<PAGE> 1
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 December 31, 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)
<TABLE>
<S> <C>
Delaware 13-3779546
- ------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
</TABLE>
5301 Beethoven Street, Los Angeles, CA 90066
--------------------------------------------
(Address of principal executive offices)
(310) 821-7880
---------------------------
(Issuer's telephone number)
- ------------------------------------------------------------------------
(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
--- ---
The number of outstanding of each of the issuer's classes of
publicly-traded common equity, as of February 12, 1999, was 3,051,765 shares of
Common Stock (which number of securities has been adjusted to reflect the
issuer's 1-for-3 reverse stock split effected on December 29, 1998), and
2,930,624 Redeemable Warrants (each Redeemable Warrant entitling the holder
thereof the right to purchase 1/3 share of the issuer's Common Stock at a price
equal to $21.00 per share on or prior to March 19, 1999 as a result of such
1-for-3 reverse stock split effected on December 29, 1998).
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ADRENALIN INTERACTIVE, INC.
INDEX
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<CAPTION>
Page No.
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<S> <C> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet
at December 31, 1998 3-4
Consolidated Statements of Operations - Three
Months Ended December 31, 1998 and 1997 and
Six Months Ended December 31, 1998 and 1997 5
Consolidated Statements of Cash Flows - Six
Months Ended December 31, 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 9-10
Part II. Other Information
Item 2. Changes in Securities and Use of Proceeds 11
Item 6. Exhibits and Reports on Form 8-K 12
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Adrenalin Interactive, Inc. and Subsidiary
Consolidated Balance Sheet
ASSETS
<TABLE>
<CAPTION>
December 31,
1998
------------
<S> <C>
Current assets:
Cash and cash equivalents $ 365,771
Accounts receivable, net of reserve
of $45,750 189,147
Prepaid expenses 94,653
----------
Total current assets 649,571
----------
Fixed assets, net 283,040
----------
Other assets:
Patents and licenses, net of accumulated
amortization of $992,062 2,409,297
Goodwill, net of accumulated amortization
of $80,531 1,600,141
License rights, advance royalty, net of
write-off of $250,000 50,000
Security deposits and other 18,486
----------
4,077,924
----------
$5,010,535
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 447,394
Billings in excess of costs and estimated
earnings on contracts in progress 453,156
----------
Total current liabilities 900,550
Due to officer/shareholder 53,466
Notes payable 396,000
----------
Total liabilities 1,350,016
----------
Commitments and contingency
Shareholders' equity:
Preferred stock, $.01 par value; authorized,
100,000 shares; issued and outstanding, none 0
Common stock, $.03 par value; authorized,
20,000,000 shares; issued and outstanding,
2,951,757 shares 88,553
Additional paid-in capital 13,520,299
Accumulated deficit (9,948,333)
----------
3,660,519
$5,010,535
==========
</TABLE>
See notes to consolidated financial statements.
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Adrenalin Interactive, Inc. and Subsidiary
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Product sales $ 0 $ 0 $ 0 $ 2,367
Development contracts 156,939 584,207 408,941 834,150
Royalties 578,563 268,345 701,633 505,835
---------- ---------- ---------- ----------
735,502 852,552 1,110,574 1,342,352
---------- ---------- ---------- ----------
Expenses:
Cost of product sales 0 0 0 34,000
Cost of development
contracts 360,354 299,974 637,353 576,431
Research and development 0 24,641 35,373 236,592
Selling, general
and administrative 362,986 437,313 826,230 839,582
Depreciation and
amortization 192,026 192,699 384,782 574,609
Interest expense 13,509 13,188 24,118 32,112
---------- ---------- ---------- ----------
928,875 967,815 1,907,856 2,293,326
---------- ---------- ---------- ----------
Net loss $ 193,373 $ 115,263 $ 797,282 $ 950,974
========== ========== ========== ==========
Net loss per common share,
basic and diluted,
adjusted for 1-for-3
reverse split $ .07 $ .06 $ .27 $ .52
========== ========== ========== ==========
Weighted average
shares outstanding,
adjusted for 1-for-3
reverse split 2,951,757 1,955,317 2,933,511 1,833,048
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
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Adrenalin Interactive, Inc. and Subsidiary
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Six months Six months
Ended Ended
December 31, December 31,
1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Net loss ($ 797,282) ($ 950,975)
Adjustments to reconcile net loss
to net cash used in operating activities:
Stock issued for services 52,500 0
Loss on disposal of assets 24,300 0
Write off of license rights 50,000 50,000
