<PAGE>
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, 2000
[_] 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)
1770 St. James Place, Suite 420 77056
------------------------------- -----
(Address of Principal Executive Office) (Zip Code)
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 January 31, 2000 registrant had 17,921,300 shares of Common Stock
outstanding.
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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 January 31, 2000.......................... 1
Statements of Operations January 31, 2000 and 1999............ 2
Statements of Cash Flows for January 31, 2000
and 1999.................................................... 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. 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.............................. 8
Signature............................................................... 9
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HOUSTON INTERWEB DESIGN, INC.
BALANCE SHEET
January 31, July 31,
2000 1999
(Unaudited)
----------- -------
Assets
Current Assets
Cash 483 413,114
Accounts Receivable 742,263 382,426
Other (36,038) 416
Total Current Assets 706,708 545,956
Property and Equipment
Office Equipment 27,704 7,704
Furniture and Fixtures 42,872 42,872
Less Accumulated Depreciation (12,320) (4,657)
Equipment & Fixtures 58,256 45,919
Intangible Assets(net of accum. Amortization) 12,279 0
Goodwill(net of accumulated amortization) 441,433 462,400
Net Intangible Assets 453,712 462,400
Other Assets 110 100
Total Assets 1,218,786 1,054,375
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable 150,410 185,897
Credit Cards 2,383 2,153
Other Current Liabilities 141,758 253,500
Total Current Liabilities 294,551 441,550
Long Term Liabilities 273,000 273,000
Total Liabilities 567,550 714,550
Stockholders' Equity 3,250,650 2,303,200
Common Stock, no par value, 50,000,000 shares authorized, 17,921,300 and
17,389,800 shares issued and outstanding at January 31, 2000 and July 31,
1999 respectively.
Subscription receivable 0 (7,050)
Retained Earnings (2,599,413) (1,956,325)
Total Stockholders' Equity 651,237 339,825
Total Liabilities and stockholders' equity 1,218,786 1,054,375
1
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HOUSTON INTERWEB DESIGN, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Three Months
Ended January 31, Ended January 31,
-------------------- ---------------------
2000 1999 2000 1999
--------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES
Affiliates $ 213,746 $ 41,486 $ 91,534 $ 32,406
Nonaffiliates 584,594 213,351 214,782 89,228
TOTAL REVENUES 798,340 254,837 306,316 121,634
EXPENSES
Advertising 33,757 33,448 18,510 13,109
Computer equipment 31,459 21,399 2,166 1,011
Consulting costs 113,333 0 85,000 0
Contract labor 13,011 11,248 6,215 3,903
Depreciation and amortization 61,087 0 29,710 0
General and administrative 65,655 36,826 44,899 18,169
Interest 2,709 3,855 1,538 2,155
Internet Service 70,655 19,883 27,240 10,796
LEC fees 92,458 0 32,225 0
Professional fees 250,437 92,956 91,738 26,629
Rent 68,145 37,449 40,678 25,608
Repairs and maintenance 3,267 803 90 81
Salaries and benefits 576,383 226,940 285,155 109,163
Supplies 20,123 14,515 12,097 8,671
Telephone 13,536 5,891 7,291 2,964
Travel 25,413 8,725 691 2,819
TOTAL EXPENSES 1,441,428 513,938 685,243 225,078
NET LOSS (643,088) (259,101) (378,928) (103,443)
NET LOSS PER SHARE,
BASIC $(0.04) $(0.02) $(0.02) $(0.01)
DILUTED $(0.03) $(0.02) $(0.02) $(0.01)
AVERAGE SHARES OUTSTANDING,
BASIC 17,921,300 16,281,633 17,921,300 161,281,633
DILUTED 19,671,300 16,281,633 19,671,300 161,281,633
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
2
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HOUSTON INTERWEB DESIGN, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months
Ended January 31,
-------------------
2000 1999
-------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss) $ (643,088) $(259,101)
Depreciation and Amortization 61,087 0
Gains on Sales
Account Receivables (317,310) 64,441
Other current Assets (255,582) (1,943)
Current Liabilities (147,000) 28,098
Net Cash Flow Used in Operating Activities (1,301,893) (168,505)
CASH FLOWS FROM FINANCING ACTIVITIES
Common Stock issued 954,500 198,200
Long-Term Financing 0 2,498
Net Cash Provided by Financing Activities 954,500 200,698
CASH FLOWS FROM INVESTING ACTIVITIES
Increases in Fixed Assets (64,736) (8,063)
Net Cash Used in investing activities (64,736) (8,063)
NET CHANGE IN CASH AND EQUIVALENTS (412,131) 24,130
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 412,614 18,988
CASH AND EQUIVALENTS, END OF PERIOD 483 43,118
3
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NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2000
PART I
NOTE A - PRESENTATION
The balance sheet of the Company as of January 31, 2000, the related statements
of operations and cash flows for the six months ended January 31, 2000 and 1999
and the three months ended January 31, 2000 and 1999 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 six months ended January 31, 2000 are not necessarily
indicative of the results of operations for the full year or any other interim
period. The information included in this Form 10-Q should be read in
conjunction with Management's Discussion and Analysis and Financial Statements
and notes thereto included in the Houston Interweb Design, Inc. 1999 Form 10-K.
