<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark one)
[x] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 30, 1996
OR
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ________ to ________.
Commission File Number: 0-26026
INTERACTIVE GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-2925769
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
5095 MURPHY CANYON ROAD, SAN DIEGO, CA 92123
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (619) 560-8525
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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. (1) Yes X No (2) Yes X No
--- --- --- ---
The number of shares outstanding of the Registrant's Common Stock, $.001 par
value, as of August 13, 1996 was 4,441,175.
<PAGE> 2
INTERACTIVE GROUP, INC.
<TABLE>
<CAPTION>
INDEX PAGE NO.
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets at June 30, 1996 and December 31, 1995................. 3
Condensed Consolidated Statements of Operations for the three and six months ended June 30,
1996 and 1995.............................................................................. 4
Condensed Consolidated Statements of Cash Flows for the six months ended
June 30, 1996 and 1995.................................................................... 5
Notes to Condensed Consolidated Financial Statements........................................ 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS..................................................................... 6- 11
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS............................................................................ 11
ITEM 2. CHANGES IN SECURITIES........................................................................ 11
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.............................................................. 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......................................... 11
ITEM 5. OTHER INFORMATION............................................................................ 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................................................. 12
SIGNATURES............................................................................................ 13
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INTERACTIVE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
-------- -------
(UNAUDITED) (Audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,575 $ 4,467
Accounts receivable, net 14,847 12,977
Deferred income taxes 333 333
Prepaid expenses and other current assets 1,288 1,114
-------- -------
Total current assets 20,043 18,891
Property and equipment, net 2,796 2,330
Intangible assets, net 2,134 2,040
Deferred income taxes 1,173 1,173
Deposits and other assets 465 329
-------- -------
TOTAL ASSETS $ 26,611 $24,763
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,302 $ 5,188
Accrued expenses 6,045 3,972
Current portion of obligations under capital leases 248 404
Short-term borrowings and current portion of long-term obligations 956 1,099
Deferred revenue and customer deposits 2,854 3,647
-------- -------
Total current liabilities 15,405 14,310
Obligations under capital leases, less current portion 113 171
Long-term obligations, less current portion 1,700 1,934
Stockholders' equity:
Preferred stock, $.001 par value:
Authorized shares - 5,000,000
None issued and outstanding -- --
Common stock, $.001 par value:
Authorized shares - 30,000,000
Issued and outstanding shares - 4,441,175 4 4
Additional paid-in capital 6,784 6,461
Retained earnings 2,761 1,866
Cumulative foreign currency translation adjustments (156) 17
-------- -------
Total stockholders' equity 9,393 8,348
-------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 26,611 $24,763
======== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
INTERACTIVE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
-------------------- ----------------------
1996 1995 1996 1995
-------- ------ -------- --------
<S> <C> <C> <C> <C>
REVENUES $ 13,761 $7,794 $ 27,592 $ 15,323
COST OF REVENUES 6,899 3,718 13,935 7,385
-------- ------ -------- --------
Gross margin 6,862 4,076 13,657 7,938
OPERATING EXPENSES:
Research and development 1,117 355 2,053 647
Selling, general and administrative 4,951 3,175 10,027 6,352
Compensation expense associated
with employee stock bonus -- -- -- 871
-------- ------ -------- --------
Total 6,068 3,530 12,080 7,870
INCOME FROM OPERATIONS 794 546 1,577 68
Other income (expense), net (39) 5 (72) (19)
-------- ------ -------- --------
INCOME BEFORE INCOME TAXES 755 551 1,505 49
Provision for income taxes 302 179 610 19
-------- ------ -------- --------
NET INCOME $ 453 $ 372 $ 895 $ 30
======== ====== ======== ========
EARNINGS PER SHARE $ 0.10 $ 0.09 $ 0.20 $ 0.01
======== ====== ======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING 4,427 4,005 4,430 3,866
======== ====== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
INTERACTIVE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------
1996 1995
------- -------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 895 $ 30
Adjustments to reconcile net income to cash provided by
(used in) operating activities:
Depreciation and amortization 649 227
Compensation relating to the granting of options
and stock bonus 43 871
Deferred income taxes -- (194)
Changes in operating assets and liabilities:
Accounts receivable (1,870) (118)
Prepaid expenses and other assets (310) (333)
Accounts payable 114 (920)
Accrued expenses 2,073 507
Deferred revenue and customer deposits (793) 127
------- -------
