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: March 31, 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 (IRS
of incorporation or organization) Employer ID No)
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: 5,062,138 shares at May 8, 2000
-------------------------------
Transitional Small Business Disclosure Format (Check one): Yes No X
1
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<TABLE>
<CAPTION>
INTERACTIVE INC.
TABLE OF CONTENTS
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Page(s)
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<S> <C>
Balance Sheets - March 31, 2000 and September 30, 1999 3
Statements of Operations - Six and Three Months Ended March 31, 2000 and 1999 4
Statement of Stockholders' Deficit - Six Months Ended March 31, 2000 5
Statements of Cash Flows - Six Months Ended March 31, 2000 and 1999 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>
2
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<TABLE>
<CAPTION>
INTERACTIVE INC.
BALANCE SHEETS
ASSETS 3/31/2000
Unaudited 9/30/1999
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<S> <C> <C>
Current Assets
Cash $ 760 $ 124
Accounts receivable 1,540 11,300
Inventories 13,806 14,295
Prepaid expenses and other assets 752 627
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Total current assets 16,858 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 65,669 61,546
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52,566 55,947
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Total assets $ 69,424 $ 82,293
================== ============
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 153,253 154,520
Accounts payable, related parties 55,474 14,625
Accrued expenses 51,504 47,076
Accrued expenses, related parties 351,598 297,172
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Total current liabilities 1,136,829 1,035,393
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Long-term Debt, less current maturities 39,000 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 issued and outstanding 5,062 4,912
at March 31, 2000 and September 30, 1999
Additional paid-in capital 8,044,567 8,040,217
Accumulated deficit (9,158,148) (9,043,343)
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Total stockholders' deficit (1,106,405) (996,100)
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Total liabilities and stockholders' deficit $ 69,424 $ 82,293
================== ============
<FN>
See Notes to Financial Statements.
</TABLE>
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<TABLE>
<CAPTION>
INTERACTIVE INC.
STATEMENTS OF OPERATIONS
Six and Three Months Ended March 31, 2000 and 1999
(Unaudited)
Six months Three months
ended March 31, ended March 31,
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Net sales $ 11,615 $ 17,040 $ 6,600 $ 8,342
Cost of goods sold 510 945 246 237
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Gross profit 11,105 16,095 6,354 8,105
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Operating expenses
Selling 25,914 26,328 12,200 12,019
General and administrative 43,603 15,448 19,651 6,501
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69,517 41,776 31,851 18,520
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Operating (loss) (58,412) (25,681) (25,497) (10,415)
---------- --------- --------- ---------
Nonoperating income (expense):
Interest expense (58,013) (15,865) (29,229) (5,612)
Other income 1,620 715 634 383
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(56,393) (15,150) (28,595) (5,229)
---------- --------- --------- ---------
(Loss) before income taxes (114,805) (40,831) (54,092) (15,644)
---------- --------- --------- ---------
Income tax expenses - - - -
---------- --------- --------- ---------
Net (loss) $(114,805) $(40,831) $(54,092) $(15,644)
========== ========= ========= =========
Loss per common share $ (0.02) $ (0.01) $ (0.01) $ 0.00
========== ========= ========= =========
<FN>
See Notes to Financial Statements
</TABLE>
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<TABLE>
<CAPTION>
INTERACTIVE INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
Six months ended March 31, 2000
(Unaudited)
Series A Series B Additional
Preferred Preferred Common Paid-in Accumulated
Stock Stock Stock Capital Deficit Total
---------- ---------- ------ ---------- ------------ ------------
<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 150 4,350 4,500
satisfaction of accounts payable
Net loss (114,805) (114,805)
---------- ---------- ------ ---------- ------------ ------------
Balance, March 31, 2000 $ 114 $ 2,000 $5,062 $8,044,567 $(9,158,148) $(1,106,405)
========== ========== ====== ========== ============ ============
</TABLE>
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<TABLE>
<CAPTION>
INTERACTIVE INC.
STATEMENTS OF CASH FLOWS
Six Months Ended March 31, 2000 and 1999
(Unaudited)
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $(114,805) $(40,831)
Adjustments to reconcile net (loss) to net cash provided by operating activities:
Depreciation 4,123 3,386
Issuance of common stock for services - 48
Change in assets and liabilities:
Decrease in accounts receivable 9,760 2,005
Decrease in inventories 489 462
(Increase) decrease in prepaid expenses and other assets (125) 415
Increase in accounts payable 44,082 17,649
Increase in accrued expenses 58,854 18,123
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Net cash provided by operating activities 2,378 1,257
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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
Principal payments on long-term debt (1,000) 0
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Net cash (used in) financing activities (1,000) 0
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Net increase in cash 636 1,257
CASH
Beginning 124 1,018
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Ending $ 760 $ 2,275
========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for interest $ 80 $ 0
========== =========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Issuance of common stock for satisfaction of accounts payable $ 4,500 $ 94,148
========== =========
<FN>
See Notes to Financial Statements.
