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 March 31, 1999
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OR
[ ] 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)
Delaware 13-3779546
- ------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5301 Beethoven Street, Los Angeles, CA 90066
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(Address of principal executive offices)
(310) 821-7880
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(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 ....
The number of outstanding shares of the issuer's only class of
publicly-traded common equity, as of May 10, 1999, was 3,229,422 shares of
Common Stock, $0.03 par value (which number of shares has been adjusted to
reflect the issuer's 1-for-3 reverse stock split effected on December 29, 1998).
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Exhibit Index on Page 14
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ADRENALIN INTERACTIVE, INC.
INDEX
Page No.
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Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet
at March 31, 1999 3-4
Consolidated Statements of Operations - Three
Months Ended March 31, 1999 and 1998 and
Nine Months Ended March 31, 1999 and 1998 5
Consolidated Statements of Cash Flows - Nine
Months Ended March 31, 1999 and 1998 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 11-12
Item 6. Exhibits and Reports on Form 8-K 12
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<PAGE>
Adrenalin Interactive, Inc. and Subsidiary
Consolidated Balance Sheet
ASSETS
March 31
1999
----------
Current assets:
Cash and cash equivalents $ 130,799
Accounts receivable, net of reserve
of $45,750 137,845
Prepaid expenses 101,703
Total current assets 370,347
----------
Fixed assets, net 268,033
----------
Other assets:
Patents and licenses, net of accumulated
amortization of $1,098,355 2,303,005
Goodwill, net of accumulated amortization
of $91,037 1,589,637
License rights, advance royalty, net of
write-off of $275,000 25,000
Security deposits and other 18,115
----------
3,935,757
----------
$4,574,137
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 389,135
Billings in excess of costs and estimated
earnings on contracts in progress 164,203
----------
Total current liabilities 553,338
Notes payable 396,000
----------
Total liabilities 949,338
----------
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<PAGE>
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,
3,187,759 shares 95,639
Additional paid-in capital 13,575,890
Accumulated deficit (10,046,730)
----------
3,624,799
----------
$4,574,137
==========
See notes to consolidated financial statements.
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<PAGE>
Adrenalin Interactive, Inc. and Subsidiary
Consolidated Statements of Operations
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
March March March March
31, 1999 31, 1998 31, 1999 31, 1998
-------- -------- -------- --------
Revenues:
Product sales $ 0 $ 0 $ 0 $ 2,367
Development contracts 735,105 469,153 1,144,046 1,303,303
206,229 431,736 907,862 937,571
---------- ---------- ---------- ----------
941,334 900,889 2,051,908 2,243,241
---------- ---------- ---------- ----------
Expenses:
Cost of product sales 0 0 0 0
Cost of development
contracts 409,109 281,825 1,046,462 858,256
Research and development 0 0 35,373 236,592
Selling, general
and administrative 437,668 586,784 1,263,898 1,460,366
Depreciation and
amortization 180,264 168,023 565,046 742,631
Interest expense 12,690 11,910 36,808 44,022
---------- ---------- ---------- ----------
1,039,731 1,048,542 2,947,587 3,341,867
---------- ---------- ---------- ----------
Net loss $ 98,397 $ 147,653 $ 895,679 $1,098,626
========== ========== ========== ==========
Net loss per common share,
basic and diluted,
adjusted for 1 for 3
reverse split $ .03 $ .07 $ .30 $ .56
========== ========== ========== ==========
Weighted average
shares outstanding,
adjusted for 1 for 3
reverse split 3,109,666 2,206,524 2,992,230 1,957,540
========== ========== ========== ==========
See notes to consolidated financial statements.
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<PAGE>
Adrenalin Interactive, Inc. and Subsidiary
Consolidated Statements of Cash Flows
Nine months Nine months
Ended Ended
March 31, March 31,
1999 1998
----------- -----------
Cash flows from operating activities:
Net loss ($895,659) $(1,098,634)
Adjustments to reconcile net loss
to net cash used in operating activities:
Stock issued for services 52,500 77,250
Stock options issued for services 35,043 0
Loss on disposal of assets 24,300 4,725
Write off of license rights 75,000 75,000
Write off of capitalized software 24,254 63,192
Amortization 350,387 385,821
Depreciation 114,291 217,248
Change in:
Accounts receivable 42,859 ( 12,467)
Costs and estimated earnings in excess of
billings on contracts in progress 15,086 6,260
Billings in excess of costs and estimated
earnings on contracts in progress 128,148 47,656
Accounts payable and accrued expenses ( 195,475) 53,270
Prepaid expenses ( 26,929) ( 59,264)
Other assets 1,114 ( 56,670)
-------- ----------
Net cash used in operating activities ( 255,101) ( 296,613)
-------- ----------
Cash flows from investing activities:
Purchase of fixed assets ( 77,174) ( 10,306)
-------- ----------
Net cash used in investing activities ( 77,174) ( 10,306)
-------- ----------
Cash flows from financing activities:
Payments on notes and loans payable ( 408,467) ( 137,028)
Proceeds from notes and loans payable 326,113 192,000
Payments on due to officer ( 55,935) ( 28,756)
Issuance of common stock and warrants,
Net of costs of issuance 0 305,637
Proceeds from common stock subscription 435,000 0
-------- ---------
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<PAGE>
Net cash provided by financing activities 296,711 331,853
-------- ---------
Increase (decrease) in cash
and cash equivalents ( 35,564) 24,934
Cash and cash equivalents, beginning 166,363 228,761
-------- ---------
Cash and cash equivalents, ending $130,799 $ 253,695
======== =========
During the nine months ended March 31, 1999, shares of common stock were issued
as follows:
35,000 shares of common stock were issued for consulting services.
