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FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number: 0-27828
ADRENALIN INTERACTIVE, INC.
(Exact name of small business issuer as specified in its charter)
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<S> <C>
Delaware 13-3779546
- ------------------------------ -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
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5301 Beethoven Street, Los Angeles, CA 90066
(Address of principal executive offices)
(310) 821-7880
(Issuer's telephone number)
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(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) has 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
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The number of shares outstanding of each of the issuer's classes of
publicly-traded common equity, as of November 10, 1998, was 8,855,271 shares of
Common Stock and 2,930,624 Redeemable Warrants.
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ADRENALIN INTERACTIVE, INC.
INDEX
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Page No.
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Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet
at September 30, 1998 3-4
Consolidated Statements of Operations - Three
Months Ended September 30, 1998 and 1997 5
Consolidated Statements of Cash Flows - Three
Months Ended September 30, 1998 and 1997 6-7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. Other Information
Item 2. Changes in Securities and Use of Proceeds 10
Item 6. Exhibits and Reports on Form 8-K 11
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Adrenalin Interactive, Inc. and Subsidiary
Consolidated Balance Sheet
September 30, 1998
ASSETS
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<CAPTION>
Sept 30,
1998
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Current assets:
Cash and cash equivalents $ 239,775
Accounts receivable, net of allowance
for doubtful accounts of $45,750 233,992
Prepaid expenses 73,422
----------
Total current assets 547,189
----------
Fixed assets, net 295,074
----------
Other assets:
Patents and licenses, net of accumulated
amortization of $885,771 2,515,589
Goodwill, net of accumulated amortization
of $70,027 1,610,645
License rights, advance royalty, net of
write-off of $225,000 75,000
Capitalized software 11,762
Security deposits and other 18,857
----------
4,231,853
----------
$5,074,116
==========
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See notes to consolidated financial statements.
(continued)
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Adrenalin Interactive, Inc. and Subsidiary
Consolidated Balance Sheet (continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
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<CAPTION>
Sept 30,
1998
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Current liabilities:
Accounts payable and accrued liabilities $ 606,115
Billings in excess of costs and estimated
earnings on uncompleted contracts
in progress 17,297
Notes and loans payable, current portion 143,436
0
------------
Total current liabilities 766,848
Due to officer/shareholder 57,376
Notes and loans payable, non-current portion 396,000
------------
Total liabilities 1,220,224
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value;
authorized, 100,000 shares;
issued and outstanding, none 0
Common stock, $.01 par value;
authorized, 20,000,000 shares;
issued and outstanding, 8,855,271 shares 88,553
Additional paid-in capital 13,520,299
Accumulated deficit (9,754,960)
------------
Total shareholders' equity 3,853,892
$ 5,074,116
============
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See notes to consolidated financial statements.
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Adrenalin Interactive, Inc. and Subsidiary
Consolidated Statements of Operations
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<CAPTION>
Three Months Three Months
ended ended
September 30, 1998 September 30, 1997
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Revenues:
Product sales 0 2,367
Development contracts 252,002 249,943
Royalties 123,070 237,490
-------
375,072 489,800
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Expenses:
Cost of development contracts 276,999 276,457
Research and development 35,373 153,951
Selling, general and administrative 463,244 494,269
Depreciation and amortization 192,756 381,910
Interest expense, net 10,609 18,924
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978,981 1,325,511
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Loss before income taxes (603,909) (835,711)
Income taxes 0 0
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Net loss $ (603,909) $ (835,711)
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Per share information:
Basic:
Net loss per share $ (0.07) $ (0.16)
============ ===========
Weighted average shares outstanding 8,745,800 5,132,339
=========== ==========
Diluted:
Net loss per share $ (0.07) $ (0.16)
=========== ==========
Weighted average shares outstanding 8,745,800 5,132,339
=========== ==========
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See notes to consolidated financial statements.
