SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-QSB
Pursuant to Section 13 or 15(d) of
the Securities Act of 1934
For the Quarter Ended Commission File
August 31, 1997 Number 0-19796
INTERACTIVE TECHNOLOGIES CORPORATION, INC.
(Exact name of registrant as specified in charter)
Wyoming 98-0120805
(State or other (IRS Employer
jurisdiction of Identification No.)
incorporation)
102 South Harbor City Boulevard
Melbourne, Florida 32901
(address of Principal Executive Offices)
407-953-4811
(Registrant's telephone number including area code)
Check mark whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the exchange Act during the preceding 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_____X____ No __________
The Registrant has 12,279,612 shares of common stock, par value $0.01 per
share issued and outstanding as of August 31, 1997.
Traditional Small Business Disclosure Format
Yes _____X_____ No __________
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Interactive Technologies Corporation, Inc.
Table of Contents
PART I - FINANCIAL INFORMATION Page No.
Item 1. Financial Statements 2-12
Balance Sheet as of August 31, 1997
Statement of Operations for the three
months ended August 31, 1997
and August 31, 1996
Consolidated Statement of Stockholders' Equity
Statement of Cash Flows for the three months
ended August 31, 1997 and
August 31, 1996
Notes to Financial Statements
Item 2. Management's Discussion and Analysis and 13-14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 15
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 None
SIGNATURE PAGE 16
1
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Part 1-Financial Information
Item 1 Financial Statements
-----------------------------
INTERACTIVE TECHNOLOGIES CORPORATION, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1997 and 1996
Assets
August 31, August 31,
1997 1996
---- ----
Current assets:
Cash $11,009 $14,695
Accounts and note receivable, trade, 24,167
net of $25,000, of allowance for
uncollectible amounts 42,165 -
Prepaid expenses and other assets 15,406 15,593
--------- --------
Total current assets 68,580 54,455
--------- --------
Property and equipment, at cost, net of
$34,270 and $13,138, respectively of
accumulated depreciation 80,871 101,692
--------- --------
Other assets:
Organizational costs, net of $2,534
and $1,734, respectively of
accumulated amortization 1,466 2,266
Investment in Subsidiary - SNT - 314,899
License rights, net of $337,500
and $294,334, respectively of
accumulated amortization 337,500 670,666
Proprietary software and trademark,
net of $1,063,776 amd 289,877,
respectively of accumulated
amortization 4,347,266 5,121,165
--------- ---------
4,767,103 6,108,996
--------- ---------
$4,835,683 $6,265,143
========== ==========
The accompanying notes are an integral part of the financial statements.
2
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INTERACTIVE TECHNOLOGIES CORPORATION, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1997 AND 1996
Liabilities and Stockholders' Equity
August 31, August 31,
1997 1996
---- ----
Current liabilities:
Accounts payable, trade $ 127,812 $ 225,023
Accrued expenses 67,862 77,683
Contract of sale deposit - 500,000
Notes payable 274,685
Loans Payable
Related Parties
Others 252,462
Current portion of long-term
liabilities 210,077 171,227
--------- --------
Total current liabilities 680,436 $1,226,395
--------- ----------
Long-term liabilities:
License rights payable 329,923 499,573
Capital lease obligation 218,750 -
Convertible debentures payable - 800,000
--------- ---------
548,673 1,299,573
Commitments and contingencies:
Stockholders' equity:
Common stock, $.01 par value
50,000,000 and 12,500,000 shares
authorized, respectively
13,479,613 and 11,866,491,
respectively, shares issued
and outstanding 134,796 118,665
Paid in capital in excess of par 10,836,034 8,796,652
Accumulated deficit ( 7,364,256) (5,176,142)
------------ -----------
3,606,574 3,739,175
------------ -----------
$ 4,835,683 $ 6,265,143
============ ============
The accompanying notes are an integral part of the financial statements.