237,502 shares of common stock were issued in exchange for warrants for 274,998
shares of common stock.
18,423 shares were issued in settlement of $27,634 of accounts payable.
See notes to consolidated financial statements.
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<PAGE>
Adrenalin Interactive, Inc.
Notes to Consolidated Financial Statements
1. The financial statements as of March 31, 1999 and for the three and nine
month periods ending March 31, 1999 and 1998 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 nine months ended March 31, 1999
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 common stock split. All amounts have been restated to account for
the reverse split.
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<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Result of Operations.
For its third fiscal quarter ended March 31, 1999, the Company
realized revenues of $941,334, an increase of approximately 28% from its
revenues of $735,502 for the immediately preceding fiscal quarter ended December
31, 1998. Such revenue increase was principally due to stronger development
business in video games, new products for the Company's Internet-based toy
technology and royalties for products licensed by the Company. The Company
experienced a net loss during its third fiscal quarter of $98,397, or $0.03 a
share, an improvement of approximately 49% over the net loss of $193,373 from
the immediately preceding quarter ended December 31, 1998. Excluding
amortization and depreciation of $180,264, the Company's results of operations
were positive to the extent of $81,867.
The Company's $941,334 in revenues for its third fiscal quarter
ended March 31, 1999 exceeded its revenues for the corresponding quarter in the
prior year by $40,445, or approximately 4.5%. The Company's net loss for its
third fiscal quarter ended March 31, 1999 of $98,397 was approximately 33% less
than the Company's net loss of $147,652 reported for the corresponding quarter a
year ago.
For the nine months ended March 31, 1999, the Company realized
revenues of $2,051,908, an approximately 8.5% decrease from the $2,243,241 in
revenues realized during the nine months ended March 31, 1998. However, the
Company incurred expenses of only $2,941,587 for the nine months ended March 31,
1999, a decrease of $394,280, or approximately 12%, from the Company's expenses
of $3,341,867 during the nine months ended March 31, 1998. The Company's net
loss of $895,679, or $0.30 per share, for the nine months ended March 31, 1999
was approximately 18.5% less than the Company's net loss of $1,098,626, or $0.56
per share, for the nine months ended March 31, 1998. The Company's decrease in
revenues and improvement in the level of expenses and losses during the nine
months ended March 31, 1999 were principally due to the fact that the Company
had previously closed its New York offices during fiscal 1998 and has increased
its game development and Internet toy business in California during fiscal 1999.
Financial Condition.
At March 31, 1999, the Company had a working capital deficit of
$182,991 as compared to a working capital deficit of $250,979 as of December 31,
1998, an improvement of $67,998.
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<PAGE>
The Company's cash and cash equivalents at March 31, 1999 were
$130,799, as compared to $365,711 at December 31, 1998. At March 31, 1999, the
Company's shareholders' equity was $3,624,799, as compared to $3,660,519 at
December 31, 1998.
The weighted number of shares of the Company's Common Stock
outstanding during the third fiscal quarter ended March 31, 1999 was 3,109,666,
as compared to 2,206,524 shares during the third fiscal quarter of the prior
year ended March 31, 1998. 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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<PAGE>
PART II-OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
(c) Recent Sales of Unregistered Securities.
