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 January 31, 2002
[ ] 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 January 31, 2002 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 January 31, 2002.......................... 3
Income Statements January 31, 2002 and 2001................... 4
Statements of Cash Flows for January 31, 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
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PART I
HOUSTON INTERWEB DESIGN, INC.
BALANCE SHEET
January 31, July 31,
2002 2001
(Unaudited)
--------------- -----------
Current Assets
Cash $ 7,374 $ 846
Accounts receivable--trade 15,824 39,720
Other 11,025 11,025
Total Current Assets 34,223 51,591
Other 407 407
Total Assets 34,630 51,998
Current Liabilities
Accounts payable 256,810 177,972
Accrued expenses 383,873 378,442
Short term Notes 81,397 36,569
Due to affiliates 953,198 904,041
Total Current Liabilities 1,675,278 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) (6,873,474) (6,677,852)
Total Stockholders' Equity (Deficit) (1,640,648) (1,445,026)
Total Liabilities and Stockholders' Equity $ 34,630 $ 51,998
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HOUSTON INTERWEB DESIGN, INC.
INCOME STATEMENTS
(Unaudited)
6 months 6 months 3 months 3 months
Ended Jan/02 Ended Jan/01 Ended Jan/02 Ended Jan/01
REVENUES
Affiliate $ - $ - $ - $ -
Non-affiliate 78,662 604,908 29,573 112,209
TOTAL REVENUES 78,662 604,908 29,573 112,209
EXPENSES
Cost of Revenues 63,600 460,467 31,800 131,598
Selling - 49,545 - 14,569
General and Administrative 201,000 410,235 98,250 138,756
Depreciation and Amortization - 47,620 - 23,810
Bad Debt Expense - 10,158 - 10,158
Interest Expense 9,684 12,191 4,842 6,036
Interest (Income) - (2) - (1)
TOTAL EXPENSES 274,284 990,214 134,892 324,926
NET (LOSS) (195,622) (385,306) (105,319) (212,717)
NET LOSS PER SHARE, BASIC
AND DILUTED $ (0.01) $ (0.02) $ (0.00) $ (0.01)
AVERAGE SHARES OUTSTANDING,
BASIC AND DILUTED 24,435,477 18,282,550 24,435,477 18,282,550
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HOUSTON INTERWEB DESIGN, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
For the six months
Ended January 31,
--------------------------------
2002 2001
------------- ------------
Cash Flows from Operating Activities
Net (loss) $(195,622) $(385,306)
Adjustments to reconcile net loss to net cash
Provided by operating activities
Bad Debt Expense - 10,158
Depreciation and amortization - 47,620
Common stock issued for services - 103,909
Changes in:
Accounts Receivable-trade 23,896 7,803
Accounts payable 78,838 (16,049)
Accrued expenses 5,431 90,000
Customer Deposits - (13,843)
Cash flows (used by) Operating Activities (87,457) (155,709)
Cash flow from Financing activities
Common stock sale - 7,500
Short-term notes 44,828 129,901
Due to affiliates 49,157 -
Cash flows provided by financing
activities 93,985 137,401
Net increase (decrease) in cash 6,528 (18,308)
Cash Balance -- Beginning of the period 846 18,655
Cash Balance -- End of the period $ 7,374 $ 366
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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 January 31, 2002, approximately 44% of the Company's total revenues were derived from two 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.
Results of Operations
Results of operations for the six months ended January 31, 2001 compared with the results of operations for six months ended January 31, 2002, and for the three months ended January 31, 2001 compared with the three months ended January 31, 2002.
Revenues decreased from $604,908 for the six months ended January 31, 2001 to $ 78,662 for the six months ended January 31, 2001. The decrease of $526,246 or 87% is due to general economic conditions. Revenues decreased from $112,209 for the three months ended January 31, 2001 to $29,573 for the three months ended January 31, 2002. The decrease of $82,636 or 74% is due to general economic conditions.
Cost of Revenues decreased from $460,467 for the six months ended January 31, 2001 to $63,600 for the six months ended January 31, 2002. The decrease of $396,867 or 86% is due to increased efficiency and decreased personnel costs. Cost of Revenues decreased from $131,598 for the three months ended January 31, 2001 to $31,800 for the three months ended January 31, 2002. The decrease of $99,798 or 76% is due to increased efficiency and decreased personnel costs.
Selling expenses decreased from $49,545 for the six months ended January 31, 2001 to $0 for the six months ended January 31, 2002. The decrease of $49,545 or 100% is due to decreases in advertising expense and salaries. Selling expenses decreased from $14,569 for the three months ended January 31, 2001 to $0 for the three months ended January 31, 2002. The decrease of $14,569 or 100% is due to decreases in advertising expenses and salaries.
General and administrative expenses decreased from $410,235 for the six months ended January 31, 2001 to $201,000 for the six months ended January 31, 2002. The decrease of $209,235 or 51% is due to decreases in professional fees and officers' salary expenses. General and administrative expense decreased from $138,756 for the three months ended January 31, 2001 to $98,250 for the three months ended January 31, 2002. The decrease of $40,506 or 29% is due to decreases in professional fees and officers' salary expenses.
Depreciation and amortization decreased from $47,620 for the six months ended January 31, 2001 to $0 for the six months ended January 31, 2002. The decrease of $47,620 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 January 31, 2001 to $0 for the three months ended January 31, 2002. The decrease of $23,810 or 000% 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 six months ended January 31, 2001 to $0 for the six months ended January 31, 2002. Bad Debt Expense decreased from $10,158 for the three months ended January 31, 2001 to $0 for the three months ended January 31, 2002.
Interest expense decreased from $12,191 for the six months ended January 31, 2001 to $9,684 for the six months ended January 31, 2002. The decrease is due to a decrease in short-term convertible loans. Interest expense increased from $6,036 for the three months ended January 31, 2001 to $4,842 for the six months ended January 31, 2002. The decrease is due to an decrease in short-term convertible loans.
The Company had a net loss of $385,306 for the period six months ended January 31, 2001 compared to a net loss of $195,622 for the six months ended January 31, 2002. The decreased net loss of $189,684 or 49% 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 six months ended January 31, 2001, compared to $ (.01) for six months ended January 31, 2002. The Company had a net loss of $212,717 for the three months ended January 31, 2001 compared to a net loss of $105,319 for the three months ended January 31, 2002.
The decreased net loss of $107,398 or 50% 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 January 31, 2001, to $ (.00) for three months ended January 31, 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 $1,641,055. Current liabilities are $1,675,278 of which $953,198 are due to affiliates and officers of the company. Stockholders' equity deficit was $1,640,648 at January 31, 2002.
LIQUIDITY AND CAPITAL RESOURCES
As of January 31, 2002, the Company's primary source of liquidity was $7,374 of cash and $15,824 of accounts receivable.
Net cash used by operating activities for six months ended January 31, 2001 was $155,709 as compared to net cash used in operating activities of $87,457 for the six months ended January 31, 2002. The decrease in net cash used was primarily attributed to lower net loss for the period and increases in accrued expenses.
Net cash flow from financing and investing activities decreased from $137,401 for the six months ended January 31, 2001 to $93,985 for the six months ended January 31, 2002.
The Company's internally generated cash flows from operations have historically been and continue to be insufficient for its cash needs. As of January 31, 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.
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
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(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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