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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 September 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 .
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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 November 12, 1996 was 4,441,175.
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INTERACTIVE GROUP, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
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PART I - FINANCIAL INFORMATION
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ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets (unaudited) at September 30, 1996 and December 31, 1995 ........... 3
Condensed Consolidated Statements of Operations (unaudited) for the three and nine months ended
September 30, 1996 and 1995..................................................................... 4
Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended
September 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....................................................................................... 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K........................................................................ 11
SIGNATURES....................................................................................................... 12
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INTERACTIVE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
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(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,272 $ 4,467
Accounts receivable, net 14,899 12,977
Deferred income taxes 333 333
Prepaid expenses and other current assets 1,221 1,114
------- -------
Total current assets 19,725 18,891
Property and equipment, net 2,900 2,330
Intangible assets, net 2,228 2,040
Deferred income taxes 1,173 1,173
Deposits and other assets 451 329
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TOTAL ASSETS $26,477 $24,763
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,000 $ 5,188
Accrued expenses 4,640 3,972
Current portion of obligations under capital leases 172 404
Short-term borrowings and current portion of long-term obligations 2,422 1,099
Deferred revenue and customer deposits 2,202 3,647
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Total current liabilities 15,436 14,310
Obligations under capital leases, less current portion 87 171
Long-term obligations, less current portion 1,686 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 and 4,385,216
shares at September 30, 1996 and December 31, 1995, respectively 4 4
Additional capital 6,806 6,461
Retained earnings 2,436 1,866
Cumulative foreign currency translation adjustments 22 17
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Total stockholders' equity 9,268 8,348
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $26,477 $24,763
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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INTERACTIVE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- -------------------
1996 1995 1996 1995
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<S> <C> <C> <C> <C>
REVENUES $12,869 $7,410 $40,461 $22,734
COST OF REVENUES 6,785 3,418 20,720 10,805
------- ------ ------- -------
Gross margin 6,084 3,992 19,741 11,929
OPERATING EXPENSES:
Research and Development 1,026 485 3,079 1,132
Selling, general and administrative 5,545 3,266 15,572 9,617
Compensation expense associated
with employee stock bonus -- -- -- 871
------- ------ ------- -------
Total 6,571 3,751 18,651 11,620
INCOME (LOSS) FROM OPERATIONS (487) 241 1,090 309
Other income (expense), net (55) 68 (127) 49
------- ------ ------- -------
INCOME (LOSS) BEFORE INCOME TAXES (542) 309 963 358
Provision (benefit) for income taxes (217) 105 393 124
------- ------ ------- -------
NET INCOME (LOSS) $ (325) $ 204 $ 570 $ 234
======= ====== ======= =======
EARNINGS (LOSS) PER SHARE $ (0.07) $ 0.05 $ 0.13 $ 0.06
======= ====== ======= =======
WEIGHTED AVERAGE SHARES OUTSTANDING 4,441 4,362 4,454 4,005
======= ====== ======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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INTERACTIVE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
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1996 1995
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 570 $ 234
Adjustments to reconcile net income to cash used in operating activities:
Depreciation and amortization 950 365
Compensation relating to the granting of options and stock bonus 66 871
Deferred income taxes -- (194)
Changes in operating assets and liabilities:
Accounts receivable (1,922) (606)
Prepaid expenses and other assets (229) (516)
Accounts Payable 812 (894)
Accrued expenses 668 (115)
Deferred revenue and customer deposits (1,445) 395
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Net cash used in operating activities (530) (460)
INVESTING ACTIVITIES:
Purchase of property and equipment (1,278) (628)
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Net cash used in investing activities (1,278) (628)
FINANCING ACTIVITIES:
Net short-term borrowings (payments) 1,090 (94)
Payments on long-term obligations (373) (519)
Net proceeds from issuance of common stock 279 6,176
Net proceeds from exercise of stock options 20
Repurchase of common stock -- (400)
Principal payments on capital leases (316) (77)
Other (76)
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Net cash provided by financing activities 604 5,106
EFFECT OF EXCHANGE RATE 9 (29)
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NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,195) 3,989
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,467 1,721
------- ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,272 $5,710
======= ======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period:
Interest $ 187 $ --
======= ======
Income taxes $ 143 $ --
======= ======
Non-cash transaction:
Long-term obligation associated with business acquisitions $ 366 $ --
======= ======
</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 nine
month periods ended September 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
September 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 nine
months ended September 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 (Loss) per share
Earnings (Loss) per common share is computed using the weighted average number
of shares of common stock and the dilutive effect, if any, of 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 nine months ended September 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
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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 "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
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 nine
months ended September 30, 1996. 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 and working capital 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
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, to continue to develop
7
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and release product enhancements and new product releases of the JIT product,
and to successfully market and sell such new product releases. 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 and working capital.
