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, 1999
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.
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(Exact name of small business issuer as specified in its charter)
Delaware 13-3779546
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(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 shares outstanding of each of the issuer's classes of
publicly-traded common equity, as of November 10, 1999, was 3,547,376 shares of
Common Stock.
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<PAGE>
Adrenalin Interactive, Inc. and Subsidiary
Consolidated Balance Sheet
September 30, 1999
ASSETS
Current assets:
Cash and cash equivalents $ 158,438
Accounts receivable, net of allowance for
doubtful accounts of $13,355 229,559
Costs and estimated earnings in excess
of billings on uncompleted contracts 282,162
Prepaid expenses 98,717
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Total current assets 768,876
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Fixed assets, net 253,944
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Other assets:
Patents and licenses, net of accumulated
amortization of $1,310,940 2,090,419
Security deposits and other 24,287
Deferred merger costs 136,694
Loan receivable 450,000
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2,701,400
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$ 3,724,220
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes and loans payable, current portion $ 484,872
Accounts payable and accrued liabilities 532,691
Billings in excess of costs and estimated
earnings on uncompleted contracts 26,323
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Total current liabilities 1,043,886
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Notes and loans payable, non-current portion 27,367
Total liabilities 1,071,253
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Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value;
authorized, 100,000 shares;
issued and outstanding, none -
Common stock, $.03 par value;
authorized, 20,000,000 shares;
issued and outstanding, 3,539,343 106,180
Additional paid-in capital 14,804,178
Accumulated deficit ( 12,257,391)
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Total shareholders' equity 2,652,967
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$ 3,724,220
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See notes to consolidated financial statements.
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Adrenalin Interactive, Inc. and Subsidiary
Consolidated Statements of Operations
Three months Three months
ended ended
September 30, 1999 September 30, 1998
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Revenues:
Development contracts $ 894,219 $ 252,002
Royalties 34,904 123,070
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929,123 375,072
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Expenses:
Cost of development contracts 687,202 276,999
Research and development - 35,373
Selling, general and administrative 445,100 463,244
Depreciation and amortization 144,389 192,756
Interest expense, net 13,038 10,609
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1,289,729 978,981
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Loss before income taxes ( 360,606) ( 603,909)
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Income taxes - -
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Net loss ($ 360,606) ($ 603,909)
Per share information:
Basic:
Net loss per share ($ .10) ($ .21)
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Weighted average shares outstanding 3,528,232 2,915,266
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Diluted:
Net loss per share ($ .10) ($ .21)
========== ==========
Weighted average shares outstanding 3,658,894 2,915,266
========== ==========
See notes to consolidated financial statements.
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<PAGE>
Adrenalin Interactive, Inc. and Subsidiary
Consolidated Statements of Cash Flows
Three months Three months
ended ended
September 30, 1999 September 30, 1998
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Cash flows from operating activities:
Net loss ($ 360,606) ($ 603,909)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Write-off of license rights - 25,000
Amortization 106,292 129,659
Depreciation 38,097 38,097
Common stock issued for services - 52,500
Change in:
Accounts receivable ( 139,964) ( 53,288)
Costs and estimated earnings in excess
of billings on uncompleted contracts ( 179,016) 15,086
Prepaid expenses ( 62,913) 1,352
Other assets 1,178 -
Accounts payable and accrued liabilities ( 7,384) 647
Billings in excess of costs and estimated
earnings on uncompleted contracts ( 132,551) ( 18,758)
Deferred private placement costs 86,805 -
Deferred merger costs ( 36,311) -
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Net cash used in operating activities ( 686,373) ( 413,614)
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Cash flows from investing activities:
Purchase of fixed assets ( 33,214) ( 3,721)
Loan to proposed target company ( 500,000) -
Repayment of loan 50,000 -
Proceeds from sale of fixed assets - -
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Net cash used in investing activities ( 483,214) ( 3,721)
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Adrenalin Interactive, Inc. and Subsidiary
Consolidated Statements of Cash Flows (continued)
Three months Three months
ended ended
September 30, 1999 September 30, 1998
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Cash flows from financing activities:
Issuance of common stock and
warrants, net of costs of
issuance $1,086,542 $ -
Payments on notes and loans
payable ( 22,885) ( 253,807)
Proceeds from notes and loans 98,511 308,113
Payments on due to officer,
net of interest accrued - 1,441
Proceeds from common stock subscription - 435,000
Proceeds from exercise of warrants 31,249 -
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Net cash provided by financing
activities 1,193,417 490,747
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Increase in cash and cash equivalents 23,830 73,412
Cash and cash equivalents,
beginning 134,608 166,363
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Cash and cash equivalents, ending $ 158,438 $ 239,775
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Cash paid during the year for:
Interest $ 12,936 $ 4,668
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Income taxes $ _ $ -
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See notes to consolidated financial statements.