Net cash provided by (used in) operating activities 801 197
INVESTING ACTIVITIES:
Acquisition of business (264) --
Purchase of property and equipment (958) (328)
------- -------
Net cash used in investing activities (1,222) (328)
FINANCING ACTIVITIES:
Net short-term borrowings (payments) (340) (86)
Borrowings (payments) on long-term obligations (184) (519)
Increases in long-term obligations 164
Net proceeds from issuance of common stock 279 6,176
Repurchase of common stock -- (400)
Principal payments on capital leases (213) (58)
------- -------
Net cash provided by (used in) financing activities (294) 5,113
EFFECT OF EXCHANGE RATE (177) (4)
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS (892) 4,978
CASH AT BEGINNING OF PERIOD 4,467 1,721
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,575 $ 6,699
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period:
Interest $ 138 $ 44
======= =======
Income taxes $ 43 $ 76
======= =======
Non-cash transaction:
Long-term obligation associated with business acquisitions $ 193 $ --
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
Interactive Group, Inc. (hereinafter referred to as the "Company") have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
only of normal recurring adjustments) considered necessary for a fair
presentation of the financial position and operating results for the interim
periods presented have been included. Operating results for the three and six
month periods ended June 30, 1996 are not necessarily indicative of the results
that may be expected for the fiscal year ending December 31, 1996. The unaudited
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements and footnotes thereto for the year ended
December 31, 1995 included in the Company's annual report on Form 10-K. All
intercompany accounts and transactions have been eliminated in consolidation.
On December 31, 1995, the Company acquired all of the outstanding common shares
of Just-In-Time Enterprise Systems, Inc. ("JIT") in a combination accounted for
as a purchase. Accordingly, the condensed consolidated balance sheets at June
30, 1996 and December 31, 1995 reflect the combination of JIT's balance sheet
with that of the Company's. The condensed consolidated statements of operations
include the results of operations of JIT for the three and six months ended June
30, 1996, but do not include the results of operations of JIT for the periods
presented in 1995 since the acquisition took place on December 31, 1995.
2. Cash equivalents
Cash equivalents consist of highly liquid investments with original maturities
of 90 days or less.
3. Earnings per share
Earnings per common share is computed using the weighted average number of
shares of common stock and common stock equivalents outstanding during all
periods presented as adjusted for the effects of certain rules of the Securities
and Exchange Commission for the periods prior to the initial public offering.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Form 10-Q for the three and six months ended June 30, 1996 contains
forward-looking statements that involve risks and uncertainties. The Company's
actual future results could differ materially from those statements. Factors
that could cause or contribute to such differences include, but are not limited
to, the potential for significant fluctuations in the Company's quarterly
results, management of growth, and timing and amounts of future revenues and
risks associated with the integration of the operations and product offerings of
JIT into the Company's operations and product offerings, as well as the other
factors discussed elsewhere in this quarterly report on Form 10-Q and in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
6
<PAGE> 7
OVERVIEW
The Company develops, markets, implements and supports integrated business
information systems that enable discrete manufacturers to manage their
enterprise-wide information requirements. The Company primarily sells and
implements its business information systems directly. Since 1992, the Company
has expanded its sales, implementation, and customer service capabilities
through the addition of offices as well as the establishment of centralized
customer service centers in both the United States and United Kingdom.
Substantially all of the Company's revenues are generated from the sale of its
systems, which usually consist of proprietary and third-party software licenses,
implementation and software support services, third-party hardware and
maintenance contracts. The Company's proprietary software licenses are sold on a
packaged or individual module basis, and the license fee is determined in part
by the number of modules and concurrent system users. Implementation and
software support services are furnished on a daily or hourly basis and billed
monthly as incurred. Maintenance fees are based on a percentage of software
license fees.
Revenues from software licenses are recognized upon delivery, provided that no
significant obligations of the Company remain and collection of the related
receivable is deemed probable. Software support services revenues are recognized
in the period in which the services are performed. Revenues from hardware sales
are recognized upon shipment of the product. Revenues from software maintenance
contracts are recognized ratably over the period of the contract. Revenues from
turnkey systems, which include both hardware and software, are recognized upon
delivery of the software and related hardware that is considered essential to
the functionality of the system, provided that no significant obligations remain
and collection of the related receivable is deemed probable.
