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 April 30, 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 April 30, 1999 registrant had 16,448,300 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 April 30, 1999.................. 1 Statements of Operations April 30, 1999 and 1998.... 2 Statements of Cash Flows for April 30, 1999 and 1998 3 Notes to Financial Statements....................... 4 |
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 |
PART I
ITEM 1. FINANCIAL STATEMENTS
HOUSTON INTERWEB DESIGN, INC.
BALANCE SHEET
April 30, 1999 July 31, (Unaudited) 1998 ------------ ---------- |
ASSETS
CURRENT ASSETS
Cash $ 23,464 $ 18,988
Accounts receivable - trade - affiliates 9,458 55,259
Accounts receivable - trade - nonaffiliates 132,520 61,012
Deferred income tax asset 78,500 -
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TOTAL CURRENT ASSETS 243,942 135,259
PROPERTY AND EQUIPMENT
Office equipment 10,010 4,056
Furniture and fixtures 13,072 13,072
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23,082 17,128
Less: accumulated depreciation 5,368 3,463
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TOTAL PROPERTY AND EQUIPMENT 17,714 13,665
OTHER ASSETS 10,626 10,445
INVESTMENT UNDER THE EQUITY METHOD - -
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TOTAL ASSETS $ 272,282 $ 159,369
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LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 423,648 $ 220,086
Deferred income tax liability - 2,498
Note payable - line of credit - 29,212
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TOTAL CURRENT LIABILITIES 423,648 251,796
STOCKHOLDERS' DEFICIT
Common stock, no par value, 50,000,000
shares authorized, 16,448,300 and
16,029,000 shares issued and outstanding
at April 30, 1999 and July 31, 1998,
respectively 1,340,950 754,000
Accumulated deficit (1,492,316) (846,427)
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TOTAL STOCKHOLDERS' DEFICIT (151,366) (92,427)
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TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 272,282 $159,369
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See accompanying notes to financial statements.
STATEMENTS OF OPERATIONS (UNAUDITED)
Nine Months Three Months
Ended April 30, Ended April 30,
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1999 1998 1999 1998
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REVENUES
Affiliates $ 70,084 $ 80,000 $ 28,598 $ -
Nonaffiliates 456,616 263,563 239,355 81,126
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TOTAL REVENUES 526,700 343,563 267,953 81,126
EXPENSES
Advertising 41,691 20,158 8,518 7,985
Computer equipment 41,905 16,998 20,377 -
Contract labor 16,725 42,194 5,478 20,212
Depreciation 1,905 1,423 635 474
General and administrative 98,338 6,425 50,535 3,273
Interest 3,951 5,064 869 1,328
Internet service 28,255 17,635 10,323 6,572
Professional fees 330,276 1,500 128,570 1,500
Rent 55,007 13,083 17,558 4,210
Repairs and maintenance 1,193 4,205 (1,580) -
Salaries and benefits 602,844 252,415 230,622 78,009
Supplies 7,726 18,483 2,498 7,169
Telephone 9,913 8,771 4,022 2,957
Travel 13,858 3,958 5,133 1,554
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TOTAL EXPENSES 1,253,587 412,312 483,558 135,243
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INCOME (LOSS) BEFORE FEDERAL
INCOME TAXES (726,887) (68,749) (215,605) (54,117)
FEDERAL INCOME TAX EXPENSE
(BENEFIT)
Deferred (80,998) (28,002) (78,500) (26,957)
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NET INCOME (LOSS) $ (645,889) $ (40,747) $ (137,105) $ (27,160)
========== ========== ========== ==========
NET LOSS PER SHARE, BASIC AND
DILUTED $ (.04) $ - $ (.01) $ -
========== ========== ========== ==========
AVERAGE SHARES OUTSTANDING,
BASIC AND DILUTED 16,149,615 15,279,000 16,149,615 15,279,000
========== ========== ========== ==========
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SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months
Ended April 30,
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1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (645,889) $ (40,747)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,905 1,424
Deferred income tax expense (benefit) (80,998) (28,002)
Common stock issued as compensation 138,750 -
Changes in assets and liabilities:
Accounts receivable (25,707) (25,631)
Other assets (181) 6,364
Accounts payable and accrued expenses 203,568 92,612
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237,337 46,767
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NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (408,552) 6,020
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (5,954) (2,332)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on notes payable to stockholders - (21,275)
Net change in line of credit (29,218) 29,390
Proceeds from issuance of common stock 448,200 -
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NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 418,982 8,115
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NET INCREASE IN CASH 4,476 11,803
CASH AT BEGINNING OF PERIOD 18,988 10,204
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CASH AT END OF YEAR $ 23,464 $ 22,007
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SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 3,951 $ 5,064
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SUPPLEMENTAL NONCASH FINANCING ACTIVITIES
Issuance of 92,500 shares of common stock as
compensation for services 138,750 -
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SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1999
NOTE A - PRESENTATION
The balance sheet of the Company as of April 30, 1999, the related statements of operations and cash flows for the nine months ended April 30, 1999 and 1998 and the three months ended April 30, 1999 and 1998 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 nine months ended April 30, 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 April 30, 1999, approximately 61.5% of the Company's total revenues were derived from three customers AMP3.com, Inc., PGI International, Inc., and SourcePoint Capital, 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 nine months ended April 30, 1998 compared with the results of operations for nine months ended April 30, 1999, and for the three months ended April 30, 1998 compared with the three months ended April 30, 1999.