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<PAGE>
Adrenalin Interactive, Inc.
Notes to Financial Statements
1. The financial statements as of September 30, 1999 and for the three month
periods ending September 30, 1999 and 1998 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
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,
1999. The results of operations for the three months ended September 30,
1999 are not necessarily indicative of the results for the entire fiscal
year ending June 30, 2000.
2. Private placement:
On July 12, 1999, the Company and a private investor entered into a Stock
Purchase Agreement ("Agreement") under which the Company issued 293,255
shares of common stock for $1,250,000. Additional shares (and three year
warrants) for an aggregate additional consideration of $750,000 are
required to be issued and purchased upon the closing of the merger
discussed below. The Agreement provides for two repricing periods which
may result in issuance of additional shares if the average bid price
during specified 90 day periods does not equal or exceed 115% (or 118% for
the second repricing period) of the purchase price(s). In addition to the
293,255 shares issued, the Company issued a warrant for 29,325 shares
exercisable at $4.843 per share through and including July 31, 2002. The
Company also agreed to prepare and file with the SEC a registration
statement, at its own expense, related to the shares (and warrants)
issued.
3. Loan transaction:
On July 23, 1999, the Company entered into a loan transaction with McGlen
Micro, Inc. ("McGlen") (see below re: contemplated merger) under which the
Company loaned $500,000 to McGlen. The loan is evidenced by a secured
subordinated promissory note, is due one year from issuance, and bears
interest at 8%.
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<PAGE>
Adrenalin Interactive, Inc.
Notes to Financial Statements
4. Contemplated merger:
The Company is in the process of consummating a "reverse" merger. At its
annual meeting, which is scheduled for November 11, 1999, the Company will
seek stockholder approval for an Agreement and Plan of Merger dated April
28, 1999 ("Merger Agreement"). If the Merger Agreement is approved, McGlen
will become a wholly-owned subsidiary of the Company and the Company will
issue to McGlen security holders shares of the Company's common stock and
options to purchase shares of the Company's common stock equaling
approximately 87.5% of the shares that will be outstanding immediately
following the "reverse" merger. If the merger is completed, the Company
will be required to issue 5% of its common stock outstanding immediately
prior to such merger to a consulting firm.
At September 30, 1999, costs related to the merger aggregated $136,694
which amount is reflected in "Other assets" on the consolidated balance
sheet. These costs will be deducted from shareholders' equity if the
merger is consummated. If the merger is not consummated, such costs will
be charged to operations during the fiscal year ended June 30, 2000.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations.
For our first quarter of fiscal 2000 ended September 30, 1999, we
realized revenues of $929,123 as compared to revenues of $375,072 for the same
period in fiscal 1999, an increase of 248%. These higher revenues represent the
continuation of a series of development contracts for video and computer games.
We had a net loss of $360,606 for the first fiscal quarter ended September 30,
1999, or $.10 per share, an improvement of $243,303 from a net loss in the first
quarter one year ago of $603,909, or $.21 per share.
Expenses during the quarter ended September 30, 1999 of $1,289,729
were higher than the $978,981 of expenses during the same period the previous
year. These higher expenses were principally due to delays in our development
contracts and activities related to our planned merger with McGlen Micro, Inc.
("McGlen") which consumed a significant amount of time and effort by management
and staff.
Financial Condition.
In July 1999, we completed a private placement of our Common Stock
to Escalade Investors, LLC ("Escalade") for a gross amount of $1,250,000 and
received an irrevocable commitment from Escalade to purchase another $750,000
worth of our Common Stock at the completion of our proposed merger with McGlen.
In July 1999, we loaned $500,000 of these proceeds to McGlen and, after fees of
$75,000, we received net proceeds of $675,000. In September 1999, McGlen repaid
$50,000 of such loan.
As of September 30, 1999, our stockholders' equity was $2,652,9967
as compared to stockholders' equity of $1,895,782 as of June 30, 1999.
