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, 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.
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(Exact name of small business issuer as specified in its charter)
South Dakota 46-0408024
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(state or other jurisdiction (IRS Employer ID No)
of incorporation or organization)
204 N. Main, Humboldt, SD 57035
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(Address of principal executive offices)
(605) 363-5117
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Issuer's telephone number
N/A
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(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: 5,012,138 shares at January 19,
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2000
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Transitional Small Business Disclosure Format (Check one): Yes No X
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<TABLE>
<CAPTION>
INTERACTIVE INC.
TABLE OF CONTENTS
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
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<S> <C>
Balance Sheets - December 31, 1999 and September 30, 1999 3
Statements of Operations - Three Months Ended December 31, 1999 and 1998 4
Statement of Stockholders' Equity - Three Months Ended December 31, 1999 5
Statements of Cash Flows - Three Months Ended December 31, 1999 and 1998 6
Notes to Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9-10
PART II. OTHER INFORMATION
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 6. Exhibits and Reports on Form 8-K 10
</TABLE>
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<TABLE>
<CAPTION>
INTERACTIVE INC.
BALANCE SHEETS
ASSETS 12/31/1999 Unaudited 09/30/1999
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<S> <C> <C>
Current Assets
Cash $ 126 $ 124
Accounts receivable 1,059 11,300
Inventories 14,051 14,295
Prepaid expenses and other assets 691 627
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Total current assets 15,927 26,346
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Property and Equipment, at cost
Building and improvements 107,216 107,216
Equipment 11,019 10,277
118,235 117,493
Less accumulated depreciation 63,602 61,546
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54,633 55,947
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Total assets $ 70,560 $ 82,293
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LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Notes payable, related party $ 500,000 $ 500,000
Current maturities of long-term debt 25,000 22,000
Accounts payable 155,333 154,520
Accounts payable, related parties 31,178 14,625
Accrued expenses 49,188 47,076
Accrued expenses, related parties 324,174 297,172
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Total current liabilities 1,084,873 1,035,393
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Long-term Debt, less current maturities 39,500 43,000
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Stockholders' Deficit
Series A preferred stock, $.001 par value; authorized
5,000,000 shares; issued and outstanding 113,901 shares: 114 114
total liquidation preference of outstanding shares $172,069
Series B preferred stock, $.001 par value; authorized
2,000,000 shares; issued and oustanding 2,000,000 shares; 2,000 2,000
total liquidation preference of outstanding shares $300,000
Common stock, $.001 par value; authorized 10,000,000 shares;
5,012,138 and 4,912,138 issued and outstanding 5,012 4,912
at December 31, 1999 and September 30, 1999
Additional paid-in capital 8,043,117 8,040,217
Accumulated deficit (9,104,056) (9,043,343)
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Total stockholders' deficit (1,053,813) (996,100)
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Total liabilities and stockholders' deficit $ 70,560 $ 82,293
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</TABLE>
See Notes to Financial Statements.
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<TABLE>
<CAPTION>
INTERACTIVE INC.
STATEMENTS OF OPERATIONS
Three Months Ended December 31, 1999 and 1998
(Unaudited)
1999 1998
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<S> <C> <C>
Net sales $ 5,015 $ 8,609
Cost of goods sold 264 708
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Gross profit 4,751 7,901
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Operating expenses
Selling 13,714 14,310
General and administrative 23,952 8,929
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37,666 23,239
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Operating (loss) (32,915) (15,338)
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Nonoperating income (expense):
Interest expense (28,784) (10,253)
Other income 986 332
Nonoperating (expense): (27,798) (9,921)
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Net (loss) $(60,712) $(25,259)
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Loss per common share $ (0.01) $ (0.01)
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</TABLE>
See Notes to Financial Statements
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<TABLE>
<CAPTION>
INTERACTIVE INC.
STATEMENT OF STOCKHOLDERS' EQUITY
Three months ended December 31, 1999
(Unaudited)
Series A Series B additional
Preferred Preferred Common Paid-in Accumulated
Stock Stock Stock Capital Deficit Total
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<S> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1999 $ 114 $ 2,000 $ 4,912 $ 8,040,217 $ (9,043,343) $ (996,100)
Issuance of common stock for services 100 2,900 3,000
Net loss (60,713) (60,713)
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Balance, December 31, 1999 $ 114 $ 2,000 $ 5,012 $ 8,043,117 $ (9,104,056) $(1,053,813)
========== ========== ======= =========== ============= ============
</TABLE>
See Notes to Financial Statements.
