SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: December 31, 2000
[ ] 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: 000-21898
INTERACTIVE INC.
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(Exact name of small business issuer as specified in its charter)
South Dakota 46-0408024
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(state or other jurisdiction (IRS Employer ID No)
of incorporation or organization)
204 N. Main, Humboldt, SD 57035
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(Address of principal executive offices)
(605) 363-5117
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Issuer's telephone number
N/A
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(Former name, former address and former fiscal year, if changed since
last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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...
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes... No ...
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 5,162,138 shares at February 13, 2001
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Transitional Small Business Disclosure Format (Check one): Yes No X
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INTERACTIVE INC.
TABLE OF CONTENTS
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Page(s)
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Balance Sheets - December 31, 2000 and September 30, 2000 3
Statements of Operations - Three Months Ended December 31, 2000 and 1999 4
Statement of Stockholders' Deficit- Three Months Ended December 31, 2000 5
Statements of Cash Flows - Three Months Ended December 31, 2000 and 1999 6
Notes to Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9-10
PART II. OTHER INFORMATION
Item 3. Defaults Upon Senior Securities 10
2
INTERACTIVE INC.
BALANCE SHEETS
ASSETS 12/31/2000 9/30/2000
Unaudited
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Current Assets
Cash $ 256 $ 1,952
Accounts receivable 2,240 1,280
Inventories 12,042 12,222
Prepaid expenses and other assets 428 628
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Total current assets 14,966 16,082
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Property and Equipment, at cost
Land, building and improvements 107,216 107,216
Equipment 11,019 11,019
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118,235 118,235
Less accumulated depreciation 71,509 69,168
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46,726 49,067
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Total assets $ 61,692 $ 65,149
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LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Notes payable, related party $ 500,000 $ 500,000
Current maturities of long-term debt 25,000 24,000
Accounts payable 50,749 63,076
Accounts payable, related parties 104,794 97,605
Accrued expenses 59,799 57,823
Accrued expenses, related parties 443,341 412,798
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Total current liabilities 1,183,683 1,155,302
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Long-Term Debt, less current maturities 37,500 39,000
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Stockholders' Deficit
Series A preferred stock, $.001 par value; authorized
5,000,000 shares; issued and outstanding 113,901 shares: 114 114
total liquidation preference of outstanding shares $172,069
Series B preferred stock, $.001 par value; authorized
2,000,000 shares; issued and oustanding 2,000,000 shares; 2,000 2,000
total liquidation preference of outstanding shares $300,000
Common stock, $.001 par value; authorized 10,000,000 shares;
5,162,138 and 5,062,138 issued and outstanding 5,162 5,062
at December 31, 2000 and September 30, 2000
Additional paid-in capital 8,054,967 8,044,567
Accumulated deficit (9,221,734) (9,180,896)
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Total stockholders' deficit (1,159,491) (1,129,153)
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Total liabilities and stockholders' deficit $ 61,692 $ 65,149
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See Notes to Financial Statements.
3
INTERACTIVE INC.
STATEMENTS OF OPERATIONS
Three Months Ended December 31, 2000 and 1999
(Unaudited)
2000 1999
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Net sales $ 5,200 $ 5,015
Cost of goods sold 180 264
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Gross profit 5,020 4,751
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Operating expenses
Selling 4,938 13,714
General and administrative 35,437 23,952
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40,375 37,666
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Operating (loss) (35,355) (32,915)
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Nonoperating income (expense):
Write off of accounts payable 27,247 0
Interest expense (33,198) (28,784)
Other income, net 468 986
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(Loss) before income taxes (5,483) (27,798)
Income tax expense 0 0
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Net (loss) $(40,838) $(60,713)
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Loss per common share $ (0.01) $ (0.01)
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See Notes to Financial Statements
4
INTERACTIVE INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
Three months ended December 31, 2000
(Unaudited)
Series A Series B Additional
Preferred Preferred Common Paid-in Accumulated
Stock Stock Stock Capital Deficit Total
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Balance, September 30, 2000 $ 114 $ 2,000 $ 5,062 $ 8,044,567 $ (9,180,896) $(1,129,153)
Issuance of common stock for
satisfaction of accounts payable 100 10,400 10,500
Net loss (40,838) (40,838)
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Balance, December 31, 2000 $ 114 $ 2,000 $ 5,162 $ 8,054,967 $ (9,221,734) $(1,159,491)
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See Notes to Financial Statements.