The Company derives a significant portion of its revenues from its international
business, which is subject to various risks common to international activities,
including currency fluctuations. Revenues and expenses of the Company's
international operations are translated at the average exchange rate in effect
during the period. Translation adjustments are reported as a separate component
of stockholders' equity.
The Company plans to expand its business through expansion of its distribution
network in the United States and internationally with the objective of
increasing total revenues and profits. There can be no assurance, however, that
the efforts and funds directed to expansion of the Company's distribution
network will result in revenue and profit growth. Any future growth of the
Company will also depend on, among other things, the Company's ability to gain
market acceptance for its products in new geographic areas and to monitor and
control the additional costs and expenses associated with expansion and new
product development. There can be no assurance that the Company will be able to
successfully manage these aspects of its business. The success of the Company's
expansion in continental Europe and other international markets will depend
largely upon the success of Company's proposed "affiliates", or business partner
program. This program is, in turn, dependent upon the successful identification
and recruitment of appropriate international partners, the Company's success in
instilling a service-driven culture in these foreign organizations that the
Company does not own or control, and the development of adequate resources
within each affiliate to successfully sell and implement the Company's business
information systems on a turnkey basis. No assurance can be given that the
Company will be able to meet these challenges or successfully implement its
proposed international business partner program.
On December 31, 1995, the Company acquired all of the outstanding shares of JIT,
which, prior to the acquisition, developed and marketed the Company's JIT
Enterprise System application software product. The acquisition of JIT was
accounted for as a purchase, and accordingly, the results of operations for JIT
are not included in the Company's results of operations for the three and six
months ended June 30, 1995. Interactive and JIT differ in certain respects, and
the Company anticipates that the integration of JIT will continue to divert some
of its management resources for an indefinite period of time. There can be no
assurance that difficulties will not arise in integrating the operations of JIT.
Moreover, there can be no assurance that the Company will realize any product
enhancements or increased revenues as a result of the
7
<PAGE> 8
acquisition of JIT. The success of the acquisition of JIT will depend, in large
part, on the ability of the Company to retain the customers and employees of
JIT, and to continue to develop and release product enhancements and new product
releases of the JIT product. There can be no assurance that the Company will be
successful in this regard. The failure to accomplish any of the goals of the
acquisition, or the failure to successfully integrate the operations of JIT,
could have a material adverse effect on the Company's future operating results.
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995
Revenues- Total revenues increased 77% to $13.8 million for the three months
ended June 30, 1996 compared to $7.8 million for the same period in 1995. The
increase was primarily attributable to increases in revenues from software
licenses and software support services, which were primarily due to increases in
system sales and system upgrades to new and existing customers. The Company
attributes such increases to increased marketing efforts, the expansion of
offices, increases in sales, presales, and billable personnel and revenues
associated with the acquisition of JIT. International revenues made up 30% and
38% of the Company's total revenues for the second quarter of 1996 and 1995,
respectively.
Cost of Revenues- Total cost of revenues increased 86% to $6.9 million for the
three months ended June 30, 1996 compared to $3.7 million for the same period in
1995. The increase was primarily attributable to increases in the cost of
software products included in the Company's systems and increases in personnel
costs, travel and materials, and royalty costs to support the growth in revenues
from software licenses, software support services, and maintenance contracts.
Gross Margin- Gross margin increased by 68% to $6.9 million for the three months
ended June 30, 1996 from $4.1 million for the same period in 1995. As a
percentage of total revenues, gross margin decreased to 50% for the three months
ended June 30, 1996 from 52% for the same period in 1995, mainly as a result of
a decrease in gross margin on software support services and maintenance
contracts. Gross margins for software licenses increased slightly to 77% for the
three months ended June 30, 1996 from 75% for the same period in 1995. Gross
margins for software support services decreased to 28% for the three months
ended June 30, 1996 from 42% for the same period in 1995. The Company attributes
this decrease to higher personnel and contractor costs associated with JIT,
increases in other costs associated with providing implementation, programming,
education and training services, and lower utilization of billable personnel due
to training required on the Company's new software release. Hardware margins
increased slightly to 28% for the three months ended June 30, 1996 from 26% for
the same period in 1995. Gross margins for maintenance contracts decreased to
57% for the three months ended June 30, 1996 from 65% for the same period in
1995 due mainly to increases in customer support personnel, third party royalty
costs, and contractor costs associated with JIT's maintenance contracts revenue.
