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: March 31, 2001
[ ] 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 GROUP, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 46-0408024
-------- ----------
(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
INTERACTIVE INC.
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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 CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 5,276,039 shares at May 11, 2001
--------------------------------
Transitional Small Business Disclosure Format (Check one): Yes No X
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1
INTERACTIVE GROUP, INC.
TABLE OF CONTENTS
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Page(s)
-------
Balance Sheets - March 31, 2001 and September 30, 2000 3
Statements of Operations - Six and Three Months Ended March 31, 2001 and 2000 4
Statement of Stockholders' Deficit - Six Months Ended March 31, 2001 5
Statements of Cash Flows - Six Months Ended March 31, 2001 and 2000 6
Notes to Financial Statements 7-9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10-11
PART II. OTHER INFORMATION
Item 2. Changes in Securities 11-12
Item 3. Defaults Upon Senior Securities 12
2
INTERACTIVE GROUP, INC.
BALANCE SHEETS
3/31/2001 9/30/2000
ASSETS Unaudited
------------ ------------
Current Assets
Cash $ 242 $ 1,952
Accounts receivable 0 1,280
Inventories 12,036 12,222
Prepaid expenses and other assets 1,057 628
Land, building and improvements held for sale 44,952 0
------------ ------------
Total current assets 58,287 16,082
------------ ------------
Property and Equipment, at cost
Land, building and improvements, less accumulated depreciation of
$58,744 at September 30, 2000 0 48,472
Equipment, less accumulated depreciation of $11,019 and $10,424
at March 31, 2001 and September 30, 2000 0 595
------------ ------------
0 49,067
------------ ------------
Total assets $ 58,287 $ 65,149
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Notes payable, related party $ 500,000 $ 500,000
Current maturities of long-term debt 26,000 24,000
Accounts payable 30,325 63,076
Accounts payable, related parties 138,146 97,605
Accrued expenses 63,037 57,823
Accrued expenses, related parties 475,659 412,798
------------ ------------
Total current liabilities 1,233,167 1,155,302
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Long-term Debt, less current maturities 36,000 39,000
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Stockholders' Deficit
Series A preferred stock, 2,000,000 and 113,901 shares issued at
March 31, 2001 and September 30, 2000, liquidation preference of
outstanding shares at March 31, 2001 of $300,000 2,000 114
Series B preferred stock, 2,000,000 shares issued at September 30, 2000 0 2,000
Common stock, 5,276,039 and 5,062,138 shares issued at March 31, 2001
and September 30, 2000 5,276 5,062
Additional paid-in capital 8,054,967 8,044,567
Accumulated deficit (9,273,123) (9,180,896)
------------ ------------
Total stockholders' deficit (1,210,880) (1,129,153)
------------ ------------
Total liabilities and stockholders' deficit $ 58,287 $ 65,149
============ ============
See Notes to Financial Statements.
3
INTERACTIVE GROUP, INC.
STATEMENTS OF OPERATIONS
Six and Three Months Ended March 31, 2001 and 2000
(Unaudited)
Six months Three months
ended March 31, ended March 31,
2001 2000 2001 2000
--------- ---------- --------- ---------
Net sales $ 5,295 $ 11,615 $ 95 $ 6,600
Cost of goods sold 186 510 6 246
--------- ---------- --------- ---------
Gross profit 5,109 11,105 89 6,354
--------- ---------- --------- ---------
Operating expenses
Selling 13,237 25,914 8,299 12,200
General and administrative 52,756 43,603 17,319 19,651
--------- ---------- --------- ---------
65,993 69,517 25,618 31,851
--------- ---------- --------- ---------
Operating (loss) (60,884) (58,412) (25,529) (25,497)
--------- ---------- --------- ---------
Nonoperating income (expense):
Write off of accounts payable 34,658 0 7,411 0
Interest expense (67,541) (58,013) (34,343) (29,229)
Other income, net 1,540 1,620 1,072 634
--------- ---------- --------- ---------
(31,343) (56,393) (25,860) (28,595)
--------- ---------- --------- ---------
(Loss) before income taxes (92,227) (114,805) (51,389) (54,092)
--------- ---------- --------- ---------
Income tax expense (benefit) 0 0 0 0
--------- ---------- --------- ---------
Net (loss) $(92,227) $(114,805) $(51,389) $(54,092)
========= ========== ========= =========
Loss per common share $ (0.02) $ (0.02) $ (0.01) $ (0.01)
========= ========== ========= =========
See Notes to Financial Statements.