3
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Interactive Technologies Corporation, Incorporated
Statements of Operations
For the Three Months Ended August 31, 1997 and 1996
AUGUST 31, AUGUST 31,
1997 1996
------------- -----------
(unaudited) (unaudited)
------------- -----------
Revenue $ 3,070 $ 12,835
------------- -----------
Operating expenses:
Depreciation 5,414 5,403
Amortization 227,202 240,809
Production costs 912 -
General and administrative 104,704 658,175
Interest expense:
Stockholder - -
Other 12,264 -
Management fee-stockholder - -
------------- -----------
350,496 904,387
------------- -----------
Loss from operations (347,426) (891,552)
Income/(loss) before income taxes (347,426) (891,552)
Provision for income taxes - -
------------- -----------
Net income/(loss) $ (347,426) $ (891,552)
============= ===========
Net income/(loss) per share
Primary $ 0.03 $ 0.08
Diluted $ 0.03 $ 0.08
Accompaning notes are an integral part of the financial statements.
4
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INTERACTIVE TECHNOLOGIES CORPORATION, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED AUGUST 31, 1997
Common Stock Add'l Paid Accumulated
Shares Amount In Capital Deficit Total
------ ------ ---------- ------- -----
Balance at May 31, 1995 5,689,544 $ 56,895 $3,192,082 $(3,914,063) $(665,086)
Issuance of common stock
for cash 102,500 1,025 408,975 - 410,000
Issuance of common stock
in reverse acquisition
transaction 5,700,000 57,000 4,793,683 - 4,850,683
Issuance of common stock
as security for capital
lease obligation 250,000 2,500 ( 2,500) - -
Net loss - - - ( 47,599) (447,599)
-------- -------- --------- ----------- ---------
Balance at May 31, 1996 11,742,044 117,420 8,392,240 (4,361,662) 4,147,998
Issuance of common stock
for cash 289,549 2,895 749,978 - 752,873
Issuance of common stock
in exchange for
services 248,021 2,481 543,039 - 545,520
Issuance of common stock
upon conversion of
debt 1,199,999 12,000 1,150,777 - 1,162,777
Net loss - - - (2,655,167)(2,655,167)
--------- ------ --------- ----------- ----------
Balance at May 31,1997 13,479,613 $134,796 $10,836,034 $(7,016,829) $3,954,001
Net Loss ( 347,426) ( 347,426)
========== ======== =========== =========== ==========
Balance at Aug 31,1997 13,479,613 $134,796 $10,836,034 $(7,364,255) $3,606,575
The accompanying notes are an integral part of the financial statements.
5
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Interactive Technologies Corporation, Incorporated
Statement of Cash Flows
For the Three Months Ended August 31, 1997 and 1996
August 31, August 31,
1997 1996
------------ -----------
(unaudited) (unaudited)
------------ -----------
Cash received from customers $ 111,561 $ 19,232
Cash paid to employees ( 43,056) ( 204,084)
Cash paid to suppliers ( 108,837) ( 388,845)
Interest paid:
Stockholder - -
Others ( 12,264) ( 909)
------------ -----------
Net cash used in operating activities $ ( 52,596) $ (574,607)
------------ -----------
Cash flows from investing activities:
Purchase of property and equipment ( 664)
Capitalized software development reduction 50,000
------------ -----------
Net cash used in investing activities $ 49,336
------------ -----------
Cash flows from financing activities:
Issuance of convertible debentures - 300,000
Proceeds from note payable
stockholder corporation
Common stock issued for cash - 61,602
Promissory notes isssued for cash 50,000 252,462
Contract of sale deposits received 98,099
License rights payment - (232,000)
------------ -----------
Net cash provided by financing activities 50,000 480,163
------------ -----------
Net change in cash ( 2,596) (45,108)
Cash at beginning of period 13,605 63,114
------------ -----------
Cash at end of period $ 11,009 $ 18,003
============ ===========
Accompaning notes are an integral part of the financial statements.
6
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Interactive Technologies Corporation, Inc.