Revenues increased from $343,563 for the nine months ended April 30, 1998 to $526,700 for nine months ended April 30, 1999. The increase of $183,137 or 53% was primarily due to growth in web site development, and software license agreement revenues. Revenues increased from $81,126 for the three months ended April 30, 1998, to $267,953 for the three months ended April 30, 1999. The increased amount of $186,827 was due to growth in web site development and software license agreement revenues from AMP3.Com, PGI International, and SourcePoint Capital.
Professional fees increased from $1,500 for the period nine months ended April 30, 1998 to $330,276 for the nine months ended April 30, 1999. The increase of $328,776 or 21,918% was due to legal and professional fees associated with the Company's SEC filing activity and an outsourced programming project. Professional fees increased from $1,500 for the three months ended April 30, 1998, to $128,570 for the three months ended April 30, 1999. The increase of $127,070 or 8,471% was due to an outsourced programming project.
Rent expense increased from $13,083 for the nine months ended April 30, 1998, to $55,007 for the nine months ended April 30, 1999. The increase of $41,924 or 320% was due to additional office space. Rent expense increased from $4,210 for the three months ended April 30, 1998 to $17,558 for the three months ended April 30, 1999. The increase of $13,348 or 317% was due to leasing additional office space for expansion of the Company.
General and administrative expenses increased from $6,425 for the period nine months ended April 30, 1998 to $98,338 for the nine months ended April 30, 1999. The increase in general and administrative expenses of $91,913 or 1,430% was due to the growth of the Company. General and administrative expenses increased from $3,273 for the three months ended April 30, 1998 to $50,535 for the three months ended April 30, 1999. The increase in general and administrative expenses of $47,262 or 1,444% primarily reflects the growth of the Company.
Salaries and benefit expenses increased from $252,415 for the period nine months ended April 30, 1998 to $602,844 for the nine months ended April 30, 1999. The increase of $350,429 or 139% was due to the Company hiring additional programmers, graphic designers and management staff to handle the increase of new business. The Company hired twelve new employees during the nine months ended April 30, 1999. The increase of salary and benefit expenses from $78,009 for the three months ended April 30, 1998 to $230,622 for the three months ended April 30, 1999 or $13,348 (317%) was due to hiring of 3 new employees.
The Company had a net loss of $40,747 for the period nine months ended April 30, 1998 compared with a net loss of $645,889 for the nine months ended April 30, 1999. The increased net loss of $605,142 or 1,485% was due to increases in salaries, professional fees associated with SEC filings and, general and administrative expense. The Company had a $27,160 net loss for the three month period ended April 30, 1998 compared with a net loss of $137,105 for the three months ended April 30, 1999. The increased loss of $109,945 or 405% was due primarily to increases in salaries, professional fees associated with the Company's SEC filings and general and administrative expense.
Net loss per share of common stock increased to $(.04) for nine month period ending April 30, 1998, compared to $(.00) for the nine months ended April 30, 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 deficit of $179,706 and a stockholders' deficit of $151,366 at April 30, 1999, and experienced significant losses in nine months ended April 30, 1999 which raise doubts about the Company's ability to generate sufficient cash flow to meet its obligations on a timely basis, to obtain additional financing or capital and to refinance its debt and ultimately attain profitable operations.
LIQUIDITY AND CAPITAL RESOURCES
As of April 30, 1999, the Company's primary source of liquidity was $23,464 of cash and $132,520 of accounts receivable. The Company's working capital deficit and shareholders' deficit was $116,537 and $92,427 at July 31, 1998, as compared to a working capital deficit of $179,706 and a shareholders' deficit of $151,366 at April 30, 1999.
Net cash provided by operating activities for nine months ended April 30, 1998 was $6,020 as compared to net cash used in operating activities of $408,552 for the nine months ended April 30, 1999. The increase in net cash used was primarily attributed to increases in accounts payable, and accrued salaries of management.
Net cash used in investing activities was $2,332 and $5,954 for the nine months ended April 30, 1998 and the nine months ended April 30, 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 $8,115 to $418,982 primarily due to proceeds from the issuance of common stock of $448,200.
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, 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 $90,000 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 April 30, 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 February 1999, the Company issued 66,667 shares of company common stock to an accredited individual for $100,000.00. In addition, the company issued 100,000 shares of Company common stock to an accredited individual for $150,000.00. 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: October 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) |