Research and Development Expenses- Research and development expenses, which
consist largely of software development costs, increased 215% to $1.1 million
for the three months ended June 30, 1996 compared to $355,000 for the same
period in 1995, primarily as a result of the incremental addition of JIT's
research and development personnel and costs to the Company's existing research
and development organization, as well as contractor costs associated with JIT's
research and development expenditures. As a percentage of total revenues,
research and development expenses increased to 8% for the three months ended
June 30, 1996 compared to 5% for the same period in 1995, due primarily to the
expansion of the Company's software development resources as a result of the JIT
acquisition.
Selling, General and Administrative Expenses- Selling, general and
administrative expenses increased 56% to $5.0 million for the three months ended
June 30, 1996 from $3.2 million for the same period in 1995. As a percentage of
total revenues, selling, general and administrative expenses decreased to 36%
compared to 41% for the same period in 1995. The increase in absolute dollars in
selling, general and administrative expenses is due primarily to the addition of
offices, increases in sales and administrative personnel, higher
8
<PAGE> 9
sales commissions, and increased travel and administrative costs to support the
acquisition of JIT and growth of the Company. The Company anticipates that these
costs will continue to increase in absolute dollars in future periods to support
the Company's growth.
Provision for Income Taxes- The Company's effective tax rate increased to 40%
for the three months ended June 30, 1996 from 32% for the same period in 1995.
The lower tax rate for the three months ended June 30, 1995 resulted primarily
from the utilization of research and development tax credits and net operating
loss carryforwards. The Company anticipates that its effective tax rate will
approximate federal and state statutory rates in future periods.
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Revenues - Total revenues increased 80% to $27.6 million for the six months
ended June 30, 1996 compared to $15.3 million for the same period in 1995. The
increase resulted primarily from increases in revenues from software licenses
and software support services, as well as increases in hardware and maintenance
contracts. The Company attributes these increases to the recognition of backlog
carried forward from the quarter ended December 31, 1995, software support
service and maintenance contract revenues generated by JIT, continuing sales and
marketing efforts, and increases in sales, presales, and billable personnel.
International revenues made up 29% and 37% of the Company's total revenues for
the six months ended June 30, 1996 and 1995, respectively. The decrease in the
percentage of international revenues for the six months ended June 30, 1996 is
due largely to the backlog recognized in the first quarter of 1996 being
comprised of domestic revenues only, as well as JIT revenues included in the six
months ended June 30, 1996 having a lower proportion of international revenues.
Cost of Revenues - Total cost of revenues increased 89% to $13.9 million for the
six months ended June 30, 1996 compared to $7.4 million for the same period in
1995. The increase was primarily attributable to increases in the cost of
software support services and maintenance contracts, consisting of personnel and
contractor costs associated with the operations of JIT, as well as travel and
other costs associated with providing implementation, programming, and customer
support services to support the increase in revenues from software support
services and maintenance contracts.
Gross Margin - Gross margin increased by 72% to $13.7 million for the six months
ended June 30, 1996 from $7.9 million for the same period in 1995. As a
percentage of total revenues, gross margin decreased to 49% for the six months
ended June 30, 1996 from 52% for the same period in 1995, mainly as a result of
a decrease in gross margin on software support services and maintenance
contracts. Gross margins for software license revenue increased to 79% for the
six months ended June 30, 1996 from 75% for the same period in 1995 due
primarily to price increases, an increase in proprietary software license
revenue as a percentage of product mix and a reduction in the cost of royalties
paid to third party software vendors. Gross margins for software support
services decreased to 30% for the six months ended June 30, 1996 from 43% for
the same period in 1995. The Company attributes the decrease to higher personnel
and contractor costs associated with JIT, increases in other costs associated
with providing implementation, programming, education and training services, and
lower utilization of billable personnel due to training required on the
Company's new software release. Hardware margins remained the same at 26% for
the six months ended June 30, 1996, compared to the same period in 1995. Gross
margins for maintenance contracts decreased to 56% for the six months ended June
30, 1996 from 63% for the same period in 1995 due mainly to increases in
customer support personnel, third party royalty costs, and contractor costs
associated with JIT's maintenance contracts revenue.
