<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, 1999
[ ] 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:
4,965,036 shares at June 30, 1999
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, 1999
3
Statements of Operations for Nine and Three Months
Ended June 30, 1999 and 1998
4
Statement of Stockholders' Equity for Nine Months
Ended June 30, 1999 5
Statements of Cash Flows for the Nine Months
Ended June 30, 1999 and 1998
6
Notes to Financial Statements
7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
8
PART 2. OTHER INFORMATION
Item 1. Legal Proceedings
10
Item 2. Changes in Securities
1
0
Item 3. Defaults Upon Senior Securities
10
Item 4. Submission of Matters to a Vote of Security Holders
10
Item 5. Other Information
10
Item 6. Exhibits and Reports on Form 8-K
11
<PAGE>3
INTERACTIVE INC.
BALANCE SHEETS
June 30, 1999
(Unaudited)
ASSETS 9/30/98
-------------
CURRENT ASSETS
Cash and cash equivalents $ 1,151 $ 1,018
Accounts receivable 3,454 4,175
Inventories 20,948 22,480
Prepaid expenses and other 1,215 1,837
------------- -------------
Total current assets $ 26,767 $ 31,106
------------- -------------
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 96,782 92,032
------------- -------------
$ 44,388 $ 49,138
------------- -------------
OTHER ASSETS, at cost
Cost $ 253,971 $ 253,971
Less accumulated amortization 244,064 247,838
------------- -------------
$ 5,907 $ 6,132
------------- -------------
$ 77,062 $ 84,780
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable, related parties $ 500,000 $ 758,500
Current maturities of long-term debt 22,004 266,436
Accounts payable, trade 161,405 1,139,015
Accounts payable, trade,
Torrey Pines Research, Inc. 0 296,297
Accrued expenses 292,694 207,277
------------- -------------
Total current liabilities $ 976,103 $ 2,667,474
------------- -------------
LONG-TERM DEBT
$ 65,450 $ 311,435
Less current maturities (22,004) (266,436)
------------- -------------
$ 43,496 $ 45,000
------------- -------------
STOCKHOLDERS' EQUITY
Series A preferred stock, par value $.001
per share; authorized 5,000,000 shares;
issued 113,901 shares $ 114 $ 114
Series B preferred stock, par value $.001
per share; authorized 2,000,000 shares;
issued 2,000,000 shares 2,000 0
Common stock, par value $.001 per share;
authorized 10,000,000 shares; issued 4,965,036 4,965 3,289
Additional paid-in capital 8,906,209 6,834,594
Accumulated deficit (9,855,825) (9,465,690)
------------- -------------
$ (942,537) $ (2,627,694)
------------- -------------
$ 77,062 $ 84,780
------------- -------------
------------- -------------
See Notes to Financial Statements.
<PAGE> 4
INTERACTIVE INC.
STATEMENTS OF OPERATIONS
Nine and Three Months Ended June 30, 1999 and 1998
(Unaudited)
Nine months ended June 30,Three months ended June 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
Net Sales $ 26,103 $ 49,523 $ 9,663 $ 9,746
Cost of goods sold,
exclusive of depreciation
and amortization shown
separately below 18,412 27,266 6,860 7,675
----------- ----------- ----------- -----------
Gross profit $ 7,691 $ 22,257 $ 2,803 $ 2,071
----------- ----------- ----------- -----------
Operating expenses
Sales and Marketing $ 29,367 $ 24,963 $ 9,913 $ (2,847)
Support and production 4,734 (4,013) 1,521 (5,577)
General and administrative 22,838 9,573 7,996 3,653
Depreciation and amortization4,976 13,734 1,590 4,578
----------- ----------- ----------- -----------
$ 61,915 $ 44,221 $ 22,004 $ (193)
----------- ----------- ----------- -----------
Operating Loss $ (54,224) $ (21,964) $ (19,201) $ 2,264
----------- ----------- ----------- -----------
Nonoperating income (expense):
Rental income $ 839 $ 618 $ 289 $ 150
Interest expense (353,145) (30,867) (225,491) (10,122)
Miscellaneous income 16,395 25,588 5,789 7,354
----------- ----------- ----------- ----------
Nonoperating (expense): $ (335,911) $ (4,661) $ (219,413) $ (2,618)
----------- ----------- ----------- ----------
Net loss $ (390,135) $ (26,625) $ (237,614) $ (354)
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
Loss per common and common
equivalent share $ (0.08) $ (0.01) $ (0.05) $ (0.00)
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
See Notes to Financial Statements
<PAGE> 5
INTERACTIVE INC.