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Adrenalin Interactive, Inc. and Subsidiary
Consolidated Statements of Cash Flows
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<CAPTION>
Three Months Three Months
ended ended
September 30, 1998 September 30, 1997
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Cash flows from operating activities:
Net loss ($ 603,909) ($ 835,711)
Adjustments to reconcile net loss to
net cash used in operating activities:
Common stock issued for services 52,500 0
Write-off of license rights 25,000 25,000
Amortization 129,659 257,089
Depreciation 38,097 99,821
Change in:
Accounts receivable ( 53,288) ( 26,906)
Costs and estimated earnings in excess
of billings on uncompleted contracts 15,086 20,600
Prepaid expenses 1,352 ( 15,609)
Other assets 0 11,615
Accounts payable and accrued liabilities 647 87,288
Billings in excess of costs and
estimated earnings on uncompleted
contracts in progress ( 18,758) 210,776
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Net cash used in operating activities (413,614) (166,037)
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Cash flows from investing activities:
Purchase of fixed assets (3,721) (2,946)
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Net cash used in investing activities (3,721) (2,946)
---------- ----------
Cash flows from financing activities:
Payments on notes and loans payable (253,807) (40,112)
Proceeds from notes and loans 308,113 0
Payments on due to officer,
net of interest accrued 1,441 2,237
Proceeds from common stock subscription 435,000 0
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Net cash provided by (used in)
financing activities 490,747 (37,875)
---------- ----------
Increase (decrease) in cash and cash
equivalents 73,412 (206,858)
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Cash and cash equivalents, beginning 166,363 228,761
Cash and cash equivalents, ending $ 239,775 $ 21,903
==========
Cash paid during the year for:
Interest $ 4,668 $ 0
========== ==========
Income taxes $ 0 $ 0
========== ==========
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During the three months ended September 30, 1998, 105,000 shares of common stock
were issued for consulting services.
During the three months ended September 30, 1998, 59,210 shares of common stock
were issued in exchange for warrants for 75,000 shares of common stock.
During the three months ended September 30, 1997, 135,417 shares of common stock
were issued in exchange for $81,250 of convertible debentures.
During the three months ended September 30, 1997, 1,250 shares of common stock
were issued for extension of due date of convertible debentures.
See notes to consolidated financial statements.
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Adrenalin Interactive, Inc. and Subsidiary
Notes to Consolidated Financial Statements
1. The consolidated financial statements as of September 30, 1998 and for the
three month periods ending September 30, 1998 and 1997 are unaudited and
reflect all adjustments (consisting of only normal recurring adjustments)
which are, in the opinion of management, necessary for a fair presentation
of the financial position and operating results for the interim periods.
The consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto, together with
management's discussion and analysis of financial condition and results of
operations contained in the Company's Annual Report on Form 10-KSB for the
fiscal year ended June 30, 1998. The results of operations for the three
months ended September 30, 1998 are not necessarily indicative of the
results for the entire fiscal year ending June 30, 1999.
2. Certain amounts reported for the three months ended September 30, 1997
have been reclassified to conform to the presentation of the three months
ended September 30, 1998. Net income was not affected by this
reclassification.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Results of Operations.
For its first quarter of fiscal 1999 ended September 30, 1998,
the Company had revenues of $375,072 as compared to revenues of $489,800 for the
same period in fiscal 1998. Revenues for the first fiscal quarter ended
September 30, 1998 were lower than expected, primarily due to delays in the
start-up of new funded toy and game development projects which started in the
second fiscal quarter ending December 31, 1998 and lower royalty revenues from
existing contracts. The Company had a net loss of $603,909 for the first fiscal
quarter ended September 30, 1998, or $.07 per share, an improvement of $231,802
from a net loss in the first quarter of fiscal 1998 of $835,711, or $.16 per
share.
Expenses during the first fiscal quarter ended September 30,
1998 of $978,981 were lower than expenses in the same period of fiscal 1998 of
$1,325,511, an improvement of $346,530. These lower expenses were principally
due to reductions in the Company's research and development expenses, general
and administrative expenses and amortization and depreciation expenses.
Financial Condition.
For the first fiscal quarter ended September 30, 1998, the
Company had a working capital deficit of $219,659 as compared to positive
working capital of $142,404 as of June 30, 1998.
The Company's cash and cash equivalents were $239,775 as of
September 30, 1998 compared to $601,363 as of June 30, 1998. The cash was used
in connection with the acquisition of new funded toy and game development
projects and the funding of the Company's quarterly loss, including completion
of existing projects.