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. The
company also develops and licenses software for various computers, networks and
servers. The companys online efforts include SiteBlazer(TM) Internet products
and services; e-commerce platforms, internet web portals and consulting
services.
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.
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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, 2000, approximately 38.5%
of the Company's total revenues were derived from the customers AMP3.com,
Inc.and Newcourt Financial. 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.
5
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Results of Operations
Results of operations for the period six months ended January 31, 1999
compared with the results of operations for six months ended January 31, 2000,
and for the three months ended January 31, 1999 compared with the three months
ended January 31, 2000.
Revenues increased from $254,837 for the six months ended January 31, 1999
to $798,340 for six months ended January 31, 2000. The increase of $543,503 or
213% was primarily due to growth in web site development, and software license
agreement revenues. Revenues increased from $121,634 for the three months ended
January 31, 1999, to $306,316 for the three months ended January 31, 2000. The
increased amount of $184,682 was due to growth in web site development and
software license agreement revenues from AMP3.Com and PGI International.
Consulting costs increased from $0 for the period six months ended January
31, 1999 to $113,333 for the six months ended January 31, 2000. The increase of
$113,333 was due to increases in strategic consulting services and public
relations services. Consulting fees increased from $0 for the three months ended
January 31, 1999, to $85,000 for the three months ended January 31, 2000. The
increase of $85,000 was due to an increases in strategic consulting and public
relations services.
Professional fees increased from $92,956 for the period six months ended
January 31, 1999 to $250,437 for the six months ended January 31, 2000. The
increase of $157,481 or 169% was due to legal and professional fees associated
with the Company's SEC filing activity, numerous trademark intellectual property
filings and an outsourced programming project. Professional fees increased from
$26,629 for the three months ended January 31, 1999, to $91,738 for the three
months ended January 31, 2000. The increase of $65,109 or 244% was due to an
increase in legal fees.
Rent expense increased from $37,449 for the six months ended January 31,
1999, to $68,145 for the six months ended January 31, 2000. The increase of
$30,696 or 82% was due to additional office space. Rent expense increased from
$25,608 for the three months ended January 31, 1999 to $40,678 for the three
months ended January 31, 2000. The increase of $15,070 or 59% was due to leasing
additional office space for expansion of the Company.
General and administrative expenses increased from $36,826 for the period
six months ended January 31, 1999 to $65,655 for the six months ended January
31, 2000. The increase in general and administrative expenses of $28,829 or 78%
was due to the growth of the Company. General and administrative expenses
increased from $18,169 for the three months ended January 31, 1999 to $44,899
for the three months ended January 31, 2000. The increase in general and
administrative expenses of $26,730 or 147% primarily reflects the growth of the
Company.
Salaries and benefit expenses increased from $226,940 for the period six
months ended January 31, 1999 to $576,383 for the six months ended Janaury 31,
2000. The increase of $349,443 or 154% was due to the Company hiring additional
programmers, graphic designers and management staff to handle the increase of
new business. The Company hired eleven new employees during the six months ended
January 31, 2000. The increase of salary and benefit expenses from $109,163 for
the three months ended January 31, 1999 to $285,155 for the three months ended
January 31, 2000 or $175,992 (161%) was due to hiring of 4 new employees. The
company employed 34 full time employees on January 31, 2000.
The Company had a net loss of $259,101 for the period six months ended
January 31, 1999 compared with a net loss of $643,088 for the six months ended
January 31, 2000. The increased net loss of $383,987 or 148% was due to
increases in salaries, professional fees associated with SEC filings and,
general and administrative expense. The Company had a $103,443 net loss for the
three month period ended January 31, 1999 compared with a net loss of $378,928
for the three months ended January 31, 2000. The increased loss of $275,485 or
266% 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 six month period
ending January 31, 2000, compared to $(.02) for the six months ended January 31,
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.
6
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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 surplus of $412,157 and stockholders'
equity of $651,237 at January 31, 2000, yet experienced significant losses in
six months ended January 31, 2000 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 January 31, 2000, the Company's primary source of liquidity was
$742,263 of accounts receivable. The Company's working capital surplus and
shareholders' equity was $104,406 and $339,825 at July 31, 1999, as compared to
a working capital surplus of $412,157 and a shareholders' equity of $651,237 at
January 31, 2000.