Research and Development Expenses - Research and development expenses, which
consist largely of software development costs, increased 217% to $2.1 million
for the six months ended June 30, 1996 compared to $647,000 for the same period
in 1995, primarily as a result of the incremental addition of JIT's research and
development personnel and costs to the Company's existing research and
development organization, as well as contractor costs associated with JIT's
research and development expenditures. As a percentage of total revenues,
research and development expenses increased to 7% for the six months ended June
30, 1996 compared to 4% for the same period in 1995, due primarily to the
expansion of the Company's software development resources as a result of the JIT
acquisition.
9
<PAGE> 10
Selling, General and Administrative Expenses - Selling, general and
administrative expenses increased 58% to $10.0 million for the six months ended
June 30, 1996 from $6.4 million for the same period in 1995. As a percentage of
total revenues, selling, general and administrative expenses decreased to 36%
for the six months ended June 30, 1996 compared to 41% for the same period in
1995. The increase in absolute dollars in selling, general and administrative
expenses is due primarily to the addition of offices, increased marketing
expenses, increases in sales and administrative personnel, higher sales
commissions, and increased travel and administrative costs to support the
acquisition of JIT and the growth of the Company. The Company anticipates that
these costs will continue to increase in absolute dollars in future periods to
support the growth in the Company's operations.
Compensation Expense Associated with Employee Stock Bonus - For the six months
ended June 30, 1995, the Company recorded a non-recurring compensation expense
of $871,000 in connection with the grant of a stock bonus and a related cash
bonus to an officer of the Company.
Provision for Income Taxes - The Company's effective tax rate increased slightly
to 41% for the six months ended June 30, 1996 compared to 39% for the same
period in 1995.
QUARTERLY RESULTS; SEASONALITY
The Company has experienced and expects to continue to experience significant
fluctuations in its quarterly results. Such fluctuations may be caused by many
factors, including, but not limited to: the size and timing of individual
orders; seasonality of revenues; lengthy sales cycles; delays in introduction of
products or product enhancements by the Company or other providers of hardware,
software and components for the Company's systems; competition and pricing in
the software industry; market acceptance of new products; reduction in demand
for existing products and shortening of product life cycles as a result of new
product introductions by competitors; foreign currency exchange rates; mix of
products sold; customer order deferrals in anticipation of new products; changes
in customer budgets; changes in Company strategy; personnel changes; changes in
operating expenses; conditions or events in the manufacturing industry; and
general economic conditions.
The Company does not typically maintain a significant backlog, therefore revenue
recognized for each quarter depends substantially on orders received and
delivered in that quarter. However, during the quarter ended December 31, 1995,
the Company experienced an unusually high backlog which was carried over into
the quarter ended March 31, 1996 and recognized as revenue. As a result of the
relatively high revenue amount per order and relatively low unit volume, any
lost or delayed sales will have a disproportionately greater effect on the
Company's revenues and quarterly results relative to companies that have higher
unit sales volumes and less revenue associated with each sale. The Company's
sales cycles are typically six to twelve months from the time initial sales
contact is made with a qualified prospect, making the timing of the Company's
revenues from license fees and hardware difficult to predict and the Company's
quarterly results difficult to forecast. The Company's expense levels are based
in part on its forecasts of future revenues. Accordingly, since the majority of
the Company's expenses are fixed in nature, the Company would not be able to
quickly curtail expenses in response to a decline in revenues, and operating
results for a given quarter could be adversely affected. As a result, revenues
for any quarter are subject to significant variation and the Company believes
that period-to-period comparisons of its results of operations are not
necessarily meaningful and should not be relied upon as indications of future
performance. Fluctuations in quarterly operating results may also result in
volatility in the price of the Company's common stock.
