<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission file number: 000-21898
INTERACTIVE INC.
(Exact name of small business issuer as specified in its charter)
South Dakota
46-
0408024
(state of incorporation or organization) (IRS Employer ID No)
204 N. Main, Humboldt, SD 57035
(Address of principal executive offices)
(605) 363-5117
Issuer's telephone number
N/A
(Former name, former address and former fiscal year, if changed since last
report)
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 . . . No .X. .
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court. Yes . . . No .X . .
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 3,265,976 shares at June
30, 1998
Transitional Small Business Disclosure Format (Check one): Yes No X
<PAGE> 2
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
INDEX TO FINANCIAL STATEMENTS
Page
____
Balance Sheet as of June 30, 1998
3
Statements of Operations for Nine and Three Months Ended
June 30, 1998 and 1997
4
Statement of Stockholders' Equity for
Nine Months Ended June 30, 1998 5
Statements of Cash Flows for the
Nine Months Ended June 30, 1998 and 1997
6
Notes to Financial Statements
7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
9
PART 2. OTHER INFORMATION
Item 1. Legal Proceedings
1
1
Item 2. Changes in Securities
1
1
Item 3. Defaults Upon Senior Securities
11
Item 4. Submission of Matters to a Vote of Security Holders
11
Item 5. Other Information
1
1
Item 6. Exhibits and Reports on Form 8-K
11
<PAGE> 3
INTERACTIVE INC.
BALANCE SHEETS
June 30, 1998
(Unaudited)
ASSETS 9/30/97
_____________
CURRENT ASSETS
Cash and cash equivalents $ 2,278 $ 1,165
Accounts receivable 4,089 10,418
Inventories 23,939 21,713
Prepaid expenses and other 800 800
_____________ ______________
Total current assets $ 31,106 $ 34,096
_____________ ______________
PROPERTY AND EQUIPMENT, at cost
Land $ 1,962 $ 1,962
Building and improvements 84,962 84,962
Computer and office equipment 54,246 54,246
_____________ ______________
$ 141,170 $ 141,170
Less accumulated depreciation 88,282 77,032
_____________ ______________
$ 52,888 $ 64,138
_____________ ______________
OTHER ASSETS, at cost
Cost $ 253,971 $ 253,971
Less accumulated amortization 247,010 244,526
_____________ ______________
$ 6,961 $ 9,445
_____________ ______________
$ 90,955 $ 107,679
_____________ ______________
_____________ ______________
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable, bank $ 0 $ 213,500
Notes payable, related parties 758,500 545,000
Current maturities of long-term debt 265,936 265,436
Accounts payable, trade 1,131,293 1,119,092
Accounts payable, trade,
Torrey Pines Research, Inc. 296,297 296,297
Accrued expenses 196,151 244,526
_____________ _____________
Total current liabilities $ 2,648,177 $ 2,683,851
_____________ _____________
LONG-TERM DEBT
$ 311,435 $ 265,436
Less current maturities (265,936) (265,436)
_____________ _____________
$ 45,499 $ 0
_____________ _____________
STOCKHOLDERS' EQUITY
Series A preferred stock, par value $.001 per share; authorized
5,000,000 shares; issued 113,901 shares $ 114 $ 114
Common stock, par value $.001 per share;
authorized 10,000,000 shares: issued 3,265,976 3,266 3,191
Additional paid-in capital 6,834,594 6,834,594
Accumulated deficit (9,440,695) (9,414,071)
_____________ _____________
$ (2,602,721) $ (2,576,172)
_____________ _____________
$ 90,955 $ 107,679
_____________ _____________
_____________ _____________
See Notes to Financial Statements.
<PAGE> 4
INTERACTIVE INC.