Statement of Cash Flows
For the Three Months Ended August 31, 1997 and 1996
Reconciliation of Net Income to Net Cash
Used in Operating Activities
AUGUST 31, AUGUST 31,
1997 1996
------------- -----------
(unaudited) (unaudited)
------------- -----------
Net income/loss $ ( 347,426) $ (891,552)
Adjustments to reconcile net
income/loss to net cash used in
operating activities:
Amortization 227,202 240,809
Depreciation 5,414 5,403
Increase/Decrease in accounts receivable 108,491 ( 7,214)
Increase in Investment in subsidiary - (222,204)
Decrease in accounts payable ( 44,845) (138,250)
Increase in prepaid expenses ( 616) ( 8,275)
Increase/Decrease in accrued expenses ( 816) 102,619
Stock issued for supplies and services - 344,057
------------ ----------
Total adjustments $ 294,830 $ 316,945
------------ ----------
Net cash used in operating activities $ ( 52,596) $ (574,607)
============ ===========
Accompaning notes are an integral part of the financial statements.
7
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INTERACTIVE TECHNOLOGIES CORPORATION, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
- ------------
Interactive Technologies Corporation, Inc. (the Company) was incorporated
in the state of Wyoming on August 8, 1991. On October 20, 1995, the Company
entered into a reverse acquisition transaction, described below, with
Syneractive, Inc. (SI). SI was incorporated in the state of Florida on August
31, 1995. Prior to October 20, 1995, the Company was engaged primarily in the
business of exploiting its rights under a license granted by CST Entertainment
Imaging, Inc. The license gave the Company the exclusive right to colorize
black-and-white film and videotape, including black-and-white theatrical films
and television programs, which were originally produced for distribution
primarily within European countries. However, the Company abandoned the business
of exploiting the license (see Note 3) on October 18, 1995 as a result of being
unable to realize any revenue from the license. SI, which was acquired in a
reverse acquisition, obtained license rights from the Federal Communications
Commission to operate interactive and data service systems in the Charleston -
North Charleston, SC and Melbourne - Titusville, Florida metropolitan areas.
Syneractive, Inc. also acquired proprietary software and a trademark known
as Rebate TV, which is a marketing and sales medium for a wide variety of
products and services. Advertisers on Rebate TV will offer substantial rebates
to the network's viewers through a unique interactive rebate program. Touch-tone
phones will initially interact the network to secured earned rebates, and later
the network will be accessed via wireless digital communications networks
currently under development. The Rebate TV operations commenced April 15, 1996
and serve customers in the eastern United States. Management expects
exploitation of the FCC licenses to commence in 1997. They intend to hire the
necessary management personnel, raise addition capital and generate profitable
operations needed to continue its existence.
Syneractive, Inc. was dissolved on October 30, 1995.
Reverse acquisition
- -------------------
On October 1, 1995, the Company issued 5,700,000 shares of common stock to
its current sole director and officer in exchange for the net assets of SI.
After the issuance of such stock, the current director and officer effectively
controlled the Company, holding approximately 50.1% of the outstanding common
stock.
Prior to the reverse acquisition, the current sole director and officer of
the Company owned all of the outstanding common stock of SI. Accordingly, the
reverse acquisition has been accounted for at the historical cost of the assets
acquired.
Basis of Presentation
- ---------------------
The financial information presented as of any date other than May 31 has
been prepared from the books and records without audit. The accompanying
financial statements have been prepared in accordance with the instructions to
Form 10QSB and do not include all of the information and the footnotes required
by generally accepted accounting principals for complete statements. In the
opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of such financial statements,
have been included.
These financial statements should be read in conjunction with the
consolidated financial statements and notes thereto for the year ended May 31,
1996 contained in the Company's 10KSB Annual Report.
Management estimates
- --------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
8
<PAGE>
INTERACTIVE TECHNOLOGIES CORPORATION, INC.
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
Cash flow
- ---------
For purposes of the statement of cash flows, cash includes demand deposits and
time deposits with maturities of less than three months. None of the Company's
cash is restricted.
Earnings per share
Primary and fully diluted earnings per share amounts are based upon 13,479,613
and 11,866,491, respectively, weighted average shares of common stock and common
stock equivalents outstanding. No effect has been given to the assumed exercise
of stock options and warrants and convertible debentures as the effect would be
antidilutive.
In February 1997, the Financial Standards Accounting Board (FASB) issued
Statement of Financial Accounting Standards No. 128 Earnings Per Share effective
for financial statement periods ending after December 15, 1997. Earlier
application is not permitted. For pro forma disclosure purposes, there is no
difference in the amounts of net loss per share and weighted average shares of
common stock outstanding computed using FASB 128 and those reflected in the
accompanying financial statements.