Our cash and cash equivalents were $158,438 as of September 30, 1999
compared to $134,604 as of June 30, 1999.
For the first fiscal quarter ended September 30, 1999, we had
working capital deficit of ($275,010) as compared to a working capital deficit
of ($348,156) as of June 30, 1999.
The basic weighted number of shares of our Common Stock outstanding
for the first fiscal quarter ended September 30, 1999 was 3,528,232 as compared
to 2,915,266 for the same quarter of fiscal 1999.
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<PAGE>
PART II - OTHER INFORMATION
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Item 2. Changes in Securities and Use of Proceeds
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(c) Recent Sale of Unregistered Securities.
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1. On July 12, 1999, we sold 293,255 shares of our Common Stock to
Escalade Investors, LLC ("Escalade") for gross proceeds of $1,250,000. In
connection with such financing, Escalade also received, at no additional cost, a
three-year warrant to purchase 29,325 additional shares of our Common Stock at
an exercise price of $4.843 per share. Such warrants may be exercised by
Escalade on a "cashless exercise" basis to the extent that the average market
value of the shares of our Common Stock issuable upon exercise of such warrants
for the five trading days prior to exercise exceeds the aggregate exercise price
for the shares as to which the warrants are being exercised.
If the average closing price for our common stock for the two 90-day
periods immediately subsequent to October 10, 1999 does not equal 115% and 118%,
respectively, of the aggregate price paid by Escalade for such common stock,
Escalade has repricing rights under our agreement with it such that we will be
required to issue additional shares to Escalade for no additional consideration
so that the value of the purchased shares plus the additional shares equal 115%
or 118%, as applicable, on the average of purchase price paid by Escalade for
such common stock.
Caldwell Capital Corp. was employed as an underwriter in connection
with such issuance and an aggregate of $75,000 in commissions were paid to
Caldwell Capital Corp. in connection with such issuance. Our issuance of shares
of our Common Stock and warrants to purchase shares of our Common Stock to
Escalade was exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) and Section 4(6) thereof.
2. On September 17, 1999, we a issued three-year warrant to purchase
up to an aggregate of 5,000 shares of our Common Stock at an exercise price
equal to $4.2625 per share to Soma Fund, VIII, LLC ("Soma") as partial
consideration for a $50,000 loan made to us by Soma. No underwriter was employed
by us in connection with the issuance of such warrant and no underwriting
discounts or commissions were paid by us in connection therewith. Our issuance
of such warrant to purchase shares of our Common Stock to Soma was exempt from
the registration requirements of Securities Act pursuant to Sections 4(2) and
4(6) thereof.
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<PAGE>
Item 6. Exhibits and Reports on Form 8-K
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(a) Reports on Form 8-K.
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1. On July 13, 1999, we filed a report on Form 8-K in respect of our
financing with Escalade.
2. On July 23, 1999, we filed a report Form 8-K announcing that we
had made a $500,000 loan to McGlen Micro, Inc. ("McGlen") pursuant to our merger
agreement with McGlen. In addition, we announced that we and McGlen had extended
the termination date of our proposed merger from August 31, 1999 until October
31, 1999.
(a) Exhibits.
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Attached hereto are the following exhibits:
Exhibit No. Description of Exhibit Page No.
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27 Financial Data Schedule 12
Signatures
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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 11, 1999
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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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> SEP-30-1999
<CASH> 158,438
<SECURITIES> 0
<RECEIVABLES> 242,914
<ALLOWANCES> 13,355
<INVENTORY> 0
<CURRENT-ASSETS> 768,876
<PP&E> 1,427,712
<DEPRECIATION> 1,173,767
<TOTAL-ASSETS> 3,724,220
<CURRENT-LIABILITIES> 1,043,886
<BONDS> 0
0
0
<COMMON> 106,180
<OTHER-SE> 2,546,787
<TOTAL-LIABILITY-AND-EQUITY> 3,724,220
<SALES> 0
<TOTAL-REVENUES> 929,123
<CGS> 0
<TOTAL-COSTS> 687,202
<OTHER-EXPENSES> 589,489
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,038
<INCOME-PRETAX> (360,606)
<INCOME-TAX> 0
<INCOME-CONTINUING> (360,606)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (360,606)
<EPS-BASIC> (0.10)
<EPS-DILUTED> (0.10)
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