STATEMENTS OF OPERATIONS
Nine and Three Months Ended June 30, 1998 and 1997
(Unaudited)
Nine months ended June 30, Three months ended June 30,
__________________________ ___________________________
1998 1997 1998 1997
__________ __________ __________ __________
Net Sales $ 49,523 $ 61,608 $ 9,746 $ 19,167
Cost of goods sold, exclusive
of depreciation and amortization
shown separately below 27,266 28,894 7,675 9,271
___________ ___________ ___________ ___________
Gross profit $ 22,257 $ 32,714 $ 2,071 $ 9,896
___________ ___________ ___________ ___________
Operating expenses
Sales and Marketing $ 24,963 $ 50,983 $ (2,847) $ 10,618
Support and production (4,013) 3,850 (5,577) 1,009
General and administrative 9,537 9,176 3,653 1,803
Depreciation and amortization 13,734 77,833 4,578 25,924
___________ ___________ ___________ ___________
$ 44,221 $ 141,842 $ (193) $ 39,354
___________ ___________ ___________ ___________
___________ ___________ ___________ ___________
Operating Loss $ (21,964) $ (109,128) $ 2,264 $ (29,458)
___________ ___________ ___________ ___________
Nonoperating income (expense):
Rental income 618 5,250 150 2,525
Interest expense (30,867) (30,510) (10,122) (10,460)
Miscellaneous income 25,588 629 7,354 0
___________ __________ ___________ __________
Nonoperating income
(expense): $ (4,661) $ (24,631) $ (2,618) $ (7,935)
___________ __________ ___________ __________
Net loss $ (26,625) $(133,759) $ (354) $ (37,393)
___________ __________ ___________ __________
___________ __________ ___________ __________
Loss per common and common
equivalent share $ (0.01) $ (0.04) $ (0.00) $ (0.01)
___________ __________ ___________ __________
___________ __________ ___________ __________
See Notes to Financial Statements
<PAGE> 5
INTERACTIVE INC.
STATEMENT OF STOCKHOLDERS' EQUITY
Nine months ended June 30, 1998
(Unaudited)
Retained
Additional Earnings
Capital Stock Issued Paid-in (Accumulated
____________________
Preferred Common Capital Deficit)
_________ _________ ___________ ____________
Balance, September 30, 1997 $ 114 $ 3,191 $ 6,834,594 $(9,414,070)
Issuance of common stock
for services 75
Conversion of preferred
stock to common stock
Net loss (26,625)
__________ _________ ____________ ____________
Balance, June 30, 1998 $ 114 $ 3,266 $ 6,834,594 $(9,440,695)
__________ _________ ____________ ____________
__________ _________ ____________ ____________
See Notes to Financial Statements.
<PAGE> 6
INTERACTIVE INC.
STATEMENTS OF CASH FLOWS
Nine Months Ended June 30, 1998 and 1997
(Unaudited)
Nine months ended June 30,
1998 1997
___________ ___________
CASH FLOW FROM OPERATING ACTIVITIES
Net loss $ (26,624) $ (134,024)
Adjustments to reconcile net loss to net cash
(used in) operating activities:
Depreciation and amortization 13,734 77,833
Issuance of common stock for services 75 5,576
Change in assets and liabilities;
Decrease in receivables 6,329 12,470
Decrease (increase) in inventories (2,226) 16,698
Decrease in prepaid expenses and other 0 731
Increase in accounts payable, trade 12,200 4,551
(Decrease) in accounts payable
Torrey Pines Research 0 (4,000)
Increase (decrease) in accrued expenses (48,375) 24,830
___________ ___________
Net cash (used in) operating activities $ (44,887) $ 4,665
___________ ___________
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from long term debt $ 46,000 $ 0
Principal payments on long term debt 0 (4,431)
___________ ___________
Net cash provided by financing activities $ 46,000 $ (4,431)
___________ ___________
Net increase in cash and cash equivalents $ 1,113 $ 234
CASH AND CASH EQUIVALENTS
Beginning $ 1,165 $ 1,034
___________ ___________
Ending $ 2,278 $ 1,268
___________ ___________
___________ ___________
See Notes to Financial Statements.
<PAGE> 7
INTERACTIVE INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1. Interim Financial Statements
The financial information presented has been prepared from the books and
records without audit but, in the opinion of management, includes all
adjustments, consisting of only normal recurring adjustments, necessary for a
fair presentation of the financial information for the periods presented.
The results of operations for the nine and three months ended June 30, 1998,
are not necessarily indicative of the results expected for the entire year.
Note 2. Income Taxes
The Company adopted the Financial Accounting Standards Board Statement No.
109, Accounting for Income Taxes on October 1, 1993. Statement 109 requires
that deferred taxes be recorded on a liability method and adjusted when new
tax rates are enacted. There was no effect to the Company's financial
statements as a result of adopting Statement 109.
At June 30, 1998, the Company had a net operating loss carryforward for tax
purposes of approximately $8,127,000. For financial reporting purposes,
the operating loss carryforward is approximately $9,441,000, which represents
the amount of future tax deductions for which a tax benefit has not been
recognized in the financial statements. No deferred asset has been recorded
for the benefit of the net operating loss or any other temporary differences
as the related valuation allowance would be equal to the net deferred tax asset.