Write off of capitalized software 63,192 50,700
Amortization 258,588 304,455
Depreciation 76,194 169,454
Change in:
Accounts receivable ( 8,443) ( 163,296)
Costs and estimated earnings in excess of
billings on contracts in progress 15,086 20,600
Billings in excess of costs and estimated
earnings on contracts in progress 417,101 182,953
Accounts payable and accrued expenses (158,074) 82,986
Prepaid expense ( 19,879) ( 14,029)
Other assets 0 ( 108,491)
----------- ----------
Net cash used in operating activities ( 89,909) ( 375,643)
----------- ----------
Cash flows from investing activities:
Purchase of fixed assets ( 54,084) ( 8,860)
----------- ----------
Net cash used in investing activities ( 54,084) ( 8,860)
----------- ----------
Cash flows from financing activities:
Payments on notes and loans payable ( 415,243) ( 94,756)
Proceeds from notes and loans payable 326,113 192,000
Payments on due to officer ( 2,469) ( 30,097)
Issuance of common stock and warrants,
Net of costs of issuance 0 303,176
Proceeds from common stock subscription 435,000 0
----------- ----------
Net cash provided by financing activities 343,401 ( 370,323)
----------- ----------
Increase (decrease) in cash
and cash equivalents 199,408 ( 14,180)
Cash and cash equivalents, beginning 166,363 228,761
----------- ----------
Cash and cash equivalents, ending $ 365,771 $ 214,581
=========== ===========
</TABLE>
During the six months ended December 31, 1998, shares of common stock were
issued as follows:
35,000 shares of common stock were issued for consulting services.
19,737 shares of common stock were issued upon the cashless exercise of warrants
for 25,000 shares of common stock.
See notes to consolidated financial statements.
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Adrenalin Interactive, Inc.
Notes to Consolidated Financial Statements
1. The financial statements as of December 31, 1998 and for the three and
six month periods ending December 31, 1998 and 1997 are unaudited and
reflect all adjustments (consisting of 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 financial statements should be read in conjunction
with the 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 to Stockholders
incorporated by reference 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 and six months periods ended December 31, 1998 are not
necessarily indicative of the results for the entire fiscal year ending
June 30, 1999.
2. During the quarter ended December 31, 1998, the Company effected a
1-for-3 reverse split in respect of its common stock. All amounts have
been restated to account for the reverse split.
3. During the quarter ended December 31, 1998, the Company modified
previously- issued warrants as described below:
141,666 warrants previously exercisable at $.75 per share were reduced
to $.15 per share.
100,000 warrants previously exercisable at $1.875 per share were
reduced to $.15 per share.
A Black-Scholes calculation of these warrants resulted in a lower total
cost than the calculation at the time of the original issuance of the
warrants; accordingly, no additional cost was recorded.
4. During the six months ended December 31, 1998, the Company issued
35,000 shares of common stock for services performed.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Results of Operations.
For its second fiscal quarter ended December 31, 1998, the Company
realized revenues of $735,502 as compared to revenues of $375,072 for its first
fiscal quarter ended September 30, 1998, an increase of approximately 96%. Such
increased revenues were principally due to the Company's start of work on new
video and computer game development contracts including a new Brunswick bowling
game being developed for THQ, Inc. and a Flintstones bowling game being
developed for South Peak, revenues from new projects involving
Internet-refreshed toys such as WWF action figures being jointly manufactured
and marketed with Jakks Pacific and royalties from sales of TV Mouse and other
previously-licensed products. The Company experienced a net loss for its second
fiscal quarter of $193,373, or $.07 per share, an improvement of $410,536 from a
net loss $603,909 for its first fiscal quarter ended September 30, 1998, or $.21
per share. Excluding non-cash depreciation and amortization, the Company's
results of operations for its second fiscal quarter ended December 31, 1998 were
essentially breakeven.
The Company's revenues of $735,502 for its second fiscal quarter
ended December 31, 1998 were down $117,050, or 14%, from its revenues of
$852,552 for its second fiscal quarter ended December 31, 1997. The Company's
expenses of $928,875 for its second fiscal quarter ended December 31, 1998 were
also down $38,940, or 4%, from its expenses of $967,815 for its second fiscal
quarter ended December 31, 1997. However, the Company's net loss for its second
fiscal quarter ended December 31, 1998 of $193,373 was $78,110, or 68%, greater
than its net loss of $115,263 for its second fiscal quarter ended December 31,
1997.
