect the rights of the holders of Common Stock and, therefore, reduce the value of the Common Stock.
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 October 31, 1999, approximately 46.5% of the Company's total revenues were derived from two customers AMP3.com, Inc.and PGI International, Inc., 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.
Results of Operations
Results of operations for the period three months ended October 31, 1998 compared with the results of operations for three months ended October 31, 1999.
Revenues increased from $133,202 for the three months ended October 31, 1998 to $459,130 for three months ended October 31, 1999. The increase of $325,928 or 245% was primarily due to growth in web site development, and software license agreement revenues.
Consulting fees increased from $0 for the period three months ended October 31, 1998 to $118,576 for the three months ended October 31, 1999. The increase of $118,576 was due to an outsourced programming project
Rent expense increased from $18,636 for the three months ended October 31, 1998, to $33,715 for the three months ended October 31, 1999. The increase of $15,079 or 81% was due to additional office for expansion of the Company.
General and administrative expenses decreased from $24,353 for the period three months ended October 31, 1998 to $15,923 for the three months ended October 31, 1999. The decrease in general and administrative expenses of $8,430 or 34.6% was due to the reclassification of miscellaneous expenses.
Salaries and benefit expenses increased from $119,657 for the period three months ended October 31, 1998 to $297,472 for the three months ended October 31, 1999. The increase of $177,815 or 148.6% was due to the Company hiring additional programmers, graphic designers and management staff to handle the increase of new business. The Company hired five new employees during the three month period.
The Company had a net loss of $156,126 for the period three months ended October 31, 1998 compared with a net loss of $276,356 for the three months ended October 31, 1999. The increased net loss of $120,230 or 77% was due to increases in salaries. Net loss per share of common stock of $ (.01) for the three months ended October 31, 1998, compared to $ (.02) for three months ended October 31, 1999.
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 if any market develops. 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 surplus of $591,385 and a stockholders' equity of $862,969 at October 31, 1999. The company's financing activities generated sufficient cash to meet its obligations on a timely basis and to refinance its debt however internal cash flows are not sufficient to fund operations internally.
LIQUIDITY AND CAPITAL RESOURCES
As of October 31, 1999, the Company's primary source of liquidity was $134,111 of cash and $703,077 of accounts receivable.
Net cash used by operating activities for three months ended October 31, 1998 was $114,115 as compared to net cash used in operating activities of $ 1,012,344 for the three months ended October 31, 1999. The increase in net cash used was primarily attributed to increases in accounts receivable and increases in other current assets.
Net cash used in investing activities was $8,053 and $ 65,658 for the three months ended October 31, 1998 and the three months ended October 31, 1999, respectively. The increase in the net cash used in investing activities was attributed to an increase in purchases of property and equipment.
Net cash provided by financing activities increased from $136,825 to $799,500 due to proceeds from the issuance of common stock.
The Company's internally generated cash flows from operations have historically been and continue to be insufficient for its cash needs. As of October 31, 1999, 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. The Company has an unsecured revolving line of credit in the amount of $30,000 with Texas Commerce Bank, and to date has $30,000 available. Until the Company can obtain monthly sales levels of approximately $120,000 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.
PART II
Pursuant to the Instructions to Part II of the Form 10-QSB, Items 1 and 3-5 are omitted.
ITEM 2. CHANGES IN SECURITIES
The following information sets forth certain information, as of October 31, 1999, for all securities the Company sold 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, nor were any sales commissions paid thereon.
In September 1999, the company issued 30,000 shares of company common stock
to an individual in connection with the purchase of TEAM Productions, Inc. 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. This investor had extensive experience in the
Internet industry and had such knowledge and experience in financial and
business matters that it was able to evaluate the merits and risks of an
investment in the company.
In October 1999, the Company issued 187,500 shares of company common stock to an accredited entity for $375,000. In addition, the company issued 186,000 shares of Company common stock to various individuals and entities in exchange for 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
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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
27.1/2/ Financial Data Schedule
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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.
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: December 22, 1999 /s/ Harry L. White
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Harry L. White
President and Chief Executive Officer
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| ARTICLE 5 |
| PERIOD TYPE | 9 MOS | 3 MOS |
| FISCAL YEAR END | JUL 31 1999 | JUL 31 1999 |
| PERIOD START | AUG 01 1999 | FEB 01 1999 |
| PERIOD END | APR 30 1999 | APR 30 1999 |
| CASH | 23,464 | 23,464 |
| SECURITIES | 0 | 0 |
| RECEIVABLES | 141,978 | 141,978 |
| ALLOWANCES | 0 | 0 |
| INVENTORY | 0 | 0 |
| CURRENT ASSETS | 243,972 | 243,972 |
| PP&E | 23,082 | 23,082 |
| DEPRECIATION | 5,368 | 0 |
| TOTAL ASSETS | 272,282 | 0 |
| CURRENT LIABILITIES | 423,648 | 0 |
| BONDS | 0 | 0 |
| PREFERRED MANDATORY | 0 | 0 |
| PREFERRED | 0 | 0 |
| COMMON | 1,340,950 | 754,000 |
| OTHER SE | (1,492,316) | (846,427) |
| TOTAL LIABILITY AND EQUITY | 272,282 | 159,369 |
| SALES | 526,700 | 267,953 |
| TOTAL REVENUES | 526,700 | 267,953 |
| CGS | 0 | 0 |
| TOTAL COSTS | 1,253,587 | 483,558 |
| OTHER EXPENSES | 0 | 0 |
| LOSS PROVISION | 0 | 0 |
| INTEREST EXPENSE | 0 | 0 |
| INCOME PRETAX | (726,887) | (215,605) |
| INCOME TAX | (80,998) | (78,500) |
| INCOME CONTINUING | 0 | 0 |
| DISCONTINUED | 0 | 0 |
| EXTRAORDINARY | 0 | 0 |
| CHANGES | 0 | 0 |
| NET INCOME | (645,989) | (137,105) |
| EPS BASIC | (.04) | (.01) |
| EPS DILUTED | (.04) | (.01) |