2. COMMITMENTS AND CONTINGENCIES
Operating leases
Through October 31, 1995, the Company used office space provided free of charge
by its stockholder, the value of which was not material. The Company presently
leases its facilities in Florida under non-cancelable operating lease agreements
expiring through April 1998. From May 1996 through August 1996, the Company also
leased facilities in New Jersey in connection with its SNT operations (Notes 1
and 3). For the years ended May 31, 1997 and 1996, rent expense under these
leases totaled $62,803 and $24,603, respectively.
Minimum future rental payments required under the above operating leases are as
follows.
Year Ending
May 31, Amount
1998 $ 22,464
=========
Capital lease obligations
On March 27, 1996, the Company acquired various studio equipment under a capital
lease obligation payable monthly through March 2001 with imputed interest at
11.0%, secured by the equipment and 250,000 common stock shares of the Company.
As part of the transaction, the stockholder of the lessor/corporation purchased
50,000 common stock shares of the Company for $200,000 cash and received
warrants to purchase 50,000 common stock shares at $2.00 per share. At May 31,
1996, the cost of equipment acquired under this lease and related accumulated
depreciation totaled $1,100,000 and $26,190, respectively.
During the year ended May 31, 1997, the Company withdrew from this lease
obligation, resulting in a lawsuit, (Notes 1 and 3) and wrote off the $1,100,000
capitalized cost of the equipment, $77,435 of additional related equipment, the
related accumulated depreciation of $56,068 and all but $218,750 of the related
capital lease obligation.
License fees payable
The Company, through SI, has acquired licenses from the Federal Communications
Commission to operate interactive video and data service systems in various
metropolitan statistical areas (Note 1). The license rights are payable interest
only, at 7.7 percent for two years with principal and interest payable monthly
over the remaining three years of the licenses. Interest has been accrued from
the dates the licenses were formally issued.
9
<PAGE>
INTERACTIVE TECHNOLOGIES CORPORATION, INC.
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
During the year ended May 31, 1997, the Company received the remaining amounts
due under a contract of sale for the North Charleston, SC license rights (Note
1) and the sales transaction was completed.
Future principal payments under the remaining Titusville, FL license right
obligation are as follows:
Year Ending
May 31, Amount
1998 $ 210,077
1999 183,113
2000 146,810
-----------
$ 540,000
Employment agreement
During the year ended May 31, 1996, the Company entered into an employment
agreement, with a director and principal member of management, which provided
for annual compensation equal to 5% of the gross profit from the Rebate TV
operations, with a minimum salary for the first year of $125,000. In addition,
the Company provided a monthly automobile allowance. The agreement expired in
October 2005, and provided for full payment if the employees should be
terminated without cause, become disabled, or die before such date. In November
1996 the employee left the Company and has since filed a lawsuit claiming an
unspecified amount of damages for breach of contract. The first year minimum
compensation required under the agreement was paid in full. The Company
anticipates a favorable outcome to this litigation and the accompanying
financial statements do not contain any reserve for this contingency.
The Company's current compensation benefits do not provide any other
post-retirement or post-employment benefits.
3. LITIGATION
Rental operating lease
The Company is defendant, and it has filed counter claims, in a lawsuit filed by
the lessor of office space facilities in New Jersey (Note 2). The Company never
occupied the space due to the lessor's failures to finish out the space to the
Company's specifications. The lessor seeks to recover remaining lease payments
due under the lease of $606,913 and the Company seeks to recover damages under a
capital lease obligation (Note 2) for equipment located in the New Jersey
facilities and contractually precluded from being removed from the facilities.
Although the Company anticipates a favorable settlement of this lawsuit the
outcome of it is uncertain. The accompanying financial statements do not contain
any reserve for this contingency.
Capital lease obligation
The Company was defendant, and it had filed counter claims, in a lawsuit filed
by the lessor of equipment subject to a capital lease obligation (Note 2). The
Company withdrew from the lease because of the lessor's inability to correct
defects in a major revenue producing component of the equipment and the
inability to use the equipment.