For the six months ended December 31, 1998 and 1997, the Company had
revenues of $1,110,574 and $1,342,352, respectively, a decrease of $231,778 in
the current six-month period. For the six months ended December 31, 1998 and
1997, the Company incurred expenses of $1,907,856 and $2,293,326, respectively,
a decrease of $385,470 in the current six-month period. The Company incurred a
net loss of $797,282, or $.27 per share, for the six-month period ended December
31, 1998 as compared to $950,974, or $.52 per share, for the six-month period
ended December 31, 1997, a $153,692 reduction of losses in the current six-month
period. The decreased revenues, expenses and losses during the six-month period
ended December 31, 1998 were principally due to the fact that the Company closed
its New York offices and business and concentrated on the business of its
subsidiary, Western Technologies, located in Los Angeles.
Financial Condition.
At the end of its second fiscal quarter ended December 31, 1998, the
Company had a working capital deficit of $250,979 as compared to a working
capital deficit of $219,659 as at the end of its first fiscal quarter ended
September 30, 1998.
The Company's cash and cash equivalents as at December 31, 1998
increased to $365,711 from $239,775 as at September 30, 1998, an increase of
$125,996. This increase in cash was primarily due to customer advances on new
video and computer game contracts.
As of the end of its second fiscal quarter ended December 31, 1998,
the Company's Shareholders' Equity was $3,660,519 as compared to $3,853,892 as
of the end of its first fiscal quarter ended September 30, 1998.
The weighted number of shares of the Company's Common Stock
outstanding during the second fiscal quarter ended December 31, 1998 was
2,951,757 as compared to 1,955,317 shares during the second fiscal quarter of
the prior year ended December 31, 1997. Both figures have been adjusted to take
into account the 1-for-3 reverse stock split effected on December 29, 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 December 1998, the Company agreed to modify
certain previously-issued warrants held by transferees of Mackenzie Shea, Inc.
("MSI"). As a result of such modification, the exercise price of warrants
covering an aggregate of 141,666 shares of the Company's Common Stock originally
exercisable at $0.75 per share was reduced to $0.15 per share and the exercise
price with respect to warrants covering an aggregate of 100,000 shares of the
Company's Common Stock originally exercisable at $1.875 per share was reduced to
$0.15 per share. The expiration date of all such warrants was also modified to
December 31, 2000 from December 31, 2004.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
10.1 Amendment C to Agreement to Engage Mackenzie
Shea, Inc. ("MSI") as Business Consultants for Wanderlust Interactive, Inc.
("Wanderlust") [name has since been changed to Adrenalin Interactive, Inc.
("ADRN")], dated December 22, 1998, between MSI and the Company.
10.2 Form of First Amendment to Warrant in respect of
warrants held by transferees of MSI to purchase an aggregate of 241,666 shares
of the Company's Common Stock.
27 Financial Data Schedules.
(b) Reports on Form 8-K.
1. On December 30, 1998, the Company filed a report on
Form 8-K in respect of the Company's 1-for-3 reverse stock split effected on and
as of December 29, 1998.
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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: February ___, 1999
ADRENALIN INTERACTIVE, INC.
By: /s/ Jay Smith, III
---------------------------------
Jay Smith, III, President, Chief
Executive Officer and Treasurer
(principal executive, financial and
accounting officer).
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EXHIBIT 10.1
AMENDMENT C
TO AGREEMENT TO ENGAGE
MACKENZIE SHEA, INC. ("MSI") AS BUSINESS CONSULTANTS
FOR WANDERLUST INTERACTIVE, INC. ("WANDERLUST")
[NAME HAS SINCE BEEN CHANGED TO ADRENALIN INTERACTIVE, INC. ("ADRN")]
This Agreement shall serve as Amendment C to the "Agreement to Engage Mackenzie
Shea, Inc. ("MSI") as Business Consultants for Wanderlust Interactive, Inc."
("Wanderlust") [the "Agreement to Engage"] dated October 1, 1997. This Amendment
shall be attached to the original "Agreement to Engage" as "Amendment C."
This Amendment C shall only amend Section V, titled "COMPENSATION", of the
original "Agreement to Engage". No other terms or conditions of the original
"Agreement to Engage" shall be altered or changed in any way as a result of this
Amendment.
As of December 17, 1998, the Board of Directors of Adrenalin Interactive, Inc.
("ADRN") has approved the following Amendment.