4
INTERACTIVE GROUP, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
Six months ended March 31, 2001
(Unaudited)
Series A Series B
Preferred Preferred Common Additional Accumulated
Stock Stock Stock Paid-in Capital Deficit Total
----------- ----------- ------- ---------------- ------------- ------------
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 0 0 100 10,400 0 10,500
Conversion of Series A Preferred
stock to common stock (114) 0 114 0 0 0
Conversion of Series B Preferred
stock to Series A Preferred stock 2,000 (2,000) 0 0 0 0
Net loss 0 0 0 0 (92,227) (92,227)
----------- ----------- ------- ---------------- ------------- ------------
alance, March 31, 2001 $ 2,000 $ 0 $ 5,276 $ 8,054,967 $ (9,273,123) $(1,210,880)
=========== =========== ======= ================ ============= ============
See Notes to Financial Statements.
5
INTERACTIVE GROUP, INC.
STATEMENTS OF CASH FLOWS
Six Months Ended March 31, 2001 and 2000
(Unaudited)
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $(92,227) $ (114,805)
Adjustments to reconcile net (loss) to net cash
provided by (used in) operating activities:
Depreciation 4,115 4,123
Change in assets and liabilities:
Decrease in accounts receivable 1,280 9,760
Decrease in inventories 186 489
(Increase) in prepaid expenses and other assets (429) (125)
Increase (decrease) in accounts payable (32,751) 44,082
Increase in accrued expenses 68,075 58,854
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Net cash provided by (used in) operating activities (51,751) 2,378
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment 0 (742)
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Net cash (used in) investing activities 0 (742)
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CASH FLOWS FROM FINANCING ACTIVITIES
Advances from related party 51,041 0
Principal payments on long-term debt (1,000) (1,000)
--------- --------------
Net cash provided by (used in) financing activities 50,041 (1,000)
--------- --------------
Net increase (decrease) in cash (1,710) 636
CASH
Beginning 1,952 124
--------- --------------
Ending $ 242 $ 760
========= ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for interest $ 0 $ 80
========= ==============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Issuance of common stock for satisfaction of accounts payable $ 10,500 $ 4,500
========= ==============
See Notes to Financial Statements.
6
INTERACTIVE GROUP, 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 six months ended March 31, 2001, are not
necessarily indicative of the results expected for the entire year.
NOTE 2. LAND, BUILDING AND IMPROVEMENTS
As of March 31, 2001, land, building and improvements were reclassified to a
current asset to be held for sale in accordance with management's plans to sell
its building facility. Accordingly, the accounting policy for such property has
been changed from being carried at cost, less accumulated depreciation, to being
carried at the lower of its depreciated cost or fair value less estimated cost
to sell, and the recording of depreciation has ceased as of March 31, 2001.
NOTE 3. 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 March 31, 2001, the Company has for tax reporting purposes approximately
$15,000 in unused research and development credits and a net operating loss
carryforward of approximately $7,669,000 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 2021. 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 4. 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 six and three
months ended March 31, 2001 and 2000. Securities that could potentially dilute
basic earnings per share in the future that were not included in the computation
of diluted earnings per share for the six month and three month periods ended
March 31, 2001, because to do so would have been antidilutive are as follows:
20,000,000 shares of common stock issuable upon the conversion of Series A
preferred stock, 83,834 shares of common stock issuable upon the exercise of
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options, and 1,000,000 shares of common stock issuable upon the exercise of
stock warrants. Securities that could potentially dilute basic earnings per
share in the future that were not included in the computation of diluted
earnings per share for the six month and three month periods ended March 31,
2000, 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,
221,620 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 six and three months
ended March 31, 2001 are 5,198,407 and 5,253,259 respectively and for the six
and three months ended March 31, 2000 are 4,980,345 and 5,048,551 respectively.
NOTE 5. NOTES PAYABLE
At March 31, 2001 and September 30, 2000, the Company had 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. The note to TPR bears
interest at the rate of 13.6% and is secured by substantially all the assets of
the Company. 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.
NOTE 6. CAPITAL STOCK AND REINCORPORATION
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
(5,162,138 total shares) were automatically converted on a one-for-one basis
into shares of the common stock of InterActive Group, Inc., and each share of
the Company's series A preferred stock (113,901 total shares) was converted
automatically into one share of the common stock of InterActive Group, Inc. In
addition, all outstanding options and warrants to purchase shares of the
Company's common stock (83,834 shares issuable upon the exercise of options and
1,000,000 shares issuable upon the exercise of stock warrants) were converted
into options or warrants, as the case may be, to purchase the same number of
shares of the common stock of InterActive Group, Inc., 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 series A preferred stock
(2,000,000 total shares) of InterActive Group, Inc. having the same rights,
preferences, privileges and restrictions as the Company's outstanding series B
preferred stock formerly had.