Net cash used in operating activities for six months ended January 31, 1999
was $168,505 as compared to net cash used in operating activities of $1,301,893
for the six months ended January 31, 2000. The increase in net cash used was
primarily attributed to operating losses associated with start-ups, increases in
accounts receivable, and accrued salaries of management.
Net cash provided by financing activities was $200,698 and $954,500 for the
six months ended January 31, 1999 and the six months ended January 31, 2000,
respectively. The increase in the net cash provided by financing activities was
due to proceeds from the issuance of common stock of $954,500.
Net cash used in investing activities increased from $8,063 to $64,736
primarily due to increases in fixed assets.
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, 2000, 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 $120,000 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
The Company filed suit on November 23, 1999 against AMP3.com, L.L.C. Cause No.
1999-58234; Houston Interweb Design, Inc. v. AMP3.com, L.L.C.; 190th Judicial
District Court of Harris County, Texas. The cause of action is for breach of
contract and requests payment for services and hosting plus interest and costs.
Defendants have answered and a docket control order has been entered. The
Company has attempted to settle this and other existing legal matters with
Defendants and absent any settlement will vigorously pursue its claims against
Defendants.
The Company filed suit on November 23, 1999 against AMP3.com, L.L.C. and its
officers/directors; Cause No. 1999-58235; Houston Interweb Design, Inc. v.
AMP3.com, L.L.C. Nigel Brassington and Michael Sharp; 295th Judicial District
Court of Harris County, Texas. The causes of action are for breach of fiduciary
duty, negligence, gross negligence, constructive fraud, fraud in a stock
transaction, an accounting, and minority shareholder oppression. In addition to
damages the suit also requests an injunction prohibiting Defendants from issuing
or selling additional shares, selling, pledging or
7
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transferring shares of stock and selling or transferring assets. Defendants have
answered and a docket control order has been entered. The Company has attempted
to settle this and other existing legal matters with Defendants and absent any
settlement will vigorously pursue its claims against Defendants.
The Company filed suit in December, 1999 against AMP3.com, L.L.C.; Cause No.
1999-60298; Houston Interweb Design, Inc. v. AMP3.com, L.L.C.; 234th Judicial
District Court of Harris County, Texas. The causes of action include: trade
secret misappropriation, breach of fiduciary duty, violation of various
intellectual property rights, violations under the Texas Theft Liability Act and
unfair competition. In addition to various damages, the suit requests a
temporary restraining order, temporary injunction and permanent injunction
prohibiting Defendants from misappropriating Plaintiff's "Jingle Banner(TM)"
technology and using its SiteBlazer(TM) software. Defendants have answered this
suit and are actively pursuing a mutually beneficial resolution to this suit.
The Company has attempted to settle this and other existing legal matters with
Defendants and absent any settlement will vigorously pursue its claims against
Defendants.
The Company is also subject to various legal proceedings and claims that arise
in the ordinary course of business. Management currently believes that
resolving these matters will not have a material adverse impact on the Company's
financial position or its results of operations.
ITEM 2. CHANGES IN SECURITIES
The following information sets forth certain information, as of January 31,
2000, for all securities the Company issued 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.
In January 2000, the Company issued 128,000 shares of company common stock
to six accredited individuals from $350,000. 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
- ----------- -------------------------
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
____________________________
/1/ Filed as an Exhibit to the company's registration statement on Form SB-2
8
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(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: March 15, 2000 /s/ Harry L. White
-----------------------------
Harry L. White
President and Chief
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> JUL-31-1999 JUL-31-1999
<PERIOD-START> AUG-01-1999 NOV-01-1999
<PERIOD-END> JAN-31-2000 JAN-31-2000
<CASH> 483 483
<SECURITIES> 0 0
<RECEIVABLES> 742,263 742,263
<ALLOWANCES> (36,038) (36,038)
<INVENTORY> 0 0
<CURRENT-ASSETS> 706,708 706,708
<PP&E> 70,576 70,576
<DEPRECIATION> 12,320 12,320
<TOTAL-ASSETS> 1,218,786 1,218,786
<CURRENT-LIABILITIES> 294,551 294,551
<BONDS> 0 0
0 0
0 0
<COMMON> 3,250,650 3,250,650
<OTHER-SE> (2,599,413) (2,599,413)
<TOTAL-LIABILITY-AND-EQUITY> 1,218,786 1,218,786
<SALES> 798,340 306,316
<TOTAL-REVENUES> 798,340 306,316
<CGS> 0 0
<TOTAL-COSTS> 1,441,428 685,243
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 2,709 1,538
<INCOME-PRETAX> (643,088) (378,928)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (643,088) (378,928)
<EPS-BASIC> (.04) (.02)
<EPS-DILUTED> (.03) (.02)
</TABLE>