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<TABLE>
<CAPTION>
INTERACTIVE INC.
STATEMENTS OF CASH FLOWS
Three Months Ended December 31, 1999 and 1998
(Unaudited)
1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $(60,713) $(25,259)
Adjustments to reconcile net (loss) to net cash (used in) operating activities:
Depreciation 2,056 1,769
Issuance of common stock for services 3,000 -
Change in assets and liabilities:
Decrease in receivables 10,241 2,261
Decrease in inventories 244 225
Decrease (increase) in prepaid expenses and other assets (64) 208
Increase in accounts payable 813 4,689
Increase in accounts payable, related parties 16,553 -
Increase in accrued expenses 29,114 10,640
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Net cash provided by (used in) operating activities 1,244 (5,467)
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CASH FLOWS FROM INVESTING ACTIVITIES
Payments for equipment (742) 0
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Net cash (used in) investing activities (742) 0
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CASH FLOWS FROM FINANCING ACTIVITIES
Loan payable, related party - 5,383
Principal payments on long term debt (500) -
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Net cash provided by (used in) financing activities (500) 5,383
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Net increase (decrease) in cash 2 (84)
CASH
Beginning 124 1,018
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Ending $ 126 $ 934
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for interest $ 272 $ -
========= =========
</TABLE>
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, 1999, are not
necessarily indicative of the results expected for the entire year.
NOTE 2. INCOME TAXES
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
At December 31, 1999, the Company has for tax reporting purposes approximately
$15,000 in unused research and development credits and a net operating loss
carryforward of approximately $7,514,000 available to be offset against future
federal taxable income or income tax liabilities. These carryforwards expire in
varying amounts in years ending September 30, 2000 through 2020. The Company
has recorded a full valuation allowance on the deferred tax assets due to lack
of assurance that the tax benefits can be realized. Realization of deferred tax
assets is dependent upon sufficient future taxable income during the period that
deductible temporary differences and carryforwards are expected to be available
to reduce taxable income.
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, 1999 and 1998. Securities that could potentially dilute basic
earnings per share in the future that were not included in the computation of
diluted earnings per share, at December 31, 1999 and 1998, because to do so
would have been antidilutive are as follows: 20,000,000 shares of common stock
issuable upon the conversion of Series B preferred stock, 215,053 shares of
common stock issuable upon the conversion of Series A preferred stock, 83,834
shares of common stock issuable upon the exercise of options, and 1,000,000
shares of common stock issuable upon the exercise of stock warrants. All
references to (loss) per share in the financial statements are to basic (loss)
per share. Diluted (loss) per share is the same as basic (loss) per share for
all per share amounts presented. The weighted number of common and common
equivalent shares outstanding for the three months ended December 31, 1999 and
1998 are 4,931,493 and 3,214,976 respectively.
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NOTE 4. NOTES PAYABLE
At December 31, 1999, the Company has a $500,000 note payable to Torrey Pines
Research, Inc. (TPR), a related party, that is due on demand. The note was
originally to a bank and was assumed by TPR on behalf of the Company as a result
of its guarantee of the loan. In connection with the assumption of the loan,
TPR received 1,000,000 restricted common stock warrants that each represent the
right to purchase one share of common stock at $.50. The warrants expire one
year following satisfaction of the note. The note to TPR bears interest at a
variable rate of interest (compounded at 13.6% as of December 31, 1999).
NOTE 5. OTHER STOCK MATTERS
Series A preferred stock: The series A preferred stock has a liquidation
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preference before common stock ($1.35 to $1.80 per share). Such stock is
nonvoting, has no dividend provisions, and is convertible into common stock on a
share for share basis with antidilution provisions if additional common stock
were to be issued at less than the preferred stock's liquidation preference.
Series B preferred stock: The series B preferred stock has a liquidation
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preference before common stock of $.15 per share. The stock is voting for the
same number of shares in which it is entitled to be converted. The stock is
convertible into common stock on a ten to one share basis with a provision for
this conversion ratio to be adjusted if certain events occur.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenue. Net sales for the three months ended December 31, 1999 and 1998
were $5,000 and $8,600, respectively. The Company's decrease in sales is
attributable mainly to less demand for its SoundXchange Model K.