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INTERACTIVE INC.
STATEMENTS OF CASH FLOWS
Three Months Ended December 31, 2000 and 1999
(Unaudited)
2000 0 1999
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CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $(40,838) $(60,713)
Adjustments to reconcile net (loss) to net cash (used in) operating activities:
Depreciation 2,341 2,056
Issuance of common stock for services 0 3,000
Changes in working capital components:
(Increase) decrease in receivables (960) 10,241
Decrease in inventories 180 244
Decrease (increase) in prepaid expenses and other assets 200 (64)
Increase (decrease) in accounts payable (12,327) 813
Increase in accrued expenses 32,519 29,114
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Net cash (used in) operating activities (18,885) (15,309)
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment 0 (742)
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Net cash investing activities 0 (742)
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CASH FLOWS FROM FINANCING ACTIVITIES
Advances from related party 17,689 16,553
Principal payments on long term debt (500) (500)
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Net cash provided by (used in) financing activities 17,189 16,053
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Net increase (decrease) in cash (1,696) 2
CASH
Beginning 1,952 124
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Ending $ 256 $ 126
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for interest $ 0 $ 272
Cash payments for income tax 0 0
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Issuance of common stock for satisfaction of accounts payable $ 10,500 $ 0
See Notes to Financial Statements.
6
INTERACTIVE INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. INTERIM FINANCIAL STATEMENTS
The financial information presented has been prepared from the books and records
without audit but, in the opinion of management, includes all adjustments,
consisting of only normal recurring adjustments, necessary for a fair
presentation of the financial information for the periods presented. The
results of operations for the three months ended December 31, 2000, are not
necessarily indicative of the results expected for the entire year.
NOTE 2. INCOME TAXES
Deferred taxes are provided on an asset and liability method whereby deferred
tax assets are recognized for deductible temporary differences and operating
loss and tax credit carryforwards and deferred tax liabilities are recognized
for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment.
At December 31, 2000, the Company has for tax reporting purposes approximately
$15,000 in unused research and development credits and a net operating loss
carryforward of approximately $7,618,000 available to be offset against future
federal taxable income or income tax liabilities. These carryforwards expire in
varying amounts in years ending September 30, 2008 through 2020. The Company
has recorded a full valuation allowance on the deferred tax assets due to lack
of assurance that the tax benefits can be realized. Realization of deferred tax
assets is dependent upon sufficient future taxable income during the period that
deductible temporary differences and carryforwards are expected to be available
to reduce taxable income.
NOTE 3. LOSS PER COMMON AND COMMON EQUIVALENT SHARE
The loss per common and common equivalent share has been computed using the
weighted average of the number of shares outstanding for the three months ended
December 31, 2000 and 1999. Securities that could potentially dilute basic
earnings per share in the future that were not included in the computation of
diluted earnings per share, at December 31, 2000 and 1999, because to do so
would have been antidilutive are as follows: 20,000,000 shares of common stock
issuable upon the conversion of Series B preferred stock, 226,010 and 219,442
shares of common stock issuable upon the conversion of Series A preferred stock,
83,834 shares of common stock issuable upon the exercise of options, and
1,000,000 shares of common stock issuable upon the exercise of stock warrants.
All references to (loss) per share in the financial statements are to basic
(loss) per share. Diluted (loss) per share is the same as basic (loss) per
share for all per share amounts presented. The weighted number of common and
common equivalent shares outstanding for the three months ended December 31,
2000 and 1999 are 5,144,747 and 4,931,493 respectively.
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NOTE 4. NOTES PAYABLE
At December 31, 2000, the Company has a $500,000 note payable to Torrey Pines
Research, Inc. (TPR), a related party, that is due on demand. The note was
originally to a bank and was assumed by TPR on behalf of the Company as a result
of its guarantee of the loan. In connection with the assumption of the loan,
TPR received 1,000,000 restricted common stock warrants that each represent the
right to purchase one share of common stock at $.50. The warrants expire one
year following satisfaction of the note. The note to TPR bears interest at a
variable rate of interest (compounded at 13.6% as of December 31, 2000).
NOTE 5. OTHER STOCK MATTERS
At December 31, 2000, shares of two series of the Company's authorized preferred
stock were issued and were outstanding, Series A preferred stock and series B
preferred stock.
Series A preferred stock: The series A preferred stock has a liquidation
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preference before common stock ($1.35 to $1.80 per share). Such stock is
nonvoting, has no dividend provisions, and is convertible into common stock on a
share for share basis with antidilution provisions if additional common stock
were to be issued at less than the preferred stock's liquidation preference.