Note 3. Loss Per Common and Common Equivalent Share
The loss per common and common equivalent share has been computed using the
weighted average of the number of shares outstanding for the nine and three
months ended June, 1998 and 1997. The weighted number of common and common
equivalent shares outstanding for the nine and three months ended June 30,
1998 and 1997 are 3,193,123, 3,130,059, 3,230,086, and 3,123,109, respectively.
The loss per common and common equivalent share assuming full dilution is the
same as the loss per common and common equivalent share since the convertible
preferred stock, convertible notes and common stock options and warrants have
not been included in the computation as their inclusion would be anti-dilutive.
<PAGE> 8
Note 4. Stock Options and Warrants
The Company has a plan to grant incentive stock options to employees and non-
statutory stock options to other individuals who provide services to the
Company. All options granted are at the discretion of the Board of Directors
and vest with the option holder over a 36 or 48 month period of continuous
service to the Company. The option price is to be established by the Board
of Directors. The Company has 133,333 shares of common stock reserved for
options as of June 30, 1998. The following details the stock options issued
and outstanding as of June 30, 1998.
Options Options Option
Expi
ration
Issued Exercisable Price Year
Ended
_______ ___________ ______ __________
Incentive 9,334 9,334 $.25
200
1
Incentive 3,000 3,000 .25
2004
Incentive 4,500 2,538 .32
2005
Non-statutory 3,000 3,000 .25
2003
Non-statutory 18,000 18,000 .25
2004
Non-statutory 36,000 33,000 .25
2005
Non-statutory 10,000 5,616 .32
2
006
______ ______
93,334 65,274
______ ______
The Company has issued common stock warrants to purchase shares of common
stock at a set price. The following details the common stock warrants issued
and outstanding as of June 30, 1998.
Warrants Warrant
Expiration
Issued Price Date
_________ _______ __________
Warrants for refinancing note 1,000,000 .50 6-30-99
Note 5. Bank Line of Credit
The Company had a line-of-credit aggregating $213,500 from a bank. The line
was at a variable interest rate of .75% over the banks commercial base rate
(10.43% at March 31, 1998), with interest on the outstanding balance due
monthly. The Company was unable to pay the principle or the monthly interest
payments, but accrued the interest. The line was secured by substantially all
of the assets of the Company. In May of 1998 the note was purchased from the
bank by Robert Stahl, a related party.
<PAGE> 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Liquidity and Capital Resources
The Company is delinquent on its interest payments on its former bank line
of credit, most of its subordinated long term notes, its leases and most of its
trade accounts payable. The Company has several judgments against it and
several more threatened as a result of its inability to pay its obligations
to its unsecured trade creditors. The judgments are all from unsecured
creditors which the Company is no longer using for ongoing operations and the
Company does not intend to pay these unsecured debts until its obligations
to its secured creditors are satisfied. The exposure to judgments could
include all of the current liabilities, which total $2,648,177 at June 30, 1998.
The company currently feels that the best possibility it has available to
repay its secured and unsecured creditors and to return value to its
stockholders is to continue to operate the Company and to work out long term
payment plans if it is able to do so in the future. While the Company does
not expect that it will be forced into bankruptcy by its secured or unsecured
creditors, there can be no assurance that this will not happen because of the
Company's inability to meet its obligations to its creditors. The Company
believes that a liquidation of its assets would only satisfy a small portion
of the Company's obligations to its secured creditors and provide nothing
for the Company's unsecured creditors or its stockholders.
The Company's inventory of SoundXchange hardware, which, as of June 30, 1998,
accounted for approximately 76.9% of the Company's current assets, is liquid
only to the extent of the Company's sales of such product. The Company has
made minor engineering changes in the product in order to be aboe t9 utilize
the inventory for newly developing markets and the Company hopes to continue to
be able to do so in the future. Although, there can be not gurantee that this
will increase sales of the SoundXchange hardware, the Company believes that an
increase in sales will occur allowing the Company to recuce its inventory of
the SoundXchange hardware at a profit.
The Company was also unable to pay its auditor in order to have audited
financial statements for years ended September 30, 1994, 1995, 1996 and 1997.
The absence of audited financial statements may jeopardize the ability of the
Company to continue as a reporting Company and may jeopardize the ability for
the Company's stock to continue to trade on the OTC Bulletin Board.
