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, 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)
5599 San Felipe, Suite 975 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, 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 April 30, 2002 ........................... 3
Income Statements April 30, 2002 and 2001 .................... 4
Statements of Cash Flows for April 30, 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
April 30, July 31,
2002 2001
(Unaudited)
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Current Assets
Cash $ 1,204 $ 846
Accounts receivable--trade 20,142 39,720
Other 10,300 11,025
Total Current Assets 31,646 51,591
Other 407 407
Total Assets 32,053 51,998
Current Liabilities
Accounts payable 329,010 177,972
Accrued expenses 388,715 378,442
Short term Notes 81,397 36,569
Due to affiliates 953,198 904,041
Total Current Liabilities 1,752,320 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) (6,953,093) (6,677,852)
Total Stockholders' Equity (Deficit) (1,720,267) (1,445,026)
Total Liabilities and Stockholders' Equity $ 32,053 $ 51,998
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HOUSTON INTERWEB DESIGN, INC.
INCOME STATEMENTS
(Unaudited)
9 months 9 months 3 months 3 months
Ended Apr/02 Ended Apr/01 Ended Apr/02 Ended Apr/01
------------ ------------ ------------ ------------
REVENUES
Affiliate $ - $ - $ - $ -
Non-affiliate 128,089 680,053 49,427 75,145
TOTAL REVENUES 128,089 680,053 49,427 75,145
EXPENSES
Cost of Revenues 93,600 558,155 30,000 98,413
Selling - 55,283 - 5,972
General and Administrative 295,204 552,683 91,050 146,288
Depreciation and Amortization - 71,430 - 23,810
Bad Debt Expense - 19,003 - 17,421
Interest Expense 14,526 18,227 4,842 6,036
Interest (Income) - (2) - (0)
TOTAL EXPENSES 403,330 1,274,779 125,892 297,940
NET (LOSS) (275,241) (594,726) (76,465) (222,795)
NET LOSS PER SHARE, BASIC
AND DILUTED $ (0.01) $ (0.02) $ (0.00) $ (0.01)
AVERAGE SHARES OUTSTANDING,
BASIC AND DILUTED 24,435,477 24,420,477 24,435,477 24,420,477
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HOUSTON INTERWEB DESIGN, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
For the nine months
Ended April 30,
---------------------------------
2002 2001
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Cash Flows from Operating Activities
Net (loss) $(275,241) $(595,746)
Adjustments to reconcile net loss to net cash
Provided by operating activities
Bad Debt Expense - 19,003
Depreciation and amortization - 71,430
Common stock issued for services - 167,609
Changes in:
Accounts Receivable-trade 19,578 (579,498)
Other current asets 725 (143,165)
Accounts payable 151,038 31,754
Accrued expenses 10,273 130,256
Customer Deposits - -
Cash flows (used by) Operating Activities (93,627) (993,606)
Cash flow from Financing activities
Common stock sale - 730,625
Short-term notes 44,828 -
Due to affiliates 49,157 (10,200)
Purchase of assets (4,736)
Cash flows provided by financing
activities 93,985 715,689
Net increase (decrease) in cash 358 (277,917)
Cash Balance -- Beginning of the period 846 282,359
Cash Balance -- End of the period $ 1,204 $ 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 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 April 30, 2002, approximately 43% of the Company's total revenues were derived from four 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 nine months ended April 30, 2001 compared with the results of operations for nine months ended April 30, 2002, and for the three months ended April 30, 2001 compared with the three months ended April 30, 2002.
Revenues decreased from $680,053 for the nine months ended April 30, 2001 to $ 128,089 for the nine months ended April 30, 2002. The decrease of $551,964 or 81% is due to general economic conditions. Revenues decreased from $75,145 for the three months ended April 30, 2001 to $49,427 for the three months ended April 30, 2002. The decrease of $25,718 or 34% is due to general economic conditions.
Cost of Revenues decreased from $558,155 for the nine months ended April 30, 2001 to $93,600 for the nine months ended April 30, 2002. The decrease of $464,555 or 83% is due to increased efficiency and decreased personnel costs. Cost of Revenues decreased from $98,413 for the three months ended April 30, 2001 to $30,000 for the three months ended April 30, 2002. The decrease of $68,413 or 70% is due to increased efficiency and decreased personnel costs.
Selling expenses decreased from $55,283 for the nine months ended April 30, 2001 to $0 for the nine months ended April 30, 2002. The decrease of $55,283 or 100% is due to decreases in advertising expense and salaries. Selling expenses decreased from $5,972 for the three months ended April 30, 2001 to $0 for the three months ended April 30, 2002. The decrease of $5,972 or 100% is due to decreases in advertising expenses and salaries.
General and administrative expenses decreased from $552,683 for the nine months ended April 30, 2001 to $295,204 for the nine months ended April 30, 2002. The decrease of $257,479 or 47% is due to decreases in professional fees and officers' salary expenses. General and administrative expense decreased from $146,288 for the three months ended April 30, 2001 to $91,050 for the three months ended April 30, 2002. The decrease of $55,238 or 38% is due to decreases in professional fees and officers' salary expenses.
Depreciation and amortization decreased from $71,430 for the nine months ended April 30, 2001 to $0 for the nine months ended April 30, 2002. The decrease of $71,430 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 April 30, 2001 to $0 for the three months ended April 30, 2002. The decrease of $23,810 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.
Bad Debt Expense decreased from $10,158 for the nine months ended April 30, 2001 to $0 for the nine months ended April 30, 2002. Bad Debt Expense decreased from $10,158 for the three months ended April 30, 2001 to $0 for the three months ended April 30, 2002.
Interest expense decreased from $18,227 for the nine months ended April 30, 2001 to $14,526 for the nine months ended April 30, 2002. The decrease is due to a decrease in short-term convertible loans. Interest expense decreased from $6,036 for the three months ended April 30, 2001 to $4,842 for the three months ended April 30, 2002. The decrease is due to an decrease in short-term convertible loans.
The Company had a net loss of $594,726 for the period nine months ended April 30, 2001 compared to a net loss of $275,241 for the nine months ended April 30, 2002. The decreased net loss of $319,485 or 54% 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 nine months ended April 30, 2001, compared to $ (.01) for nine months ended April 30, 2002. The Company had a net loss of $222,795 for the three months ended April 30, 2001 compared to a net loss of $76,465 for the three months ended April 30, 2002.
The decreased net loss of $146,330 or 66% 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 April 30, 2001, to $ (.00) for three months ended April 30, 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 $1,720,674. Current liabilities are $1,752,320 of which $953,198 are due to affiliates and officers of the company. Stockholders' equity deficit was $1,720,267 at April 30, 2002.
LIQUIDITY AND CAPITAL RESOURCES
As of April 30, 2002, the Company's primary source of liquidity was $1,204 of cash and $20,142 of accounts receivable.
Net cash used by operating activities for nine months ended April 30, 2001 was $993,606 as compared to net cash used in operating activities of $93,627 for the nine months ended April 30, 2002. The decrease in net cash used was primarily attributed to lower net loss for the period and increases in accounts payable.
Net cash flow from financing and investing activities decreased from $715,689 for the nine months ended April 30, 2001 to $93,985 for the nine months ended April 30, 2002.
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, 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:
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
/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: June 18, 2002 /s/ LEE A. MAGNESS
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Lee A. Magness
President and Chief Executive Officer
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