The Company's revenues have typically varied from quarter to quarter, with the
largest portion of revenues typically recognized in the fourth quarter of each
year. In addition, first quarter revenues in any year are typically lower than
revenues in the immediately preceding fourth quarter. However, for the three
months ended March 31, 1996 the Company's revenues were higher than the fourth
quarter of 1995 due to the carryforward of a significant backlog from 1995 and
revenues resulting from the acquisition of JIT. The Company's revenues have
typically occurred to a greater degree in the third month of each fiscal
quarter,
10
<PAGE> 11
and tend to be concentrated in the latter half of such third month. As a result,
the Company's quarterly results are difficult to predict, and delays in hardware
delivery or contract signings near the end of a quarter could cause quarterly
revenues and, to a greater degree net income, to be significantly less than
anticipated. The procurement process of the Company's customers is long and
involves competing capital budget decisions. As a result of such budgeting and
buying patterns, the Company's prospective customers are typically more likely
to order the Company's products near the end of each year.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1996, the Company had cash and cash equivalents totaling $3.6
million and working capital of $4.6 million, compared to cash and cash
equivalents of $4.5 million and working capital of $4.6 million as of December
31, 1995. The Company has lines of credit with commercial banks under which it
may borrow up to a total of $3.9 million. As of June 30, 1996, $177,000 was
outstanding under these lines. The Company currently invests its excess cash in
U.S. Government securities and money market accounts.
For the six months ended June 30, 1996, operating activities provided net cash
of $801,000, primarily due to net income of $895,000 and an increase in accrued
expenses of $2.1 million, offset by an increase of $1.9 million in accounts
receivable and a decrease in deferred revenue and customer deposits of $793,000.
The Company used net cash of $1.2 million in investing activities for the
purchase of property and equipment and for costs associated with the acquisition
of JIT, and used net cash of $294,000 in financing activities, primarily for
payment on short term borrowings, long term obligations and capital leases.
The Company believes that its existing cash and cash equivalents together with
its available lines of credit and cash flow from operations will be sufficient
to meet its anticipated working capital requirements for at least the next
twelve months.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting Of Stockholders of Interactive Group, Inc. (the
"Annual Meeting") was held on May 28, 1996 in San Diego, California.
PROPOSAL 1. ELECTION OF DIRECTORS
Each of the candidates listed below were duly elected to the Board of
Directors at the Annual Meeting by the tally indicated.
<TABLE>
<CAPTION>
Candidate Votes in Favor Votes Withheld
--------- -------------- --------------
<S> <C> <C>
Robert C. Vernon 4178014 9500
Mark Hellinger 4180514 7000
Randolph S. Naylor 4180514 7000
Michael H. Gay 4181514 6000
Lyndol L. Cook 4179514 8000
</TABLE>
11
<PAGE> 12
PROPOSAL 2. APPROVAL OF THE 1995 STOCK OPTION PLAN, AS AMENDED
<TABLE>
<CAPTION>
Votes In Favor Votes Against Votes Abstained Non-Votes
<S> <C> <C>
3235724 83750 10050
</TABLE>
PROPOSAL 3. APPROVAL OF THE EMPLOYEE STOCK PURCHASE PLAN
<TABLE>
<CAPTION>
Votes in Favor Votes Against Votes Abstained Non-Votes
<S> <C> <C>
3248274 71350 9900
</TABLE>
PROPOSAL 4. RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
<TABLE>
<CAPTION>
Votes in Favor Votes Against Votes Abstained
<S> <C> <C>
4178714 3000 5800
</TABLE>
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K:
None
12
<PAGE> 13
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.
INTERACTIVE GROUP, INC.
Dated: August 13, 1996 /s/ Robert C. Vernon
----------------------------
ROBERT C. VERNON
Chairman of the Board and Chief Executive Officer
Dated: August 13, 1996 /s/ Michael D. Reynolds
----------------------------
MICHAEL D. REYNOLDS
Vice President of Finance and Administration and
Chief Financial Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 3,575
<SECURITIES> 0
<RECEIVABLES> 15,338
<ALLOWANCES> (491)
<INVENTORY> 180
<CURRENT-ASSETS> 20,043
<PP&E> 6,577
<DEPRECIATION> (3,781)
<TOTAL-ASSETS> 26,611
<CURRENT-LIABILITIES> 15,405
<BONDS> 0
0
0
<COMMON> 4
<OTHER-SE> 9,389
<TOTAL-LIABILITY-AND-EQUITY> 26,611
<SALES> 13,761
<TOTAL-REVENUES> 13,761
<CGS> 6,899
<TOTAL-COSTS> 12,967
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 138
<INCOME-PRETAX> 755
<INCOME-TAX> 302
<INCOME-CONTINUING> 453
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 453
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
