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, 2000
[ ] 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 of (IRS Employer ID No)
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
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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
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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: 5,062,138 shares at July 31, 2000
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Transitional Small Business Disclosure Format (Check one): Yes No X
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INTERACTIVE INC.
TABLE OF CONTENTS
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Page(s)
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Balance Sheets - June 30, 2000 and September 30, 1999 3
Statements of Operations - Nine and Three Months Ended June 30, 2000 and 1999 4
Statement of Stockholders' Deficit - Nine Months Ended June 30, 2000 5
Statements of Cash Flows - Nine Months Ended June 30, 2000 and 1999 6
Notes to Financial Statements 7-9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9-10
PART II. OTHER INFORMATION
Item 3. Defaults Upon Senior Securities 10
Item 6. Exhibits and Reports on Form 8-K 10
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<TABLE>
<CAPTION>
INTERACTIVE INC.
BALANCE SHEETS
6/30/2000
ASSETS Unaudited 9/30/1999
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<S> <C> <C>
Current Assets
Cash $ 546 $ 124
Accounts receivable 1,556 11,300
Inventories 13,596 14,295
Prepaid expenses and other assets 455 627
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Total current assets 16,153 26,346
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Property and Equipment, at cost
Building and improvements 107,216 107,216
Equipment 11,019 10,277
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118,235 117,493
Less accumulated depreciation 67,736 61,546
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50,499 55,947
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Total assets $ 66,652 $ 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 23,000 22,000
Accounts payable 155,440 154,520
Accounts payable, related parties 73,276 14,625
Accrued expenses 53,987 47,076
Accrued expenses, related parties 384,405 297,172
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Total current liabilities 1,190,108 1,035,393
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Long-Term Debt, less current maturities 40,500 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;
5,062,138 and 4,912,138 shares issued and outstanding 5,062 4,912
at June 30, 2000 and September 30, 1999
Additional paid-in capital 8,044,567 8,040,217
Accumulated deficit (9,215,699) (9,043,343)
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Total stockholders' deficit (1,163,956) (996,100)
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Total liabilities and stockholders' deficit $ 66,652 $ 82,293
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</TABLE>
See Notes to Financial Statements.
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<TABLE>
<CAPTION>
INTERACTIVE INC.
STATEMENTS OF OPERATIONS
Nine and Three Months Ended June 30, 2000 and 1999
(Unaudited)
Nine months ended June 30, Three months ended June 30,
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Net sales $ 16,442 $ 26,103 $ 4,827 $ 9,063
Cost of goods sold 720 1,861 210 916
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Gross profit 15,722 24,242 4,617 8,147
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Operating expenses:
Selling 37,433 29,367 11,519 3,039
General and administrative 59,869 34,066 16,266 18,618
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97,302 63,433 27,785 21,657
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Operating (loss) (81,580) (39,191) (23,168) (13,510)
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Nonoperating income (expense):
Write off of accounts payable - 52,898 - 52,898
Other income 2,027 839 407 124
Debt conversion expense - (260,560) - (260,560)
Interest expense (92,803) (78,816) (34,790) (62,951)
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(90,776) (285,639) (34,383) (270,489)
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(Loss) before income taxes (172,356) (324,830) (57,551) (283,999)
Income tax expenses - - - -
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(Loss) before extraordinary income (172,356) (324,830) (57,551) (283,999)
Extraordinary income, gain on
settlement of liabilities - 961,462 - 961,462
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Net income (loss) $(172,356) $ 636,632 $ (57,551) $ 677,463
========== =============== ============= ---------------
Earnings (loss) per common share
(Loss) before extraordinary income $ (0.03) $ (0.09) $ (0.01) $ (0.07)
Extraordinary income - 0.27 - 0.23
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Net income (loss) $ (0.03) $ 0.18 $ (0.01) $ 0.16
========== =============== ============= ===============
</TABLE>
See Notes to Financial Statements
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<TABLE>
<CAPTION>
INTERACTIVE INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
Nine months ended June 30, 2000
(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
satisfaction of accounts payable 150 4,350 4,500
Net loss (172,356) (172,356)
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Balance, June 30, 2000 $ 114 $ 2,000 $5,062 $8,044,567 $(9,215,699) $(1,163,956)
========== ========== ====== ========== ============ ============
</TABLE>
See Notes to Financial Statements.
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<TABLE>
<CAPTION>
INTERACTIVE INC.