Results of Operations
Revenue. Net sales for the nine months ended June 30, 1998 and 1997 were
$49,500 and $61,600, respectively. Net sales for the first three quarters of
1998 were down primarily due to a reduction in slaes and marketing and a
reduction in advertising expenditures.
Gross Profit. The gross margin for th nine months ended June 30, 1998 was
approximately 45% down from a gross margin of 53% for the nine months ended
June 30, 1997. The decrease from the previous year is due primarily to a
decrease in sales of the higher profit margin SounXchange Model K and Model T
and an increase in sales of the SoundXchange Model VC with its relatively lower
profit margin.
Sales and marketing expenses. Sales and marketing expenses for the nine months
ended June 30, 1998 and 1997 were $25,000 and $51,000, respectively. In the
first thee quarters of fiscal 1998, the Company did not pursue advertising
efforts similar in magnitude to those in 1997. The Company also reduced the
number of sales and marketing employees from fiscal 1997 to fiscal 1998.
<PAGE> 10
Research and development. There were no research and development expenses
for the nine months ended June 30, 1998. The Company does not have any
employees currently engaged in research, product development and engineering,
but the Company currently has access, through a temporary consulting
arrangement with Torrey Pines Research (TPR), the Company's former key
research and development employees who are now employees of TPR. Although TPR
is a stockholder of InterActive, and TPR has performed as a strategic partner
in past development efforts of InterActive, there can be no assurance that TPR
will continue to provide InterActive consulting service because of InterActive's
current inability to pay for those consulting services. There were no amounts
capitalized in connection with software development for the nine months ended
June 30, 1998 and 1997. Software development amortization expense for the nine
months ended June 30, 1998 and 1997 were $0 and $64,100, respectively.
General and administrative. General and administrative expenses for the nine
months ended June 30, 1998 and 1997 were $9,500 and $9,200, respectively.
Depreciation and Amortization. Depreciation and amortization expenses for the
nine months ended June 30, 1998 and 1997 were $13,700 and $77,800, respectively.
The decrease in depreciation and amortization expense was due primarily to a
one time write down of assets at fiscal year end 1997.
Nonoperating Income (Expense). Nonoperating income (expense) for the nine
months ended June 30, 1998 and 1997 were ($4,700) and ($24,600) respectively.
The decrease in nonoperating expense was a result of income shown from
recapture of inventory which was written down at September 30, 1997.
Net Loss. The Company suffered a net loss for the nine months ended June 30,
1998 of $26,600 or $0.01 per share on 3,193,123 weighted average shares
outstanding compared to a net loss for the nine months ended June 30, 1997 of
$133,800 or $0.04 per share on 3,130,059 weighted average shares outstanding.
The decrease in net loss was primarily a result of an agreement with the
South Dakota Department of Revenue which reduced the use tax liability to the
state. This liability was realized during the first nine months of fiscal 1997.
Management believes that the largest challenges that the Company will continue
to confront during 199 are to obtain adequate financing and in achieving its
goal of positive cash flow and profitability. While the Company is optimistic
about the possibility of its overcoming these challenges and achieving its
goals, there can be no assurance that it will be able to achieve any or all
of its objectives.
<PAGE> 11
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
The Company has several judgments against it and several more threatened as
a
result of its inability to pay its obligations to its unsecured trade creditors.
The judgments are all from unsecured creditors which the Company is no longer
using for on going operations and the Company does not intend to pay these
unsecured debts until its obligations to its secured creditors are satisfied.
The Company currently feels that the best possibility it has available to
repay its secured and unsecured creditors and to return value to its
stockholders is to continue to operate the Company and to work out long term
payment plans if it is able to do so in the future. While the Company does
not expect that it will be forced into bankruptcy by its secured or unsecured
creditors, there can be no assurance that this will not happen because of the
Company's inability to meet its obligations to its creditors. The Company
believe that a liquidation of its assets would only satisfy a small portion of
the company's obligations to its secured creditors and provide nothing for the
Company's unsecured creditors or its stockholders.
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
None
(b) Reports on Form 8-K.
None
<PAGE> 12
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Dated: August 7, 1998 INTERACTIVE INC.
/s/ Robert
Stahl
_____________________
Robert Stahl
President
/s/ Gerard
L. Kappenman
_______________________
Gerard L. Kappenman
Secretary