<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: December 31, 1997
[ ] 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 . . .
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:
3,190,976 shares at December 31, 1997
Transitional Small Business Disclosure Format (Check one): Yes No X
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PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
INDEX TO FINANCIAL STATEMENTS
Page
----
Balance Sheet as of December 31 , 1997 3
Statements of Operations for the Three Months Ended December 31, 1997 4
Statement of Stockholders' Equity for Three Months Ended December 31, 1997 5
Statements of Cash Flows for the Three Months Ended December 31, 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 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
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INTERACTIVE INC.
BALANCE SHEETS
December 31, 1997
(Unaudited)
ASSETS 9/30/97
------------
CURRENT ASSETS
Cash and cash equivalents $ 1,317 $ 1,165
Accounts receivable 5,189 10,418
Inventories 21,374 21,713
Prepaid expenses and other 800 800
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Total current assets $ 26,680 $ 34,096
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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
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$ 141,170 $ 141,170
Less accumulated depreciation 80,782 77,032
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$ 60,388 $ 64,138
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OTHER ASSETS, at cost
Cost $ 253,971 $ 253,971
Less accumulated amortization 245,354 244,526
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$ 8,617 $ 9,445
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$ 97,685 $ 107,679
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------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable, bank $ 213,500 $ 213,500
Notes payable, related party 545,000 545,000
Current maturities of long-term debt 265,436 265,436
Accounts payable, trade 1,121,984 1,119,092
Accounts payable, trade, Torrey Pines Research, Inc. 296,297 296,297
Accrued expenses 248,585 244,526
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Total current liabilities $ 2,690,802 $ 2,683,851
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LONG-TERM DEBT
$ 265,436 $ 265,436
Less current maturities (265,436) (265,436)
------------ -----------
$ 0 $ 0
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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 $.001 per share; authorized
10,000,000 shares; issued 3,190,976 3,191 3,191
Additional paid-in capital 6,834,594 6,834,594
Accumulated deficit (9,431,016) (9,414,071)
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$(2,593,117) $(2,576,172)
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$ 97,685 $ 107,679
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------------ -----------
See Notes to Financial Statements.
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INTERACTIVE INC.
STATEMENTS OF OPERATIONS
Three Months Ended December 31, 1997 and 1996
(Unaudited)
Three months ended December 31,
1997 1996
--------------- --------------
Net Sales $ 11,273 $ 28,723
Cost of goods sold, exclusive of depreciation
and amortization shown separately below 5,003 13,100
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Gross profit $ 6,270 $ 15,623
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Operating expenses
Sales and Marketing $ 11,097 $ 19,414
Support and production 381 1,707
General and administrative 1,144 3,977
Depreciation and amortization 4,578 25,954
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$ 17,200 $ 51,052
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--------------- ------------
Operating Loss $ (10,930) $ (35,429)
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Nonoperating income (expense):
Rental income $ 229 $ 2,100
Interest expense (10,240) (10,043)
Miscellaneous income 3,995 636
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Nonoperating income (expense): $ (6,016) $ (7,307)
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Net loss $ (16,946) $ (42,736)
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Loss per common and common equivalent share $ (0.01) $ (0.01)
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See Notes to Financial Statements
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INTERACTIVE INC.
STATEMENT OF STOCKHOLDERS' EQUITY
Three months ended December 31, 1997
(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: 0 0 0 0
Services, other assets and
settlement of trade payables
Conversion of preferred stock 0 0 0 0
to common stock
Net loss (16,946)
--------- --------- ----------- -------------
Balance, December 31, 1997 $ 114 $ 3,191 $ 6,834,594 $(9,431,016)
See Notes to Financial Statements.
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INTERACTIVE INC.
STATEMENTS OF CASH FLOWS
Three Months Ended Deceber 31, 1997 and 1996
(Unaudited)
Three months ended December 31,
1997 1996
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CASH FLOW FROM OPERATING ACTIVITIES
Net loss $ (16,946) $ (42,736)
Adjustments to reconcile net loss to net cash (used in) operating activities:
Depreciation and amortization 4,578 25,954
Issuance of common stock for services
and accounts payable 0 5,527
Change in assets and liabilities
Decrease in receivables 5,229 9,954
Decrease in inventories 339 4,420
(Increase) in prepaid expenses and other 0 (1,327)
Increase (Decrease) in accounts payable, trade 2,892 (2,338)
Increase in accrued expenses 4,059 7,483
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Net cash (used in) operating activities $ 151 $ 6,937
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CASH FLOW FROM FINANCING ACTIVITIES
Principal payments on long term debt 0 (3,343)
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Net cash provided by financing activities $ 0 $ (3,343)
----------- ------------
Net increase in cash and cash equivalents $ 151 $ 3,594
CASH AND CASH EQUIVALENTS
Beginning $ 1,165 $ 1,034
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Ending $ 1,316 $ 4,628
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for interest $ 0 $ 105
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----------- ------------
See Notes to Financial Statements.
