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 October 31, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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)
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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, 2001 registrant had 24,435,477 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, 2001.......................... 3
Income Statements October 31, 2001 and 2000................... 4
Statements of Cash Flows for October 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. Deleted....................................................... 8
Item 2. Deleted....................................................... 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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HOUSTON INTERWEB DESIGN, INC.
BALANCE SHEET
Current Assets
Cash................................................. $ 4,386
Accounts receivable-trade............................ 6,546
Other................................................ 11,025
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Total Current Assets.............................. 21,957
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Other................................................ 407
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TOTAL ASSETS...................................... $ 22,364
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable..................................... $ 240,986
Accrued expenses..................................... 336,954
Due to affiliates.................................... 929,270
Notes payable ..................................... 50,483
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Total Current Liabilities......................... 1,557,693
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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, and 24,435,477 shares issued and
outstanding....................................... 5,232,826
Retained (deficit)................................... (6,768,155)
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Total Stockholders' Equity (Deficit).............. (1,535,329)
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............. $ 22,364
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PART I
HOUSTON INTERWEB DESIGN, INC.
INCOME STATEMENTS
For Three Months
Ended October 31,
---------------------------------
2001 2000
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REVENUES
Affiliates................................ $ - $ -
Nonaffiliates............................. 49,089 492,698
TOTAL REVENUES......................... 49,089 492,698
EXPENSES
Cost of Revenues.......................... 31,800 328,869
Selling................................... - 34,976
General and Administrative ............... 102,750 271,478
Depreciation and Amortization ............ - 23,810
Interest Expense....................... 4,842 2,748
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TOTAL EXPENSES......................... 139,392 661,881
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NET LOSS................................... $ (90,303) $ (169,183)
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NET LOSS PER SHARE, BASIC AND DILUTED........ $ (0.00) $ (0.01)
AVERAGE SHARES OUTSTANDING, BASIC AND DILUTED 24,435,477 17,827,425
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HOUSTON INTERWEB DESIGN, INC.
STATEMENTS OF CASH FLOWS
For Three Months
Ended October 31,
--------------------------
2001 2000
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Cash Flows from Operating Activities
Net(loss).......................................... $(90,303) (169,183)
Adjustments to reconcile net loss to net cash
provided by operating activities
Depreciation and amortization...................... - 23,810
Common stock issued for services................... - 56,668
Changes in:
Accounts Receivable-trade.......................... 33,174 (48,574)
Other current assets............................... - -
Accounts payable................................... 63,014 (81,722)
Accrued expenses................................... (41,488) 124,960
Customer Deposits.................................. _ (12,048)
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Cash flows (used by) Operating Activities.......... (35,603) (106,089)
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Cash flow from Financing activities
Common stock sale.................................. - 7,500
Due to affiliates.................................. 25,229 -
Short-term notes................................... 13,914 88,910
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Cash flows provided
financing activities............................... 39,143 96,410
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Net increase in cash............................... 3,540 (9,679)
Cash Balance -- Beginning of the period............ 846 18,655
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Cash Balance -- End of the period.................. $ 4,386 8,977
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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 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 October 31, 2001, approximately 43% 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.
Results of Operations
Results of operations for the period three months ended October 31, 2000 compared with the results of operations for three months ended October 31, 2001.
Revenues decreased from $492,698 for the three months ended October 31, 2000 to $49,089 for the three months ended October 31, 2001.
Revenues from affiliates remained constant at $0 for the three months ended October 31, 2000 to $0 for the three months ended October 31, 2001. While revenues from non-affiliates decreased from $492,698 for the three months ended October 31, 2000 to $49,089 for the three months ended October 31, 2001. The decrease of $443,610 or 90% is due to restructuring of the company and economic slowdown in the U.S. economy.
Cost of Revenues decreased from $328,869 for the three months ended October 31, 2000 to $31,800 for the three months ended October 31, 2001. The decrease of $297,069 or 90% is due to decreased labor cost and cost of goods sold associated with production of Cyber-Pitch cards during the previous period.
Selling expenses decreased from $34,976 for the three months ended October 31, 2000 to $0 for the three months ended October 31, 2000. The decrease of $34,976 or 100% is due to decrease in advertising expense and decrease in sales salaries.
General and administrative expenses decreased from $271,478 for the three months ended October 31, 2000 to $102,750 for the three months ended October 31, 2001. The decrease of $168,728 or 62% is due to decrease in professional fees and salary expenses.
Depreciation and amortization decreased from $23,810 for the three months ended October 31, 2000 to $0 for the three months ended October 31, 2001. The decrease of $23,810 or 100% is due to write off of all goodwill associated with acquisitions of Axis Technologies and Team Productions, Inc. and sale of all furniture, fixtures and equipment.
Interest expense increased from $2,748 for the three months ended October 31, 2000 to $4,842 for the three months ended October 31, 2001. The increase is due to increase in short-term loans.
The Company had a net loss of $169,183 for the period three months ended October 31, 2000 compared with a net loss of $90,302 for the three months ended October 31, 2001. The decrease net loss of $78,880 or 47% was due to decrease in salary expenses and increase in operational efficiency. Net loss per share of common stock was $ (.01) for the three months ended October 31, 2000, compared to $ (.00) for three months ended October 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 $1,535,736 and a stockholders' equity deficit of $1,535,329 at October 31, 2001. The company's financing activities generated sufficient cash to meet its obligations on a timely basis and to refinance its debt however cash flows are not sufficient to fund operations internally.
LIQUIDITY AND CAPITAL RESOURCES
As of October 31, 2001, the Company's primary source of liquidity was $4,386 of cash and $6,546 of accounts receivable.
Net cash used by operating activities for three months ended October 31, 2000 was $106,089 as compared to net cash used in operating activities of $35,603 for the three months ended October 31, 2001. The decrease in net cash used was primarily attributed to decreased net loss and increases in accrued expenses.
Net cash flow from financing activities decreased from $ 96,410 for the three months ended October 31, 2000 to $39,143 for the three months ended October 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 October 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 $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.
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
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:
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
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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
/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: May 29, 2002 /s/ Lee A. Magness
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Lee A. Magness
President and Chief Executive Officer
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