STATEMENTS OF CASH FLOWS
Nine Months Ended June 30, 2000 and 1999
(Unaudited)
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(172,356) $ 636,632
Adjustments to reconcile net income (loss) to net cash (used in) operating activities:
Depreciation 6,190 6,650
Issuance of common stock for services - 330
Gain on settlement of Company liabilities - (961,462)
Debt conversion expense settled by issuance of stock - 260,560
Change in assets and liabilities:
(Increase) decrease in accounts receivable 9,744 (279)
Decrease in inventories 699 2,069
Decrease in prepaid expenses and other assets 172 622
Increase (decrease) in accounts payable 2,419 (62,478)
Increase in accrued expenses 94,144 82,669
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Net cash (used in) operating activities (58,988) (34,687)
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CASH FLOWS FROM INVESTING ACTIVITIES
Payments for equipment (742) -
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Net cash (used in) investing activities (742) -
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CASH FLOWS FROM FINANCING ACTIVITIES
Advances from TPR 61,652 -
Net borrowings on related party notes payable - 35,820
Principal payments on long-term borrowings (1,500) (1,000)
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Net cash provided by (used in) financing activities 60,152 34,820
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Net increase in cash 422 133
CASH
Beginning 124 1,018
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Ending $ 546 $ 1,151
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for interest $ 80 $ 106
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SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Issuance of common stock for satisfaction of liabilities:
Accounts payable - related parties $ - $ 303,450
Accounts payable 4,500 882,435
Accrued expenses, other than interest - related parties - 32,516
Notes payable and long-term debt - related parties - 41,000
Notes payable and long-term debt - 245,435
Accrued interest on notes payable and long-term debt - 64,920
Issuance of Series B preferred stock for satisfaction of Company liabilities:
Notes payable and long-term debt - related parties - 252,824
Accrued interest on notes payable and long-term debt - related parties - 75,940
</TABLE>
See Notes to Financial Statements.
6
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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 nine months ended June 30, 2000, 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 June 30, 2000, the Company has for tax reporting purposes approximately
$15,000 in unused research and development credits and a net operating loss
carryforward of approximately $7,626,000 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 and income taxes.
NOTE 3. EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
The earnings (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 30, 2000 and 1999. Securities that could potentially
dilute basic earnings per share in the future that were not included in the
computation of diluted earnings per share for the nine month and three month
periods ended June 30, 2000, because to do so would have been antidilutive to
the loss before extraordinary income are as follows: 20,000,000 shares of
common stock issuable upon the conversion of Series B preferred stock, 221,620
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.
Securities that could potentially dilute basic earnings per share in the future
that were not included in the computation of diluted earnings per share for the
nine month and three month periods ended June 30, 1999, 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
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references to earnings (loss) per share in the financial statements are to basic
earnings (loss) per share. Diluted earnings (loss) per share is the same as
basic earnings (loss) per share for all per share amounts presented. The
weighted number of common and common equivalent shares outstanding for the nine
and three months ended June 30, 2000 are 5,007,411 and 5,062,138 respectively
and for the nine and three months ended June 30, 1999 are 3,568,160 and
4,209,569 respectively.
NOTE 4. SETTLEMENT OF LIABILITIES
In 1999 the Company issued 1,686,162 shares of common stock (of which 581,773
shares were issued to related parties, including shareholders) to settle certain
accrued expenses, accounts payable, notes payable and long-term debt totaling
$1,569,756 (of which $575,162 was payable to related parties, including
shareholders). The common stock issued to nonrelated party creditors to settle
liabilities was recorded at fair value. The difference between the fair value
of the common stock issued and the carrying amount of the liabilities settled
was recognized as a gain on restructuring of liabilities and classified as an
extraordinary item. The common stock issued to related parties was recorded at
the carrying amount of the liabilities and no gain was recognized on common
stock issued to related parties. Included in the above amount was $296,298 of
accounts payable due to Torrey Pines Research, Inc. and its affiliates (TPR) a
related party, which was settled through the issuance of 296,298 shares of
common stock.
Under the terms of an agreement between the Company and TPR in connection with
the debt restructuring described above, TPR agreed to pay in cash on behalf of
the Company certain operating and other expenses of the Company up to $50,000,
and also forgive $213,500 of debt and $75,940 of related accrued interest, all
of which was secured by a first lien on all of the Company's assets, in exchange
for 2,000,000 shares of Series B preferred stock. At September 30, 1998, the
Company also had a $4,000 loan from TPR. During 1999, the Company received an
additional $35,324 from TPR and issued 2,000,000 shares of Series B preferred
stock (convertible to 20,000,000 shares of common stock) to TPR in settlement of
the above amounts due. The Company recorded the settlement of these obligations
at the fair value of the equivalent common shares issued (assumed for these
purposes to be 3 cents per share, an aggregate of $600,000). The estimated fair
value of the stock issued in excess of debt and accrued interest forgiven and
cash advanced, which excess totaled $260,560, is reflected in the statement of
operations as debt conversion expense.