The lessor sought to recover lease payments due under the lease totaling
$1,043,021 and the Company sought to recover lost revenues caused by the
deficient equipment. On August 21, 1997, the Company settled this lawsuit
agreeing to issue 350,000 common stock shares (plus an additional 162,500 or
325,000 shares if the Company fails to file a Registration Statement with the
S.E.C. by December 1, 1997 or January 2, 1998, respectively). The settlement
loss was valued at the $.625 August 21st closing price of the common stock
shares, or $218,750, and is recorded in the accompanying financial statements by
reducing the carrying value of the capital lease obligation at May 31, 1997 to
$218,750.
10
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INTERACTIVE TECHNOLOGIES CORPORATION, INC.
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
4. CONVERTIBLE DEBENTURES
NONE
5. NOTES PAYABLE
The Company's notes payable consist of loans from various corporations and
individuals provided for working capital purposes. The notes, which contain no
significant restrictions, bear interest at rates of 10.0% to 18.0%, are due
through March 1998 and are unsecured.
6. RELATED PARTY TRANSACTIONS
Stockholder
The Company had a 50% interest in a joint venture with another corporation to
exploit its license (Note 1) and accounted for this investment using the equity
method. At May 31, 1995, the joint venture had no assets and the carrying value
of its investment was $0. Also at May 31, 1995 the Company had available a
$700,000 financing arrangement through a stockholder corporation with an
interest rate of 12.5%. The amount outstanding at May 31, 1995 totaled $656,831.
The stockholder corporation also charged a monthly management fee of $4,167
through September 30, 1995. In October 1995 the Company sold its joint venture
interest in exchange for its release from the amount owed under the financing
arrangement plus accrued interest and management fees through September of 1995,
resulting in a gain of $701,865, the excess of these amounts over the carrying
value of its investment in the joint venture.
7. INCOME TAXES
The Company used the accrual method of accounting for tax and financial
reporting purposes. At August 31, 1997, the Company had net operating loss
carryforwards for financial and tax reporting purposes of approximately
$7,000,000. This carryforwards expire through the year 2011, and are further
subject to the provisions of Internal Revenue Code Section 382.
Pursuant to Statement of Financial Accounting Standards No. 109, the Company has
recognized a $2,385,722 deferred tax asset attributable to the net operating
loss carryover, net of a $118,391 deferred tax liability related to amortization
timing differences, in the amount of $2,267,331 which have been fully offset by
a valuation allowances in the same amount, as follows:
1997 1996
---- ----
Beginning balance $ 1,469,703 $ 1,330,781
Increase during period 797,628 138,922
------------ ------------
Ending balance $ 2,267,331 $ 1,469,703
============ ============
8. FINANCIAL INSTRUMENTS
The Company's financial instruments consist of its cash, accounts receivable,
trade and its convertible debentures payable.
Cash
The Company maintains its cash in bank deposit and other accounts which, at
times, may exceed federally insured limits. The Company has not experienced any
losses in such accounts, and does not believes it is subject to any credit risks
involving its cash.
Accounts and note receivable, trade
The Company accounts and note receivable are unsecured and represent sales not
collected at the end of the year. Management believes these accounts and note
receivable are fairly stated at estimated net realizable amounts.
11
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INTERACTIVE TECHNOLOGIES CORPORATION, INC.
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
Convertible debentures payable
Management believes the carrying value of their debentures payable represents
the fair value of these financial instruments because their terms are similar to
those in the lending market for comparable loans with comparable risks.
9. SUBSEQUENT EVENT
Subsequent to May 1997, the Company entered into an agreement to acquire Airtech
International Corporation (AIC), a Texas corporation, through the issuance of
its common stock shares in a transaction to be accounted as an acquisition by
ITC. The transaction is subject to final AIC stockholder approval upon the
effective date of a Form S-4 Registration Statement, which has been filed.
12
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MANAGEMENT'S DISCUSSION AND ANALYSIS
INTERIM PERIOD FROM JUNE 1, 1996 THROUGH AUGUST 31, 1997.