STATEMENT OF STOCKHOLDERS EQUITY
Nine Months ended June 30, 1999
(Unaudited)
Retained
Additional Earnings
Capital Stock Issued Paid-in (Accumulated
Preferred Preferred Common Capital Deficit)
Series A Series B
--------- --------- ------ ---------- -----------
Balance, September 30,
1998 $ 114 $ 0 $3,290 $6,834,594 $(9,465,690)
Issuance of common stock
for settlement of debt 1,676 2,071,615
Issuance of Series B preferred
stock for settlement of debt 2,000
Net loss (390,135)
-------- ------ ------ ---------- -----------
Balance, June 30, 1999 $ 114 $2,000 $4,965 $6,834,594 $(9,855,825)
-------- ------ ------ ---------- -----------
-------- ------ ------ ---------- -----------
See Notes to Financial Statements.
<PAGE> 6
INTERACTIVE INC.
STATEMENTS OF CASH FLOWS
Nine Months Ended June 30, 1999 and 1998
(Unaudited)
Nine months ended June 30,
1999 1998
----------- ----------
CASH FLOW FROM OPERATING ACTIVITIES
Net loss $ (390,135) $ (26,624)
Adjustments to reconcile net loss to net cash
(used in) operating activities:
Depreciation and amortization 4,976 13,734
Issuance of common stock for services 0 75
Change in assets and liabilities
Decrease in receivables 721 6,329
Decrease (increase) in inventories 1,532 (2,226)
Decrease in prepaid expenses and other 622 0
(Decrease) in notes payable, related party (258,500) 0
Increase (decrease) in accounts payable, trade (978,109) 12,200
(Decrease) in accounts payable,
Torrey Pines Research (296,297) 0
Increase in accrued expenses 85,417 48,375
----------- ----------
Net cash (used in) operating activities $ 245,518 $ (44,887)
CASH FLOW FROM FINANCING ACTIVITIES
Issuance of common stock in settlement
of long term debt $ (245,985) $ 0
Proceeds from long term debt 0 46,000
Principal payments on long term debt 500 0
----------- ----------
Net cash provided by financing activities $ (245,485) $ 46,000
----------- ----------
Net increase in cash and cash equivalents $ 33 $ 1,113
CASH AND CASH EQUIVALENTS
Beginning $ 1,018 $ 1,165
----------- ----------
Ending $ 1,151 $ 2,278
----------- ----------
----------- ----------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Issuance of common stock to satisfy long-term debt,
convertible notes, accrued interest payable and
accounts payable $1,489,553 $ 0
----------- ---------
----------- ---------
Issuance of common stock to satisfy accounts
payable, Torrey Pines Research $ 296,298 $ 0
----------- ---------
----------- ---------
Issuance of Series B Preferred stock to satisfy
loans payable and long-term debt,
Torrey Pines Research $ 289,440 $ 0
----------- ---------
----------- ---------
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, 1999, are
not necessarily indicative of the results expected for the entire year.
Note 2. Income Taxes
At June 30, 1999, the Company had a net operating loss carryforward for tax
purposes of approximately $8,784,300. For financial reporting purposes, the
operating loss carryforward is approximately $9,855,000 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, 1999 and 1998. The weighted number of common and common
equivalent shares outstanding for the nine and three months ended June 30,
1999 and 1998 are 3,763,583, 3,193,123, 4,739,592 and 3,230,086, 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.
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, 1999. The following details the stock options issued and
outstanding as of June 30, 1999.
Options Options Option
Expiration
Issued Exercisable Price
Year Ended
Incentive 9,334 9,334 $.25 2001
Incentive 3,000 3,000 .25
2004
Incentive 4,500 3,666 .32
2005
Non-statutory 3,000 3,000 .25
2003
Non-statutory 18,000 18,000 .25
2004
Non-statutory 36,000 36,000 .25
2005
Non-statutory 10,000 8,112 .32
2006
------ ------
83,334 81,112
<PAGE> 8
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, 1999.