NOTE 5. NOTES PAYABLE
At June 30, 2000 and September 30, 1999, the Company had a $500,000 note payable
to 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. The note to TPR bears interest at a variable rate of
interest (compounded at 13.6% as of June 30, 2000) and is secured by
substantially all the assets of the Company. 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.
NOTE 6. 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.
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Series B preferred stock: The series B preferred stock has a liquidation
---------------------------
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.
NOTE 7. CONTINUATION OF OPERATIONS
The Company has sustained operating losses for several years and its current
liabilities exceeded current assets at June 30, 2000 and September 30, 1999.
Continued operations of the Company are dependent upon the Company's ability to
meet its debt requirements on a continuing basis and its ability to generate
profitable future operations. Management is formulating plans in this regard.
The Company expects to finance its entry into new markets primarily through
providing consulting services with the assistance of TPR and generating cash
through private investments or loans. There can be no assurance that TPR will
provide such assistance or any other support to the Company.
Substantially all of the Company's accounts payable are several years past due.
The company does not anticipate making any payments on these obligations in the
near term. The Company has several judgments against it and several more
threatened as a result of its inability to pay its obligations to its unsecured
creditors.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenue. Net sales were $4,827 and $16,442 for the three and nine months
ended June 30, 2000 compared to $9,063 and $26,103 for the three and nine month
period ended June 30, 1999. The Company's decrease in sales is attributable
mainly to less demand for its SoundXchange Model K.
Gross Profit. Gross profit decreased 43% to $4,617 for the three months
ended June 30, 2000 from $8,147 for the three months ended June 30, 1999. Gross
profit decreased 35% to $15,722 from $24,242 for the nine months ended June 30,
2000.
Selling expenses. Selling expenses increased to $11,519 for the three
months ended June 30, 2000 from $3,039 for the three months ended June 30, 1999.
Selling expenses increased to $37,433 for the nine months ended June 30, 2000
from $29,367 for the nine months ended June 30,1999. The main reason for the
increase in selling expenses was due to more emphasis put on sales than in 1999
when the Company's primary focus was to restructure its debt.
General and administrative. General and administrative expenses were
$16,266 and $59,869 for the three and nine months ended June 30, 2000 and were
$18,618 and $34,066 for the three and nine months ended June 30, 1999. The
changes from the previous year are primarily due to expenses associated with the
Company's fiscal year end audit for the year ending September 30, 1999.
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Depreciation. Depreciation expense for the three months ended June 30,
2000 and 1999 was $2,067 and $2,030 respectively. Depreciation expense for the
nine months ended June 30, 2000 and 1999 was $6,190 and $6,650 respectively.
Nonoperating (expense). Nonoperating (expense) for the three months ended
June 30, 2000 and June 30, 1999 was ($34,383) and ($270,489) respectively.
Nonoperating (expense) for the nine months ended June 30, 2000 and 1999 was
($90,776) and ($285,639) respectively. The decrease in nonoperating expense is
mainly due to debt conversion expense in 1999.
Net Gain (Loss). Net income (loss) for the three months ended June 30,
2000 was ($57,551) or ($0.01) per share on 5,062,138 weighted average shares
outstanding compared to a net gain for the three months ended June 30, 1999 of
$677,463 or $0.16 per share on 4,209,569 weighted average shares outstanding.
Net loss for the nine months ended June 30, 2000 was ($172,356) or ($0.03) per
share on 5,007,411 weighted average shares outstanding compared to a net gain
for the nine months ended June 30, 1999 of $636,632 or $0.18 per share on
3,568,160 weighted average shares outstanding. The increase in losses in 2000
was due largely to an extraordinary gain realized on settlement of liabilities
in 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company has sustained operating losses for several years and its current
liabilities exceeded current assets at June 30, 2000. 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 providing consulting services with the
assistance of TPR and generating cash through private investments or loans.
There can be 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 does not believe that it will be able to achieve increases in
revenues and profitability during fiscal 2000. The Company is optimistic about
the possibility of its overcoming these challenges and achieving its goals
during fiscal 2001.
PART II. OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company has at June 30, 2000 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 is subordinated to certain other senior
secured notes. The note bears interest at the rate of 15% and has accrued
interest of $30,126.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Financial Data Schedule
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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: August 10, 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
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