As of September 30, 1998, the Company's stockholders' equity
was $3,853,892 as compared to stockholders' equity of $4,405,301 as of June 30,
1998.
The weighted number of shares of Common Stock outstanding for
the first fiscal quarter ended September 30, 1998 was 8,745,800 as compared to
5,132,339 for the same quarter of fiscal 1998.
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PART II-OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(c) Recent Sales of Unregistered Securities.
1. In July 1998, the Company issued 100,000 shares of
Common Stock originally committed to be issued in June 1998 at a deemed price
equal $1.00 per share to Lloyd Wade Securities, Inc. ("Lloyd Wade") as
consulting fees for certain investment banking activities performed and/or
committed to be performed by Lloyd Wade on behalf of the Company. Lloyd Wade is
an "accredited investor" as defined in Rule 501(a) of the Securities Act. No
underwriter was employed in connection with such issuance and no underwriting
discounts or commissions were paid in connection therewith. The Company's
issuance of such 100,000 shares of Common Stock to Lloyd Wade was exempt from
the registration requirements of the Securities Act pursuant to Section 4(2)
thereof.
2. In September 1998, the Company issued an aggregate
of 59,210 shares of Common Stock pursuant to the cashless exercise by a
transferee of Mackenzie Shea, Inc. ("MSI") of an aggregate of 75,000 warrants
originally issued to MSI by the Company in October 1997. No underwriter was
employed in connection with such issuance and no underwriting discounts or
commissions were paid in connection therewith. Such transferee of MSI is an
"accredited investor" as defined in Rule 501(a) of the Securities Act. The
Company's issuance of such 59,210 shares of Common Stock to such transferee of
MSI was exempt from the registration requirements of the Securities Act pursuant
to Section 4(2).
3. In September 1998, the Company issued 50,000 shares
of Common Stock at a deemed price equal to $0.50 per share to Kayne
International, Inc. ("Kayne"), a business consulting company with which Thomas
A. Schultz, a Director of the Company, is affiliated. At the same time, the
Company issued 50,000 shares of Common Stock at a deemed price equal to $0.50
per share to Robert A.D. Wilson, a Director of the Company. The consideration
for such aggregate of 100,000 shares of Common Stock was each such person's
agreement to provide additional consulting services to the Company pursuant to
their prior consulting agreements with the Company. At the same time, the
Company issued an aggregate of 5,000 shares of its Common Stock at a deemed
price equal to $0.50 per share to two of the company's vendors pursuant to such
vendors' contracts with the Company. Each of Kayne, Mr. Wilson and such two
vendors of the Company is an "accredited investor" as defined in Rule 501(a)
under the Securities Act. No underwriter was employed in connection with the
issuance of such aggregate of 105,000 shares of Common Stock and no underwriting
discounts or commissions were paid in connection therewith. The Company's
issuance of such aggregate of 105,000 shares of Common Stock to such four
persons was exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereof.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
27 Financial Data Schedules.
(b) Reports on Form 8-K. During the quarter ended September 30, 1998,
the registrant did not file any reports on Form 8-K.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 13, 1998
ADRENALIN INTERACTIVE, INC.
By: /s/ Jay Smith, III
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Jay Smith, III, President,
Chief Executive Officer
and Treasurer
(principal executive,
financial and accounting
officer).
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 127,981
<SECURITIES> 0
<RECEIVABLES> 279,742
<ALLOWANCES> 40,750
<INVENTORY> 0
<CURRENT-ASSETS> 547,189
<PP&E> 1,326,614
<DEPRECIATION> 1,031,540
<TOTAL-ASSETS> 5,074,116
<CURRENT-LIABILITIES> 766,848
<BONDS> 0
0
0
<COMMON> 88,553
<OTHER-SE> 3,765,339
<TOTAL-LIABILITY-AND-EQUITY> 5,074,116
<SALES> 0
<TOTAL-REVENUES> 375,072
<CGS> 0
<TOTAL-COSTS> 968,372
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,609
<INCOME-PRETAX> (603,909)
<INCOME-TAX> 0
<INCOME-CONTINUING> (603,909)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (603,909)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