Gross Profit. The gross margin for the three months ended December 31,
1999 was approximately 95%, up from a gross margin of 92% for the three months
ended December 31, 1998.
Sales and marketing expenses. Sales and marketing expenses for the three
months ended December 31, 1999 and 1998 were $14,000 and $14,000, respectively.
Research and development. There were no research and development expenses
for the three months ended December 31, 1999 and 1998.
General and administrative. General and administrative expenses for the
three months ended December 31, 1999 and 1998 were $24,000 and $9,000,
respectively. The increase from the previous year is primarily due to expenses
associated with the Company's fiscal year end audit for the year ending
September 30, 1999.
Depreciation. Depreciation expense for the three months ended December 31,
1999 and 1998 were $2,000 and $2,000, respectively.
Nonoperating income (expense). Nonoperating income (expense) for the three
months ended December 31, 1999 and 1998 were ($28,000) and ($10,000)
respectively. The increase in nonoperating expense is mainly due to increased
interest accruals.
Net Loss. The Company suffered a net loss for the three months ended
December 31, 1999 of $61,000 or $0.01 per share on 4,931,493 weighted average
shares outstanding compared to a net loss for the three months ended December
31, 1998 of $25,000 or $0.01 per share on 3,214,976 weighted average shares
outstanding. The increase in losses was due largely to expenses associated with
the Company's year-end audit at September 30, 1999 and an increase in interest
accruals.
LIQUIDITY AND CAPITAL RESOURCES
The Company has sustained operating losses for several years and its current
liabilities exceeded current assets at December 31, 1999. Continued operations
of the Company are dependent upon the Company's ability to meet its existing
debt requirements on a continuing basis and its ability to generate profitable
future operations during fiscal year 2000. Management is formulating plans in
this regard which are expected to include entry into multimedia markets. In
addition, the Company plans to increase revenue generated through varying
methods of Internet sales. The Company expects to finance its entry into these
new markets primarily through providing consulting services with the assistance
of TPR and generating cash through private investments or loans. There can be
9
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no assurance that TPR will provide such assistance or any other support to the
Company. The Company has several judgments against it and more threatened as a
result of its inability to pay its obligations to its unsecured creditors.
Management believes that the largest challenges that the Company will
confront during 2000 are in its attempt to achieve increases in revenues and
profitability during fiscal 2000. 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
for fiscal 2000.
As of the date of the filing of this 10QSB, the Company has not experienced
any year 2000 problems. The Company's management does not believe that there
will be any material effects on the Company's business, results of operations or
financial condition. The Company operates on a stand-alone PC, which the
manufacturer has represented to be year 2000 compliant and the SoundXchange
product manufactured by the Company does not require software; therefore,
Company management believes the risk of the year 2000 affecting these products
is remote.
PART II OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
During the quarter ended December 31, 1999, a director of the Company was
compensated for his services as CEO through the issuance of 100,000 shares of
restricted common stock. As a result of the issuance of this stock, $100 was
included in common stock and $2,900 was included in additional paid-in-capital
in the accompanying financial statements.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company has at December 31, 1999 a note in the amount of $20,000, which
was due to an individual on November 30, 1995 and is collateralized by
substantially all assets of the Company. The note bears interest at the rate of
15% and has accrued interest of $25,968.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Financial Data Schedule
10
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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, 2000 INTERACTIVE INC.
/s/ Robert Stahl
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Robert Stahl
President
/s/ Gerard L. Kappenman
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Gerard L. Kappenman
Secretary
11
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<TABLE> <S> <C>
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<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 126
<SECURITIES> 0
<RECEIVABLES> 1059
<ALLOWANCES> 0
<INVENTORY> 14051
<CURRENT-ASSETS> 15927
<PP&E> 118235
<DEPRECIATION> 63602
<TOTAL-ASSETS> 70560
<CURRENT-LIABILITIES> 1084873
<BONDS> 0
0
2114
<COMMON> 5012
<OTHER-SE> 8043117
<TOTAL-LIABILITY-AND-EQUITY> 70560
<SALES> 5015
<TOTAL-REVENUES> 5015
<CGS> 264
<TOTAL-COSTS> 264
<OTHER-EXPENSES> 37666
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28784
<INCOME-PRETAX> (60713)
<INCOME-TAX> 0
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (60713)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
</TABLE>
