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, 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)
5599 San Felipe, Suite 975 77056
(Address of Principal Executive Office) (Zip Code)
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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, 2001 registrant had 24,420,477 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, 2001............................ 3
Income Statements April 30, 2001 and 2000..................... 4
Statements of Cash Flows for April 30, 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
30-Apr 31-Jul
2001 2000
Unaudited
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Assets
Current Assets
Cash $ 300 $ 18,655
Accounts receivable--trade 40,809 54,569
Other 725 725
Total Current Assets 41,834 73,950
Furniture and computer equipment, net of accumulated depreciation of $47,689 37,622 56,552
and $28,760 respectively
Goodwill, net of accumulated amortization of $163,090 and $101,840 respectively 208,750 261,250
Other 707 707
Total Assets 288,913 392,459
Current Liabilities
Accounts payable 243,901 266,788
Accrued expenses 328,031 274,858
Short term Notes 35,903 -
Due to affiliates 903,196 838,822
Unearned Revenue 2,915 -
Total Current Liabilities 1,513,946 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, 24,420,477 shares 5,188,238 4,830,537
issued and outstanding
Subscription receivable (7,050) (7,050)
Retained (deficit) (6,406,222) (5,811,496)
Total Stockholders' Equity (Deficit) (1,225,034) (988,009)
Total Liabilities and Stockholders' Equity $ 288,913 $ 392,459
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HOUSTON INTERWEB DESIGN, INC.
INCOME STATEMENTS
3 Months 3 Months 9 Months 9 Months
REVENUES Ended Apr/01 Ended Apr/00 Ended Apr/01 Ended Apr/00
Affiliate $ - $ 269,972 $ - $ 467,479
Non-affiliate 75,145 149,406 680,053 750,238
TOTAL REVENUES 75,145 419,378 680,053 1,217,717
EXPENSES
Cost of Revenues 98,413 229,501 558,155 871,542
Selling 5,972 79,617 55,283 163,755
General and Administrative 146,288 352,698 552,683 1,075,509
Depreciation and Amortization 23,810 32,210 71,430 93,297
Bad Debt Expense 17,421 350,274 19,003 374,857
Interest Expense 6,036 - 18,227 -
Interest (Income) (0) (1) (2) (1,108)
297,940 1,044,299 1,274,779 2,577,853
NET (LOSS) (222,795) (624,922) (594,726) (1,360,136)
NET LOSS PER SHARE, BASIC AND DILUTED $ (0.01) $ (0.02)
AVERAGE SHARES OUTSTANDING, BASIC AND DILUTED 24,420,477 24,420,477
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HOUSTON INTERWEB DESIGN, INC.
STATEMENTS OF CASH FLOWS
For the nine months
Ended April 30
----------------------------------
2001 2000
Cash Flows from Operating Activities
Net (loss) $(594,726) $(1,254,118)
Adjustments to reconcile net loss to net cash provided by operating
activities
Bad Debt Expense 19,003 347,368
Depreciation and amortization 71,430 93,297
Common stock issued for services 167,609 380,500
Changes in:
Accounts Receivable-trade (5,243) (579,498)
Other current assets (143,165)
Accounts payable (22,886) 31,754
Accrued expenses 53,173 130,256
Due to affiliates 245,967 -
Customer Deposits 2,915 -
Cash flows (used by) Operating Activities (62,758) (993,606)
Cash flow from Financing activities
Purchase of assets - (4,736)
Investment in affiliate - (10,200)
Common stock sale 8,500 730,625
Short-term notes 35,903 -
Cash flows provided (used by)financing activities 44,403 715,689
Net decrease in cash (18,355) (277,917)
Cash Balance -- Beginning of the period 18,655 282,359
Cash Balance -- End of the period $ 300 $ 4,442
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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 received notice on March 14, 2001 from Director Michael J. Minihan of his intent to resign. Pursuant to the company's Bylaws, resignation by a director is effective upon receipt. On March 17, 2001, Richard J. Finn tendered his resignation to the company as CTO and as a Director of the company. On May 17, 2001, Harry White resigned as CEO, President and Chairman of the Board.
Results of Operations
Results of operations for the nine months ended April 30, 2000 compared with the results of operations for nine months ended April 30, 2001, and for the three months ended April 30, 2000 compared with the three months ended April 30, 2001.
Revenues decreased from $1,217,717 for the nine months ended April 30, 2000 to $680,053 for the nine months ended April 30, 2001. The decrease of $537,664 or 44% is due to general economic conditions. Revenues decreased from $419,378 for the three months ended April 30, 2000 to $75,145 for the three months ended April 30, 2001. The decrease of $344,233 or 82% is due to general economic conditions.
Cost of Revenues decreased from $871,542 for the nine months ended April 30, 2000 to $558,155 for the nine months ended April 30, 2001. The decrease of $313,387 or 36% is due to increased efficiency and due to general economic conditions. Cost of Revenues decreased from $229,501 for the three months ended April 30, 2000 to $98,413 for the three months ended April 30, 2001. The decrease of $131,088 or 57% is due to increased efficiency and due to general economic conditions.