The Company's research and development efforts consumed the technical
efforts of the Company from October 1995 through the airing of Rebate TV on
April 15, 1996, and involved two basic areas: the television programming for the
shows, and the data management and computer interface development efforts for
the interaction with the retailers and the consumers. None of this expense will
be borne directly by the retailers or the consumers, but will be recouped
through profits as the Company expands its markets.
Development of Rebate TV basic programming by ITC has been done during the
fiscal year with Century III at Universal Studios, Florida. Established in 1976,
Century III has serviced a widely diverse client base with high production
values utilizing the latest and finest in production and post-production
hardware. This includes local, regional, national and international projects for
all four broadcast television networks, national cable networks such as
Nickelodeon and HBO, major independent producers, advertising agencies and major
corporate and governmental organizations such as Digital Equipment Corporation,
Harris Corporation, General Electric, NCR, AT&T, Kodak, Polaroid, Walt Disney
World, Harcourt Brace Jovanovich, FPL Group, Westinghouse, McDonnell Douglas,
Martin Marietta, Reebok, International and NASA. The creative director for
Rebate TV is Michael Hamilton who has designed, directed and produced such
television series as "Magnum P.I., "Simon & Simon", "Wings" and "The Twilight
Zone". His commercial experience includes such clients as Cadillac, Texaco, Coca
Cola, Heineken, American Airlines, Donna Karan, Elizabeth Arden, QVC, Business
Technology Management and the Family Channel.
The computer development efforts related to Rebate TV were done at the
Company's engineering offices in Melbourne, Florida, where the hardware and
software designs and specifications were developed, tested and implemented
during the current fiscal year, to:
(*) manage the large amounts of data and transactions involved in
collecting and verifying sales information from the Rebate TV
retailers;
(*) calculate the rebates, record the credits, and issue the checks
to the consumer;
(*) accommodate and record the telephone rebate requests, and provide
automated participation information to the public.
Internet Access. ITC's Internet home pages for use with Rebate TV allow
viewers to access the program's data base through the Internet. It allows them
to view the status of their accounts, enter vendor rebate claims, and later will
allow viewers to access a variety of products and services associated with
Rebate TV which the Company expects to include. Rebate TV is located at
http://www.rebatetv.com.
Network Operations. ITC is in development and production of its own
television channel and is scheduled to distribute its Rebate TV video
programming in this format to customers. The Company's distribution plan
currently provides for distribution of this programming started in the central
Florida markets to expand from there.
In furtherance of its network creation activities, the Company initiated an
affiliate program by market demographic area. Under this program, the Company
pre sells 10 of the 14 minute program segments per one half hour program to the
affiliate in the designated market area who is responsible to local program
affiliate operations. The initial affiliate market under this program is Dayton,
Ohio however this market is not yet open and until the first 3-6 markets are
established in this manner, there is no assurance that any particular market can
or will get underway during this period. The Company will make a decision during
the next quarter whether or not to continue this method of expansion.
The Company has negotiated a strategic alliance with Bottom Line,Inc., an
Atlanta, Georgia production andpost production facility and expects to move the
majority of its production to their facilities during the next 12 months. The
Company has withdrawn from an undertaking with Satellite Network Television,
Inc. and will not be looking to those facilities for its production services in
the future.
13
<PAGE>
Interactive Video and Data Services. As part of ITC's commitment to the
evolution of interactive television, its Federal Communications Commission
Interactive Video and Data Services (IVDS) radio station license in the
Melbourne-Titusville-Palm Bay, FL and a 10% interest in Charleston-North
Charleston, SC service areas represent an additional enhancement to the
Company's programming distribution. These licenses have a duration of an initial
five years, and are renewable if all conditions of the license are met. IVDS, a
two way communications system, will allow viewers to take an active role in
systems delivered through broadcast television, cable television, wireless
cable, direct broadcast satellite or other future television delivery methods.
IVDS is regulated as a personal radio service under the rules of the FCC which
has allocated spectrum in the 218-219 MHz range for its use. IVDS systems are
designed to operate with a hand-held remote control device that controls the
interactive set top device on the subscriber's television set. A viewer would
interact with the TV station through a radio signal using an IVDS frequency.