Capital stock consists of the following at March 31, 2001:
Series A convertible preferred stock, voting, $.001 par value, authorized
2,000,000 shares; issued and outstanding 2,000,000 shares $2,000
Common stock, voting, $.001 par value, authorized 50,000,000 shares;
issued and outstanding 5,276,039 shares 5,276
8
Capital stock consisted of the following at September 30, 2000:
Series A preferred stock, voting, $.001 par value; authorized 5,000,000
shares; issued and outstanding 113,901 shares $ 114
Series B preferred stock, voting, $.001 par value; authorized 2,000,000
shares; issued and outstanding 2,000,000 shares 2,000
Common stock, voting, $.001 par value, authorized 10,000,000 shares ;
issued and outstanding 5,062,138 shares 5,062
The authorized capital stock of InterActive Group, Inc. consists of
50,000,000 shares of common stock, $.001 par value, and 10,000,000 shares of
preferred Stock, $.001 par value. The Board of Directors of InterActive Group,
Inc. is authorized, subject to the limitations prescribed by law and the
provisions of its certificate of incorporation, to provide for the issuance of
preferred stock in series and to establish the number of shares to be included
in each series, and to fix the designation, powers, preferences and rights of
the shares of each series and the qualifications, limitations and restrictions
thereof.
In addition, the Board of Directors of InterActive Group, Inc. has
authorized the creation of one series of preferred stock to be designated as
"Series A Convertible Preferred Stock." As a part of the Reincorporation,
2,000,000 shares of Series A convertible preferred stock were outstanding as of
March 31, 2001 and are convertible into 20,000,000 shares of common stock, with
such conversion rate subject to adjustment from time to time in accordance with
the "Certificate of Determination of Series A Convertible Preferred Stock of
InterActive Group, Inc." In addition, 600,000 shares of Series B Preferred
Stock of InterActive Group, Inc. have been reserved for future issuance to TPR
in connection with an agreement with TPR (agreement continued in full force and
effect from InterActive Inc.) in which TPR would exchange $500,000 of debt plus
accrued interest owing from the Company for 600,000 shares of preferred stock if
certain conditions in the agreement are satisfied.
In addition to stock options previously granted by the Company, the Board
of Directors of InterActive Group, Inc. has adopted a 2000 Stock Option Plan
pursuant to which options to purchase up to 3,000,000 shares of the common stock
of InterActive Group, Inc. may be granted. No options had been granted pursuant
to this plan as of March 31, 2001.
NOTE 7. MANAGEMENT'S PLANS
The Company has sustained operating losses for several years and its
current liabilities exceeded current assets at March 31, 2001. 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 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.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenue. Net sales were $95 and $5,295 for the three and six months ended
March 31, 2001 compared to $6,600 and $11,615 for the three and six month period
ended March 31, 2000. The Company's decrease in sales is attributable mainly to
less demand for its SoundXchange Model K.
Gross Profit. Gross profit decreased 99% to $89 for the three months ended
March 31, 2001 from $6,354 for the three months ended March 31, 2000. Gross
profit decreased 54% to $5,109 from $11,105 for the six months ended March 31,
2000.
Selling expenses. Selling expenses decreased to $8,299 for the three
months ended March 31, 2001 from $12,200 for the three months ended March 31,
2000. Selling expenses decreased to $13,237 for the six months ended March 31,
2001 from $25,914 for the six months ended March 31, 2000. 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 were
$17,319 and $52,756 for the three and six months ended March 31, 2001 and
$19,651 and $43,603 for the three and six months ended March 31, 2000. The
increase from the previous year is primarily due to expenses associated with the
Company's Reincorporation in Delaware.
Depreciation. Depreciation expense for the three months ended March 31,
2001 and 2000 was $1,774 and $2,066, respectively. Depreciation expense for the
six months ended March 31, 2001 and 2000 was $4,115 and $4,123, respectively.
Nonoperating (expense). Nonoperating (expense) for the three months ended
March 31, 2001 and March 31, 2000 was ($25,860) and ($28,595), respectively.