Warrants Warrant
Expiration
Issued Price Date
-------- ------- ----------
Warrants for refinancing note 1,000,000 .50
9-30
- -02
Note 5. Bank Lines 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. The note was subsequently purchased from Mr. Stahl by
TPR Group, a related party. The note was retired when the Company successfully
closed its "Offer to Creditors." See Part II Other information Item 5.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Liquidity and Capital Resources
Although the Company successfully closed it's "Offer to Creditors" (see
Item
5.), the Company is delinquent on its interest payments on its secured note, one
of its subordinated long term notes and a portion 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 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 remaining 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,
1999,
accounted for approximately 78.3% 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.
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, 1997
and 1998. 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.
<PAGE>9
Results of Operations
Revenue. Net sales for the nine months ended June 30, 1999 and 1998 were
$26,100 and $49,500, respectively. The Company's decrease in sales is
attributable mainly to less emphasis on marketing during the period.
Management's main objective was to implement debt to equity conversions with the
Company's creditors.
Gross Profit. The gross margin for the nine months ended June 30, 1999 was
approximately 29%, down from a gross margin of 45% for the nine months ended
June 30, 1997. The decrease from the previous year is due primarily to a
greater percentage of sales of the SoundXchange Models T and VC with their
relatively lower profit margin.
Sales and marketing expenses. Sales and marketing expenses for the nine
months ended June 30, 1999 and 1998 were $29,000 and $25,000, respectively.
Research and development. There were no research and development expenses
for
the nine months ended June 30, 1999. 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 services because of InterActive's
current inability to pay for these consulting services.
General and administrative. General and administrative expenses for the
nine
months ended June 30, 1999 and 1998 were $22,800 and $9,500, respectively.
The increase is primarily due to the additional costs to consummate the Offer
to Creditors (See Item 5.)
Depreciation and Amortization. Depreciation and amortization expenses for
the
nine months ended June 30, 1999 and 1998 were $5,000 and $13,700, respectively.
The decrease in depreciation and amortization expense was due primarily to the
majority of depreciable items being depreciated out.
Nonoperating Income (Expense). Nonoperating income (expense) for the nine
months ended June 30, 1999 and 1998 were ($335,900) and ($4,700) respectively.
The increase in nonoperating expense was a result of accrual of interest to a
related party.
Net Loss. The Company suffered a net loss for the nine months ended June
30,
1999 of $390,100 or $0.08 per share on 3,763,583 weighted average shares
outstanding compared to 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.
The increase in net loss was primarily a result of accrual of interest to a
related party.
Management believes that the largest challenges that the Company will
continue
to confront during 1999 are to obtain adequate financing and to develop a plan
to achieve 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> 10
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 remaining 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 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
Effective June 18, 1999 the Company successfully closed the "Offer to
Creditors" (the "Offer") which was made to creditors of the Company in December,
1998. The holders of approximately $1,599,000 of the Company's previously
outstanding debt agreed to accept shares of the Company's common stock in
exchange therefor. TPR Group, Inc., (together with its affiliated entities,
"TPR"), a related party received 296,298 shares of the Company's Common Stock
in exchange for $296,298 of unsecured debt. Additionally, TPR acquired
2,000,000 shares of a new series of the Company's authorized but unissued
Series B Preferred Stock which is initially convertible to Common Stock on a 10
to one basis and has contributed $289,440 in principal and accrued interest
secured by a lien on the Company's assets to the capital of the Company. As a
consequence of these transactions, the Company's outstanding indebtedness has
been reduced from approximately $2,916,000 at December 8, 1998, to approximately
$958,283 at June 18, 1999, and an aggregate of 25,076,508 shares of common
stock (including 20,000,000 issuable to TPR upon conversion of the Series B
Preferred Stock) are outstanding. TPR has also agreed to exchange an additional
$721,000 of the Company's secured debt for shares of Series C Preferred Stock at
a later date, subject to certain conditions. Consummation of this debt-to-
equity conversion was publicly announced by a Press Release dated June 18, 1999
a copy of which is attached. See Exhibit A.
<PAGE> 11
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit A Press Release dated June 18, 1999
(b) Reports on Form 8-K.