The Company is reviewing alternative uses and equipment proposals for its
Melbourne-Titusville-Palm Bay, FL license and expects to proceed to install a
system for this license within the next 24 - 36 months.
Although ITC will run its Rebate TV and other programs on its own service
area systems, the programs it develops are intended for use on various
interactive delivery systems and are not specific to Interactive Video and Data
Services systems. They are marketed to all of these various delivery systems.
For broadcast of Rebate TV programming the Company currently uses and plans to
use standard video media distribution methods such as cable, broadcast stations,
wireless cable and direct broadcast satellite. Although the Company has designed
its programs to utilize an IVDS return link (a "return link" is the method by
which data is sent from the consumer or viewer back to the originator of the
program), they are also designed to accommodate other return links such as the
telephone. The Company has purchased equipment and software to provide a
telephone return link as an interim return link for its own license areas as
well as other areas where it is providing programming, to be utilized where IVDS
is not available; until the installation an operation of the IVDS equipment as a
return link is completed as well as for use with non subscribers to IVDS.
Intellectual Content. The Company has developed a plan for the accumulation
and sale of intellectual content. This content takes several forms, including
completed television and video programming, both developed and produced by the
Company and by third parties; property rights to written scripts and
publications for the purpose of producing or having produced television or
motion picture products; and program ideas, concepts and designs.
This plan commenced during the last month of the fiscal year. In addition
to the Rebate TV programs, the company has filed and had accepted Trademark
applications with the United States Patent and Trademark Office for "Rebate TV",
"Television and pays you to shop" and for "DEAL! DEALS! DEALS!" (a direct
shopping program which the Company has produced).
FINANCIAL CONDITION AND RESULTS OF OPERATIONS:
Revenues from operations for the Quarter reported were $3,070, down from
$12,835 for the same period for the previous year. The Company has concluded its
beta test period for Rebate TV and is preparing for full network operations.
Operating expenses for the Quarter reported decreased to $350,496 from $904,387
the previous year. Increased expenses were due to the company's operations
directed at expansion of Rebate TV into the national market. The Company's
computer operations were developed to operate at a level to service a national
market and those operations will make up a significant portion of the operating
expenses which will proportionately decrease as the Company adds markets for its
productions. The Company expects its expenses to expand at a decreasing
percentage as it expands into additional markets.
During the first three months of the current fiscal year, the Company
received $0 net of cost from the private sale of its common stock and an
additional $50,000 in loans. The Company does not expect to receive significant
revenues from projects other that Rebate TV during the next quarter. The Company
expects to require additional funds over the next 12 months for the expansion
and addition of market for its products and operations.
14
<PAGE>
PART II Other Information
Item l. Legal Proceedings
The Company is a defendant in a proceeding filed in the United States
District Court for the Southern District of New York. It accepted service April
5, 1997 in an action brought by Studiolink Corporation and Steven Campus for
damages arising out of an equipment lease agreement. The Company expects to
assert counterclaims against the Plaintiffs for losses suffered as a result of
their failure to perform. Settlement discussions have been ongoing and the
Company expects this matter to be settled in a manner not unfavorable to the
Company. In addition, in related matters, the Company is in litigation with LLB
Realty, L.L.C. which has filed a claim alleging claims under an office lease
agreement in Superior Court of New Jersey, Mercer County. The Company has
asseted claims against L.L.B. Realty, L.L.C. for failure to perform under the
conditions of the agreement. Settlement negotiations have been ongoing and the
Company expects this matter to be settled in a manner no unfavorable to the
Company.
The Company is not as party to any other pending legal proceedings except
for claims and lawsuits arising in the normal course of business. ITC does not
believe that these claims or lawsuits will have a material effect on ITC's
financial condition or results of operations
15
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing and has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Melbourne, State of Florida, on April 14, 1997.
Interactive Technologies Corporation, Inc.
by: /s/ Perry Douglas West
---------------------------
Perry Douglas West, Chief Executive Officer
16
<PAGE>
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<FISCAL-YEAR-END> MAY-31-1997 MAY-31-1996
<PERIOD-START> JUN-01-1997 JUN-01-1996
<PERIOD-END> AUG-31-1997 AUG-31-1996
<CASH> 11,009 14,695
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