Selling expenses decreased from $163,755 for the nine months ended April 30, 2000 to $55,283 for the nine months ended April 30, 2001. The decrease of $108,472 or 66% is due to decreases in advertising expense and salaries. Selling expenses decreased from $79,617 for the three months ended April 30, 2000 to $5,972 for the three months ended April 30, 2001. The decrease of $73,645 or 92% is due to decreases in advertising expenses and salaries.
General and administrative expenses decreased from $1,075,509 for the nine months ended April 30, 2000 to $555,883 for the nine months ended April 30, 2001. The decrease of $519,627 or 48% is due to decreases in professional fees and officers' salary expenses. General and administrative expense decreased from $352,698 for the three months ended April 30, 2000 to $146,288 for the three months ended April 30, 2001. The decrease of $206,409 or 59% is due to decreases in professional fees and officers' salary expenses.
Depreciation and amortization decreased from $93,297 for the nine months ended April 30, 2000 to $71,430 for the nine months ended April 30, 2001. The decrease of $21,867 or 23% is due to a decrease in goodwill amortization associated with the acquisition of Axis Technologies. Depreciation and amortization decreased from $32,210 for the three months ended April 30, 2000 to $23,810 for the three months ended April 30, 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 decreased from $374,857 for the nine months ended
April 30, 2000 to $19,003 for the nine months ended April 30, 2001. The decrease of $355,854 or 95% is due to a decrease in sales and the 100% write-off of Amp3.com revenues as bad debt in the prior period. Bad Debt Expense decreased from $350,274 for the three months ended April 30, 2000 to $17,421 for the three months ended April 30, 2001. The decrease of $332,854 or 95% is due to decrease in sales and the 100% write-off of Amp3.com revenues as bad debt in the prior period.
Interest expense increased from $0 for the nine months ended April 30, 2000 to $18,227 for the nine months ended April 30, 2001. The increase is due to an increase in short-term convertible loans. Interest expense increased from $0 for the three months ended April 30, 2000 to $6,036 for the nine months ended April 30, 2001. The increase is due to an increase in short-term convertible loans.
The Company had a net loss of $1,360,136 for the period nine months ended
April 30, 2000 compared to a net loss of $594,726 for the nine months ended
April 30, 2001. The decreased net loss of $765,410 or 56% 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 $ (.06) for the nine months ended
April 30, 2000, to $ (.02) for nine months ended April 30, 2001. The Company had
a net loss of $624,922 for the three months ended April 30, 2000 compared to a
net loss of $222,795 for the three months ended April 30, 2001. The decreased
net loss of $402,127 or 64% 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 $ (.03) for three months ended April 30, 2000, to $
(.01) for three months ended April 30, 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 $1,420,706. Current liabilities are $1,513,946 of which $903,196 is due to affiliates and officers of the company. Stockholders' equity deficit was $1,225,034 at April 30, 2001.
LIQUIDITY AND CAPITAL RESOURCES
As of April 30, 2001, the Company's primary source of liquidity was $300 of cash and $40,809 of accounts receivable.
Net cash used by operating activities for nine months ended April 30, 2000 was $993,606 as compared to net cash used in operating activities of $62,758 for the nine months ended April 30, 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 activities decreased from $715,689 for the nine months ended April 30, 2000 to $44,403 for the nine months ended April 30, 2001.
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, 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. 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 3-5 are omitted.
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
The following information sets forth certain information, as of April 30, 2001, for all securities the Company issued since February 1, 2001, 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 March 2001, the Company issued 3,442,000 shares of company common stock for professional services rendered by consultants. 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. These investors had extensive experience in the Internet Industry and had such knowledge and experience in financial and business matters that they were able to evaluate the merits and risks of investment in the company.
In March 2001, the Company issued 705,000 shares of company common stock
pursuant to the terms of a convertible note in exchange for a reduction in debt.
The Company believes this transaction was exempt from registration pursuant to
Section 4(2) of the Securities Act as an isolated transaction 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 they were able to evaluate the merits and risks of
investment in the company.
In March 2001, the Company issued 1,000,000 shares of company common stock
pursuant to the terms of a convertible note in exchange for a reduction in debt.
The Company believes this transaction was exempt from registration pursuant to
Section 4(2) of the Securities Act as an isolated transaction 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 they were able to evaluate the merits and risks of
investment in the company.
In April 2001, the Company issued 973,427 shares of company common stock to several investors in exchange for reductions in debt. The Company believes these transactions were exempt from registration pursuant to Section 4(2) of the Securities Act as an isolated transaction by an issuer not involving a public offering. These investors had extensive experience in the Internet Industry and had such knowledge and experience in financial and business matters that they were able to evaluate the merits and risks of investment in the company.
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
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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: July 12, 2001 /s/ Lee A.Magness
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Lee A. Magness
Acting President and Chief
Executive Officer
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