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Revenues- Total revenues increased 74% to $12.9 million for the three months
ended September 30, 1996 compared to $7.4 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 34% and
36% of the Company's total revenues for the third quarter of 1996 and 1995,
respectively.
Cost of Revenues- Total cost of revenues increased 99% to $6.8 million for the
three months ended September 30, 1996 compared to $3.4 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 52% to $6.1 million for the three months
ended September 30, 1996 from $4.0 million for the same period in 1995. As a
percentage of total revenues, gross margin decreased to 47% for the three months
ended September 30, 1996 from 54% 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 remained constant at
79% for the three months ended September 30, 1996 and 1995. Gross margins for
software support services decreased to 31% for the three months ended September
30, 1996 from 44% 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 low utilization of JIT billable personnel. Hardware
margins remained constant at 27% for the three months ended September 30, 1996
and 1995. Gross margins for maintenance contracts decreased to 58% for the three
months ended September 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 112% to $1.0 million
for the three months ended September 30, 1996 compared to $485,000 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
September 30, 1996 compared to 7% 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 70% to $5.5 million for the three months ended
September 30, 1996 from $3.3 million for the same period in 1995. As a
percentage of total revenues, selling, general and administrative expenses
decreased to 43% compared to 44% 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 sales commissions, and increased travel and administrative
costs to support the
8
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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 (Benefit) for Income Taxes- The Company's effective tax rate was 40%
for the three months ended September 30, 1996 compared to 34% for the same
period in 1995. The lower tax rate for the three months ended September 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 NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Revenues - Total revenues increased 78% to $40.5 million for the nine months
ended September 30, 1996 compared to $22.7 million for the same period in 1995.
The increase resulted from increases in revenues from software licenses and
software support services, as well as increases in hardware and maintenance
contract revenues. 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 31% and 36% of the Company's total
revenues for the nine months ended September 30, 1996 and 1995, respectively.
The decrease in the percentage of international revenues for the nine months
ended September 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 for the nine months ended September 30, 1996 having a lower
proportion of international revenues.
Cost of Revenues - Total cost of revenues increased 92% to $20.7 million for the
nine months ended September 30, 1996 compared to $10.8 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. The increase was also attributable
to increases in third party software and hardware costs to support the increase
in revenues from software licenses and hardware.
Gross Margin - Gross margin increased by 65% to $19.7 million for the nine
months ended September 30, 1996 from $11.9 million for the same period in 1995.
As a percentage of total revenues, gross margin decreased to 49% for the nine
months ended September 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 nine months ended September 30, 1996 from 77% for the same period in
1995 due primarily to price increases and a reduction in the cost of royalties
paid to third party software vendors. Gross margins for software support
services decreased to 31% for the nine months ended September 30, 1996 from 42%
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, lower utilization of billable personnel due to training required on
the Company's new software release and low utilization of JIT billable
personnel. Hardware margins decreased slightly to 26% for the nine months ended
September 30, 1996 from 27% for the same period in 1995. Gross margins for
maintenance contracts decreased to 57% for the nine months ended September 30,
1996 from 64% 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 172% to $3.1 million
for the nine months ended September 30, 1996 compared to $1.1 million 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
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the nine months ended September 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 62% to $15.6 million for the nine months ended
September 30, 1996 from $9.6 million for the same period in 1995. As a
percentage of total revenues, selling, general and administrative expenses
decreased to 38% for the nine months ended September 30, 1996 compared to 42%
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 nine months
ended September 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 to 41%
for the nine months ended September 30, 1996 compared to 35% 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 and working capital 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
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Company's revenues have typically occurred to a greater degree in the third
month of each fiscal quarter, 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 September 30, 1996, the Company had cash and cash equivalents totaling
$3.3 million and working capital of $4.3 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 $4.2 million. As of September 30, 1996, $1.6 million
was outstanding under these lines. The Company currently invests its excess cash
in U.S. Government securities and money market accounts.
For the nine months ended September 30, 1996, operating activities used net cash
of $530,000, primarily due to an increase in accounts receivable of $1.9
million and a decrease in deferred revenue and customer deposits of $1.4
million. The Company used net cash of $1.3 million in investing activities
primarily for the purchase of property and equipment. Net cash provided by
financing activities was $604,000, primarily due to increases in short term
borrowings.
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
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K:
None
11
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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.
INTERACTIVE GROUP, INC.
Dated: November 13, 1996 /s/ Robert C. Vernon
---------------------
ROBERT C. VERNON
Chairman of the Board and
Chief Executive Officer
Dated: November 13, 1996 /s/ Michael D. Reynolds
------------------------
MICHAEL D. REYNOLDS
Vice President of Finance and
Administration and
Chief Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
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0
0
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