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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 three months ended December 31, 1997, 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 December 31, 1997, the Company had a net operating loss carryforward for
tax purposes of approximately $7,420,000. For financial reporting purposes,
the operating loss carryforward is approximately $9,430,000, 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 three months
ended December 31, 1997 and 1996. The weighted number of common and common
equivalent shares outstanding for the three months ended December 31, 1997 and
1996 are 3,156,291 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.
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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 for all options granted to date is
established by the board of Directors. The exercise price for options granted
to an optionee who owns stock greater than 10% of the total voting power of
all classes of stock of the company shall be 110% of the fair market value of
the stock on the date the option is granted. The Company has 133,333 shares
of common stock reserved for options as of December 31, 1997. The following
details the stock options issued and outstanding as of December 31, 1997.
Options Options Option Expiration
Issued Exercisable Price Year Ended
--------- ----------- ------ ----------
Incentive 9,334 9,334 $0.25 2001
Incentive 3,000 3,000 0.25 2004
Incentive 4,500 1,974 0.32 2005
Non-statutory 3,000 3,000 0.25 2003
Non-statutory 18,000 18,000 0.25 2004
Non-statutory 36,000 27,000 0.25 2005
Company's President 10,000 4,368 0.32 2006
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 December 31, 1997.
Warrants Warrant Expiration
Issued Price Date
-------- ------- ----------
Underwriters' warrants 100,000 5.40 6-26-98
Warrants for refinancing note 1,000,000 .50 3-31-98
Note 5. Bank Line of Credit
The Company has a line-of-credit aggregating $213,500 from a bank. At
December 31, 1997 the agreement with the bank allowed up to a total of
$213,500 to be borrowed under this line-of-credit. The line is at a variable
interest rate of .75% over the banks commercial base rate (10.43% at December
31, 1997), with interest on the outstanding balance due monthly. The Company
has been unable to make the monthly interest payments, but is accruing the
interest. The line is secured by substantially all of the assets of the
Company.
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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 bank line of
credit, its subordinated long term notes, most of 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 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 December 31,
1997, accounted for approximately 72.9% 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 able to
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 no guarantee
that this will increase sales of the SoundXchange hardware, the Company
believes that an increase in sales will occur allowing the Company to reduce
its inventory of SoundXchange hardware at a profit.
The Company was also unable to pay its auditors in order to have audited
financial statements for the 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 three months ended December 31, 1997 and 1996
were $11,273 and $28,723, respectively. The Company's decrease in sale is
attributable mainly to less demand for its SoundXchange Models A, B and BX.
Gross Profit. The gross margin for the three months ended December 31,
1997 was approximately 56%, up from a gross margin of 46% for the three months
ended December 31, 1996. The increase from the previous year is due primarily
to the higher gross profit margin realized from modifications to the Company's
product line.
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Sales and marketing expenses. Sales and marketing expenses for the three
months ended December 31, 1997 and 1996 were $11,000 and $19,000, respectively.
Research and development. Research and development expenses were 0 for
the three months ended December 31, 1997. 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), to 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 in the future provide InterActive consulting services because of
InterActive's current inability to pay for these consulting services. Amounts
capitalized in connection with software development for the three months ended
December 31, 1997 and 1996 were $0. Software development amortization expense
for the three months ended December 31, 1997 and 1996 were $0 and $7,100,
respectively. The Company believes that ongoing modifications to the Company's
SoundXchange products is important to the long term viability of such products
and the future revenues of the Company.
General and administrative. General and administrative expenses for the
three months ended December 31, 1997 and 1996 were $1,000 and $4,000,
respectively.
Depreciation and Amortization. Depreciation and amortization expenses for
the three months ended December 31, 1997 and 1996 were $5,000 and $26,000,
respectively.
Nonoperating Income (Expense). Nonoperating income (expense) for the
three months ended December 31, 1997 and 1996 were $(6,000) and $(7,000),
respectively.
Net Loss. The Company suffered a net loss for the three months ended
December 31, 1997 of $17,000 or $0.01 per share on 3,156,291 weighted average
shares outstanding compared to a net loss for the three months ended December
31, 1996 of $43,000 or $0.01 per share on 3,123,109 weighted average shares
outstanding.
Management believes that the largest challenges that the Company will
continue to confront during 1998 are to obtain adequate financing and in
achieving 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.
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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
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.
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
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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: February 4, 1998 INTERACTIVE INC.
/s/ Robert Stahl
------------------------
Robert Stahl
President
/s/ Gerard L. Kappenman
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Gerard L. Kappenman
Secretary