During the quarter the Registrant filed a Form 8-K dated June 18, 1999
to
report a successful conclusion of an "Offer to Creditors" in which a
majority of holders of the Company's previously outstanding debt agreed
to accept shares of the Company's stock in exchange therefor.
<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 13, 1999 INTERACTIVE INC.
/s/Rob
ert Stahl
--------------------
Robert
Stahl
Presid
ent
/s/Ger
ard L. Kappenman
----------------------
Gerard
L. Kappenman
Secret
ary
<PAGE> 13
EXHIBIT A
NEWS RELEASE
FOR IMMEDIATE RELEASE Contact:
Robert Stahl
Inte
rActive Inc.
Phon
e: (605) 363-5117
Fax:
(605) 363-5102
E-ma
il: [email protected]
Home
page: www.iact.com
INTERACTIVE COMPLETES DEBT TO EQUITY CONVERSION
-----------------------------------------------
Humboldt, SD, June 18, 1999 - InterActive Inc., a South Dakota corporation
("InterActive" or the "Company") whose common stock is traded in the over-the-
counter market under the symbol "INAV", today announced a successful
restructuring of a majority of its outstanding debt. Restructure of the
Company's debt was proposed in December 1998, as publicly announced in a press
release dated December 7, 1998. Effective as of June 18, 1999, the holders of
approximately $1,599,000 of the Company's previously outstanding debt, have .
agreed to accept shares of the Company's common stock in exchange therefor.
In connection with the debt restructuring, TPR Group, Inc., a Delaware
corporation (together with its affiliated entities, "TPR"), received 296,298
shares of the Company's Common Stock in exchange for $296,298 in unsecured debt
owed to it by the Company. In addition , TPR acquired shares of a new series
of the Company's authorized but unissued preferred stock (the "Series B
Preferred Stock") which is initially convertible into 20,000,000 shares of the
Company's Common Stock Subject to the satisfaction of certain further
conditions, TPR also has contributed to the capital of the Company the sum of
$289,440 in principal and accrued interest owed to it by the Company, which was
secured by a lien on all of the Company's assets. As a result of the debt-to-
equity exchange and the contribution to capital of additional indebtedness
formerly owed to TPR, the Company's outstanding indebtedness has been reduced
from approximately $2,916,000 at December 8, 1999 to approximately $958,283 at
June 18, 1999. Subject to certain further conditions, TPR has also agreed to
exchange, at a future date, an additional $721,000 of the Company's secured
indebtedness for shares of a second series of the Company's preferred stock
(the "Series C Preferred Stock"), which would be convertible into an additional
6,000,000 shares of the Company's common stock.
After giving effect to the issuance of 1,726,946 shares in connection with
the
debt restructuring, and taking into account the 20,000,000 shares of the
Company's common stock issuable to TPR upon conversion of the Series B Preferred
Stock, an aggregate of approximately 25,076,508 shares of the Company's common
stock were outstanding as of June 18, 1999. Of these shares, TPR owns
approximately 20,826,741 shares, or approximately 83%, and the other former
creditors and stockholders of the Company own approximately 4,249,767 shares, or
approximately 17%. As of June 18, 1999, an additional 1,198,000 shares of
common stock were issuable upon exercise of outstanding stock options and
warrants and conversion of outstanding Series A Preferred Stock.
<PAGE> 14
As holder of the Series B Preferred Stock, TPR will be entitled to elect a
majority of the directors of the Company and to vote along with the Company's
common stock holders on all other matters, with the right to cast one vote for
each share of the Company's Common Stock into which the Series B Preferred
Stock is then convertible. TPR has agreed to use its best efforts to assist the
Company in developing a technical consulting business and/or developing or
acquiring such other business or businesses as the officers and directors of
the Company, in consultation with TPR, deem desirable and appropriate (although
no such acquisition is currently contemplated).
InterActive Inc. designs, manufactures and markets personal computer-based
multimedia products for use over the Internet and local area networks and in
kiosks and security systems. InterActive's corporate headquarters are located
at 204 North Main, Humboldt, South Dakota. The telephone number is 605-363-
5117 and fax number is 605-363-5102. InterActive's home page address is
http://www.iact.com.