1. On January 18, 1999, the issuer granted nonqualified stock
options to purchase up to 45,000 shares of the issuer's Common Stock at an
exercise price equal to $0.75 per share to a consultant to the Company. 50% of
such options vested as of the date of grant and 50% vest on and as of the date
that the issuer consummates the acquisition of another entity pursuant to which
the issuer maintains its listing on the Nasdaq SmallCap Market (whether such
acquisition occurs by means of a merger or consolidation, a stock-for-stock
exchange, a purchase of all or substantially all of the assets of another entity
in exchange for the issuer's Common Stock or other equity securities or other
reorganization whereby the issuer acquires ownership of not less than a majority
of the voting power or voting interest of such other entity). The options expire
(to the extent not previously exercised) on January 17, 2004. Such consultant to
the issuer is an "accredited investor" as defined in Rule 501(a) under the
Securities Act. No underwriter was employed in connection with the grant of such
options and no underwriting discounts or commissions were paid in connection
therewith. The issuer's grant of such options to such consultant was exempt from
the registration requirements of the Securities Act pursuant to Section 4(2).
2. In January and February 1999, the issuer issued an aggregate
of 217,765 shares of Common Stock pursuant to the cashless exercise by
transferees of Mackenzie Shea, Inc. ("MSI") of an aggregate of 249,998
post-split warrants originally issued to MSI by the issuer in October and
December 1997. No underwriter was employed in connection with such issuance and
no underwriting discounts or commissions were paid in connection therewith. Each
of such transferees of MSI was an "accredited investor" as defined in Rule
501(a) of the Securities Act. The issuer's issuance of such 217,765 shares of
Common Stock to such transferees of MSI was exempt from the registration
requirements of the Securities Act pursuant to Section 4(2).
3. In February 1999, the issuer issued an aggregate of 18,423
shares of Common Stock at a price equal to $1.50 per share to two providers of
services to the issuer in exchange for such providers' cancellation of an
aggregate of $27,634.50 of accounts payable owed by the issuer to such
providers. Each of such providers 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 with such issuance. The issuance of Common Stock to such two service
providers was exempt from the registration requirements of the Securities Act
pursuant to Section 4(2).
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<PAGE>
4. On February 22, 1999, the issuer granted nonqualified stock
options to purchase up to 25,000 shares of the issuer's Common Stock to a new
Director, Edward H. Mackay, at an exercise price equal to $1.50 per share. Such
options become 100% vested as of the date of grant and such options expire (to
the extent not previously exercised) on February 21, 2004. Mr. Mackay is an
"accredited investor" as defined in Rule 501(a) under the Securities Act. No
underwriter was employed in connection with the grant of such options to Mr.
Mackay and no underwriting discounts or commissions were paid in connection
therewith. The issuer's grant of such options to Mr. Mackay was exempt from the
registration requirements of the Securities Action pursuant to Section 4(2).
Item 6. Exhibits and Reports on Form 8-K.
(a) Reports on Form 8-K.
1. On March 23, 1998, the issuer filed a report on Form 8-K in
respect of its execution of a letter of intent to acquire McGlenn Micro, Inc.
("MMI").
2. On April 30, 1999, the issuer filed a report on Form 8-K
announcing that it was seeking to raise a minimum of $500,000 and a maximum of
$2,000,000 in gross proceeds pursuant to a private placement of units consisting
of one share of Common Stock and one detachable warrant to purchase three shares
of Common Stock at a per unit price of $4.00. The exercise price of the
detachable warrants is $0.05 per share and the warrants will expire in their
entirety if the proposed merger between the issuer and MMI is consummated and
are not exercisable unless the merger is abandoned.
3. On April 30, 1999, the issuer filed a Form 8-K correcting an
erroneous report issued by Dow Jones in respect of the details of the issuer's
proposed private placement financing previously announced on April 30, 1999.
4. On April 30, 1999, the issuer filed a report on Form 8-K
announcing that it had executed a definitive merger agreement with MMI.
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<PAGE>
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: May 13, 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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<PAGE>
EXHIBIT INDEX
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Exhibit No. Description Page
- ----------- ----------- ----
27 Financial Data Schedule 15
14
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 130,799
<SECURITIES> 0
<RECEIVABLES> 183,595
<ALLOWANCES> 45,750
<INVENTORY> 0
<CURRENT-ASSETS> 370,347
<PP&E> 1,346,068
<DEPRECIATION> 1,078,034
<TOTAL-ASSETS> 4,574,137
<CURRENT-LIABILITIES> 553,035
<BONDS> 0
0
0
<COMMON> 95,639
<OTHER-SE> 3,529,166
<TOTAL-LIABILITY-AND-EQUITY> 4,574,137
<SALES> 0
<TOTAL-REVENUES> 2,051,908
<CGS> 0
<TOTAL-COSTS> 1,046,462
<OTHER-EXPENSES> 1,864,317
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,808
<INCOME-PRETAX> (895,679)
<INCOME-TAX> 0
<INCOME-CONTINUING> (895,679)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (895,679)
<EPS-PRIMARY> (0.30)
<EPS-DILUTED> (0.30)
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