Series B preferred stock: The series B preferred stock has a liquidation
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preference before common stock of $.15 per share. Such stock is entitled to
vote, casting one vote for each share into which it is convertible. The stock
is convertible into common stock on a ten to one share basis with a provision
for this conversion ratio to be adjusted if certain events occur.
See Note 6 below for a description of the effect of the Reincorporation of the
Company on these preferred shares.
NOTE 6. SUBSEQUENT EVENT.
On January 19, 2001, the Company's shareholders approved a proposal to change
the Company's state of incorporation from South Dakota to Delaware (the
"Reincorporation"). The Reincorporation was consummated by merging the Company
into a wholly-owned Delaware subsidiary, InterActive Group, Inc. which was newly
formed for this purpose. As a consequence of the Reincorporation, among other
things, all of the previously outstanding shares of the Company's common stock
were automatically converted on a one-for-one basis into shares of the common
stock of InterActive Delaware, and each share of the Company's series A
preferred stock was converted automatically into one share of the common stock
of InterActive Delaware. In addition, all outstanding options and warrants to
purchase shares of the Company's common stock were converted into options or
warrants, as the case may be, to purchase the same number of shares of the
common stock of InterActive Delaware, at the same price per share and on the
same terms and conditions. The Company's outstanding series B preferred stock
was also converted automatically as a consequence of the Reincorporation into an
equal number of shares of the series A preferred stock of InterActive Delaware
having the same rights, preferences, privileges and restrictions as the
Company's outstanding series B preferred stock currently has.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenue. Net sales for the three months ended December 31, 2000 and 1999
were $5,000.
Gross Profit. The gross margins for the three months ended December 31,
2000 and 1999, were approximately 97% and 95%, respectively.
Selling expenses. Selling expenses for the three months ended December 31,
2000 and 1999 were $5,000 and $14,000, respectively. The decrease in selling
expenses was primarily due to decreased emphasis on sales of the Company's
SoundXchange products during the period.
General and administrative. General and administrative expenses for the
three months ended December 31, 2000 and 1999 were $35,000 and $24,000,
respectively. The increase was primarily due to the Company's decision to
reincorporate in Delaware and associated costs.
Depreciation. Depreciation expense for the three months ended December 31,
2000 and 1999 was $2,000.
Nonoperating (expense). Nonoperating (expense) for the three months ended
December 31, 2000 and 1999 was ($5,000) and ($28,000) respectively. The
decrease in nonoperating expense is mainly due to a write off of certain
accounts payable.
Net Loss. The Company suffered a net loss for the three months ended
December 31, 2000 of $41,000 or $0.01 per share on 5,144,747 weighted average
shares outstanding compared to a net loss for the three months ended December
31, 1999 of $61,000 or $0.01 per share on 4,931,493 weighted average shares
outstanding.
LIQUIDITY AND CAPITAL RESOURCES
The Company has sustained operating losses for several years and its
current liabilities exceeded current assets at December 31, 2000. Continued
operations of the Company are dependent upon the Company's ability to meet its
existing debt requirements on a continuing basis. Management's plans in this
regard are to increase its revenues by providing Internet consulting services
with the assistance of TPR Group and its affiliates (TPR), related parties, and
generating cash through private investments or loans. There can be no assurance
that TPR will provide such assistance or any other support to the Company.
Substantially all of the Company's accounts payable are several years past
due. The Company does not anticipate making any payments on these obligations
in the near term. The Company has several judgments against it and several more
threatened as a result of its inability to pay its obligations to its unsecured
creditors.
Management believes that the largest challenges that the Company will
confront are in its attempt to achieve increases in revenues and profitability
in the future. While the Company is optimistic about the possibility of its
overcoming these challenges and achieving its goals, there can be no assurance
that it will be able to achieve any or all of its objectives.
9
PART II OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
At December 31, 2000, the Company had outstanding a note in the amount of
$20,000, which was due to an individual on November 30, 1995 and is
collateralized by substantially all assets of the Company subordinated to
certain senior secured debt. The note bears interest at the rate of 15% and has
accrued interest of $33,332 at December 31,2000.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: February 12, 2001 INTERACTIVE INC.
/s/ Robert Stahl
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Robert Stahl
President
/s/ Gerard L. Kappenman
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Gerard L. Kappenman
Secretary
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