V. COMPENSATION
For additional effort toward a new business combination, all warrants described
in Section V, titled "COMPENSATION" shall be amended so that they will now carry
the exercise price of five cents per Share ($0.05/Share), and shall have an
expiration date of December 31, 2000. These amendments shall also apply to any
and all warrants described in any and all Amendments to the Agreement to Engage
Mackenzie Shea, Inc. ("MSI") as Business Consultants for Wanderlust Interactive,
Inc. ("Wanderlust") [the "Agreement to Engage"] dated October 1, 1997.
Also, in the case of a Business Combination being successfully consummated, MSI
shall receive Common Stock equivalent to Five Percent (5%) of the total, fully
diluted, outstanding shares of Adrenalin Interactive, Inc. ("ADRN") prior to the
consummation of the Business Combination. For purposes hereof, options, warrants
and/or other rights to purchase shares of Common Stock of Adrenalin (other than
warrants whose exercise price has been amended hereby), which have exercise
prices which are greater than the price of Adrenalin's Common Stock as of the
date immediately prior to the date of the consummation of such Business
Combination, shall not be deemed outstanding for purposes of calculating such
Five Percent (5%).
If you are in agreement with the foregoing, please execute and return one copy
of this letter to the undersigned. Thank you. We are very pleased to continue
our relationship with you.
APPROVED AND AGREED:
MACKENZIE SHEA, INC. ADRENALIN INTERACTIVE (ADRN)
355 Bryant Street (Formerly Wanderlust Interactive, Inc.)
Suite 111 5301 Beethoven Street, Suite 255
San Francisco, CA 94107 Los Angeles, CA 90066
/s/ Robert W. Kendrick /s/ Jay Smith III
- ------------------------------- -------------------------------------
Robert W. Kendrick, President Jay Smith III, President
12/22/98 12/22/98
- ------------------------------- -------------------------------------
Date Date
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EXHIBIT 10.2
FIRST AMENDMENT TO WARRANT
THIS FIRST AMENDMENT TO WARRANT ("Amendment") is deemed to
have been made and entered into on and as of December __, 1998, by and between
ADRENALIN INTERACTIVE, INC., a Delaware corporation formerly known as Wanderlust
Interactive, Inc. (the "Company"), and ___________________________ (the
"Holder").
RECITALS
A. The Company is the issuer and the Holder is the current
record and beneficial owner of a Warrant (No. _____) to purchase up to an
aggregate of ______ shares of the Company's Common Stock at an exercise price of
$____ per share exercisable at any time until 5:00 p.m., Pacific Standard Time,
on December 31, 2004 (the "Warrant").
B. The Company and the Holder have agreed to amend certain of
the provisions of the Warrant on the terms and conditions hereinafter set forth.
TERMS AND CONDITIONS
NOW, THEREFORE, the parties hereto agree as follows:
1. Reduction of Exercise Price. For valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the Company hereby
agrees that the Exercise Price (as defined in the Warrant) shall be reduced to
$0.05 per share of Common Stock covered thereby from and after the date of this
Amendment.
2. Amendment of Expiration Date. In consideration of the
reduction in the Exercise Price set forth in Section 1 hereof, the Holder hereby
agrees that the Expiration Date (as defined in the Warrant) shall be amended
such that the Warrant, as herein amended, may not be exercised after 5:00 p.m.,
Pacific Standard Time, on December 31, 2000.
3. No Other Amendments. Except as amended hereby, the terms
and provisions of the Warrant shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed and delivered
this Amendment as of the date first above written.
"Company" "Holder"
ADRENALIN INTERACTIVE, INC.
By: _____________________________ ______________________________________
Jay Smith, III, President and
Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 365,771
<SECURITIES> 0
<RECEIVABLES> 234,897
<ALLOWANCES> 45,750
<INVENTORY> 0
<CURRENT-ASSETS> 649,571
<PP&E> 1,322,975
<DEPRECIATION> 1,039,935
<TOTAL-ASSETS> 5,010,535
<CURRENT-LIABILITIES> 900,550
<BONDS> 0
0
0
<COMMON> 88,553
<OTHER-SE> 3,571,966
<TOTAL-LIABILITY-AND-EQUITY> 5,010,535
<SALES> 0
<TOTAL-REVENUES> 1,110,574
<CGS> 0
<TOTAL-COSTS> 637,553
<OTHER-EXPENSES> 1,246,385
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,118
<INCOME-PRETAX> (797,282)
<INCOME-TAX> 0
<INCOME-CONTINUING> (797,282)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (797,282)
<EPS-PRIMARY> (0.27)
<EPS-DILUTED> (0.27)
</TABLE>