Nonoperating (expense) for the six months ended March 31, 2001 and 2000 was
($31,343) and ($56,393), respectively. The decrease in nonoperating expense is
mainly due to a write off of certain accounts payable.
Net Loss. Net loss for the three months ended March 31, 2001 was $51,389
or ($0.01) per share compared to a net loss for the three months ended March 31,
2000 of $54,092 or ($0.01) per share. Net loss for the six months ended March
31, 2001 was $92,227 or ($0.02) per share compared to a net loss for the six
months ended March 31, 2000 of $114,805 or ($0.02) per share. The decrease in
losses was due largely to a write off of certain accounts payable which is
included in non-operating income.
10
LIQUIDITY AND CAPITAL RESOURCES
The Company has sustained operating losses for several years and its
current liabilities exceeded current assets at March 31, 2001. 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 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
were threatened as a result of its inability to pay its obligations to its
unsecured creditors.
The Company is committed to a plan to sell its building facility if a
reasonable offer were to be made by an outside party. To date, no such offer
has been tendered.
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.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
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
(5,162,138 total shares) were automatically converted on a one-for-one basis
into shares of the common stock of InterActive Group, Inc., and each share of
the Company's series A preferred stock (113,901 total shares) was converted
automatically into one share of the common stock of InterActive Group, Inc. In
addition, all outstanding options and warrants to purchase shares of the
Company's common stock (83,834 shares issuable upon the exercise of options and
1,000,000 shares issuable upon the exercise of stock warrants) were converted
into options or warrants, as the case may be, to purchase the same number of
shares of the common stock of InterActive Group, Inc., 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 series A preferred stock
(2,000,000 total shares) of InterActive Group, Inc. having the same rights,
preferences, privileges and restrictions as the Company's outstanding series B
preferred stock formerly had.
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Capital stock consists of the following at March 31, 2001:
Series A convertible preferred stock, voting, $.001 par value, authorized
2,000,000 shares; issued and outstanding 2,000,000 shares $2,000
Common stock, voting, $.001 par value, authorized 50,000,000 shares;
issued and outstanding 5,276,039 shares 5,276
Capital stock consisted of the following at September 30, 2000:
Series A preferred stock, voting, $.001 par value; authorized 5,000,000
shares; issued and outstanding 113,901 shares $ 114
Series B preferred stock, voting, $.001 par value; authorized 2,000,000
shares; issued and outstanding 2,000,000 shares 2,000
Common stock, voting, $.001 par value, authorized 10,000,000 shares;
issued and outstanding 5,062,138 shares 5,062
The authorized capital stock of InterActive Group, Inc. consists of
50,000,000 shares of common stock, $.001 par value, and 10,000,000 shares of
preferred Stock, $.001 par value. The Board of Directors of InterActive Group,
Inc. is authorized, subject to the limitations prescribed by law and the
provisions of its certificate of incorporation, to provide for the issuance of
preferred stock in series and to establish the number of shares to be included
in each series, and to fix the designation, powers, preferences and rights of
the shares of each series and the qualifications, limitations and restrictions
thereof.
In addition, the Board of Directors of InterActive Group, Inc. has
authorized the creation of one series of preferred stock to be designated as
"Series A Convertible Preferred Stock." As a part of the Reincorporation,
2,000,000 shares of Series A convertible preferred stock were outstanding as of
March 31, 2001 and are convertible into 20,000,000 shares of common stock, with
such conversion rate subject to adjustment from time to time in accordance with
the "Certificate of Determination of Series A Convertible Preferred Stock of
InterActive Group, Inc." In addition, 600,000 shares of Series B Preferred
Stock of InterActive Group, Inc. have been reserved for future issuance to TPR
in connection with an agreement with TPR (agreement continued in full force and
effect from InterActive Inc.) in which TPR would exchange $500,000 of debt plus
accrued interest owing from the Company for 600,000 shares of preferred stock if
certain conditions in the agreement are satisfied.
In addition to stock options previously granted by the Company, the Board
of Directors of InterActive Group, Inc. has adopted a 2000 Stock Option Plan
pursuant to which options to purchase up to 3,000,000 shares of the common stock
of InterActive Group, Inc. may be granted. No options had been granted pursuant
to this plan as of March 31, 2001.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company has at March 31, 2001 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. The note is subordinated to certain
other senior secured notes. The note bears interest at the rate of 15% and has
accrued interest of $35,367 at March 31, 2001.
12
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: May 11, 2001 INTERACTIVE INC.
/s/ Robert Stahl
------------------
Robert Stahl
President and Secretary
13