</TABLE>
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 six months ended March 31, 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 March 31, 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 $7,569,000 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 six and three
months ended March 31, 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 six month and three month periods ended
March 31, 2000, 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, 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 six month and three month periods ended March
31, 1999, because to do so would have been antidilutive are as follows: 146,117
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 six and three months ended March
31, 2000 are 4,980,345 and 5,048,551 respectively and for the six and three
months ended March 31, 1999 are 3,275,580 and 3,214,976 respectively.
7
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NOTE 4. NOTES PAYABLE
At March 31, 2000 and September 30, 1999, the Company had 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. The note to TPR bears
interest at a variable rate of interest (compounded at 13.6% as of March 31,
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 5. OTHER STOCK MATTERS
Series A preferred stock: The series A preferred stock has a liquidation
- ---------------------------
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
- ---------------------------
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 6. CONTINUATION OF OPERATIONS
The Company has sustained operating losses for several years and its current
liabilities exceeded current assets at March 31, 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 Group and its
affiliates (TPR), related parties, 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.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenue. Net sales were $6,600 and $11,615 for the three and six months
ended March 31, 2000 compared to $8,342 and $17,040 for the three and six month
period ended March 31, 1999. The Company's decrease in sales is attributable
mainly to less demand for its SoundXchange Model K.
Gross Profit. Gross profit decreased 22% to $6,354 for the three months
ended March 31, 2000 from $8,105 for the three months ended March 31, 1999.
Gross profit decreased 31% to $11,105 from $16,095 for the six months ended
March 31, 2000.
Selling expenses. Selling expenses increased to $12,200 for the three
months ended March 31, 2000 from $12,019 for the three months ended March 31,
1999. Selling expenses decreased to $25,914 for the six months ended March 31,
2000 from $26,328 for the six months ended March 31,1999.
General and administrative. General and administrative expenses increased
to $19,651 and $43,603 for the three and six months ended March 31, 2000 from
$6,501 and $15,448 for the three and six months ended March 31, 1999. The
increases 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.
Depreciation. Depreciation expense for the three months ended March
31,2000 and 1999 were $2,066 and 1,590 respectively. Depreciation expense for
the six months ended March 31, 2000 and 1999 were $4,123 and $3,386
respectively.
Nonoperating (expense). Nonoperating (expense) for the three months ended
March 31, 2000 and March 31, 1999 were ($28,595) and ($5,229) respectively.
Nonoperating (expense) for the six months ended March 31, 2000 and 1999 were
($56,393) and ($15,510) respectively. The increase in nonoperating expense is
mainly due to increased interest accruals.
Net Loss. Net loss for the three months ended March 31, 2000 of was
$54,092 or ($0.01) per share on 5,048,551 weighted average shares outstanding
compared to a net loss for the three months ended March 31, 1999 of $15,644 or
($0.00) per share on 3,214,976 weighted average shares outstanding. Net loss
for the six months ended March 31, 2000 was $114,805 or ($0.02) per share on
4,980,345 weighted average shares outstanding compared to a net loss for the six
months ended March 31, 1999 of $40,831 or ($0.01) per share on 3,275,580
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.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has sustained operating losses for several years and its current
liabilities exceeded current assets at March 31, 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 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.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
During the quarter ended March 31, 2000, 50,000 shares of restricted common
stock were issued in satisfaction of accounts payable. As a result of the
issuance of this stock, $50 was included in common stock and $1,450 was included
in additional paid-in-capital in the accompanying financial statements.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company has at March 31, 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 $28,314.
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: May 10, 2000 INTERACTIVE INC.
/s/ Robert Stahl
------------------
Robert Stahl
President
/s/ Gerard L. Kappenman
--------------------------
Gerard L. Kappenman
Secretary
11
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 760
<SECURITIES> 0
<RECEIVABLES> 1540
<ALLOWANCES> 0
<INVENTORY> 13806
<CURRENT-ASSETS> 16858
<PP&E> 118235
<DEPRECIATION> 65669
<TOTAL-ASSETS> 69424
<CURRENT-LIABILITIES> 1136829
<BONDS> 0
0
2114
<COMMON> 5062
<OTHER-SE> 8044567
<TOTAL-LIABILITY-AND-EQUITY> 69424
<SALES> 6600
<TOTAL-REVENUES> 6600
<CGS> 246
<TOTAL-COSTS> 246
<OTHER-EXPENSES> 25497
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29229
<INCOME-PRETAX> (54092)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (54092)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
</TABLE>
