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: June 30, 2002
[ ] 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
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(state or other jurisdiction of (IRS Employer ID No)
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 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 August 10, 2002
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Transitional Small Business Disclosure Format (Check one): Yes No X
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INTERACTIVE GROUP, INC.
TABLE OF CONTENTS
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Page(s)
-------
Balance Sheets -June 30, 2002 and September 30, 2001 3
Statements of Operations - Nine and Three Months Ended June 30, 2002 and 2001 4
Statement of Stockholders' Deficit - Nine Months Ended June 30, 2002 5
Statements of Cash Flows - Nine Months Ended June 30, 2002 and 2001 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 6. Exhibits and Reports on Form 8-K 10
2
INTERACTIVE GROUP, INC.
BALANCE SHEETS
ASSETS 6/30/2002 Unaudited 9/30/2001
---------------------- ------------
Current Assets
Cash $ 56,781 $ 271
Accounts receivable 72 640
Inventories 12,336 5,925
Prepaid expenses and other assets 493 628
Land, building and improvements held for sale - 38,395
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Total current assets 69,682 45,859
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Property and Equipment, at cost
Land, building and improvements less accumulated depreciation of
$70,119 at June 30, 2002 33,521 -
Equipment, less accumulated depreciation of $10,821 and $10,573
at June 30, 2002 and September 30, 2001 1,883 446
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35,404 446
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Total assets $ 105,086 $ 46,305
====================== ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Notes payable, related parties $ 600,000 $ 500,000
Current maturities of long-term debt 6,000 26,000
Accounts payable 21,672 8,789
Accounts payable, related parties 225,179 171,238
Accrued expenses 28,398 67,777
Accrued expenses, related parties 660,797 543,975
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Total current liabilities 1,542,046 1,317,779
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Long-term Debt, less current maturities 29,000 33,000
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Stockholders' Deficit
Series A preferred stock, $.001 par value; authorized 2,000,000 shares;
issued and outstanding 2,000,000 shares; liquidation preference
at June 30, 2002 of $300,000 2,000 2,000
Common stock, $.001 par value; authorized 50,000,000 shares;
issued and outstanding 5,276,039 shares 5,276 5,276
Additional paid-in capital 8,054,967 8,054,967
Accumulated deficit (9,528,203) (9,366,717)
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Total stockholders' deficit (1,465,960) (1,304,474)
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Total liabilities and stockholders' deficit $ 105,086 $ 46,305
====================== ============
See Notes to Financial Statements.
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INTERACTIVE GROUP, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
Nine months ended June 30, 2002
(Unaudited)
Additional
Series A Common Paid-in Accumulated
Preferred Stock Stock Capital Deficit Total
---------------- ------- ----------- ------------- ------------
Balance, September 30, 2001 $ 2,000 $ 5,276 $ 8,054,967 $ (9,366,717) $(1,304,474)
Net loss - - - (161,486) (161,486)
Balance, June 30, 2002 $ 2,000 $ 5,276 $ 8,054,967 $ (9,528,203) $(1,465,960)
================ ======= =========== ============= ============
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INTERACTIVE GROUP, INC.
STATEMENTS OF OPERATIONS
Nine and Three Months Ended June 30, 2002 and 2001
(Unaudited)
Nine months ended June 30, Three months ended June 30,
2002 2001 2002 2001
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Net sales $ 2,177 $ 8,592 $ 270 $ 3,297
Cost of goods sold 84 336 9 150
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Gross profit 2,093 8,256 261 3,147
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Operating expenses
Selling 30,392 19,913 19,622 6,676
General and administrative 68,744 64,745 29,510 11,989
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99,136 84,658 49,132 18,665
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Operating (loss) (97,043) (76,402) (48,871) (15,518)
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Nonoperating income (expense):
Write off of accounts payable
and debt, net 51,626 52,921 2,770 18,263
Interest expense (117,142) (102,959) (42,151) (35,418)
Other income, net 1,073 1,565 169 25
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(64,443) (48,473) (39,212) (17,130)
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(Loss) before income taxes (161,486) (124,875) (88,083) (32,648)
Income tax expense (benefit) 0 0 0 0
------------- ------------- ------------- -------------
Net (loss) $ (161,486) $ (124,875) $ (88,083) $ (32,648)
============= ============= ============= =============
Loss per common share $ (0.03) $ (0.02) $ (0.02) $ (0.01)
============= ============= ============= =============
See Notes to Financial Statements.
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INTERACTIVE GROUP, INC.
STATEMENTS OF CASH FLOWS
Nine Months Ended June 30, 2002 and 2001
(Unaudited)
2002 2001
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CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $(161,486) $(124,875)
Adjustments to reconcile net (loss) to net cash
(used in) operating activities:
Depreciation 5,112 4,115
Write off of accounts payable and debt, net (51,626) -
Change in assets and liabilities:
Decrease in accounts receivable 568 1,280
Decrease (increase) in inventories (6,411) 336
Decrease in prepaid expenses and other assets 135 478
Increase (decrease) in accounts payable 15,653 (51,581)
Increase in accrued expenses 106,299 103,117
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Net cash (used in) operating activities (91,756) (67,130)
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (1,675) -
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Net cash (used in) investing activities (1,675) -
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CASH FLOWS FROM FINANCING ACTIVITIES
Advances from related party 53,941 68,671
Proceeds from related party loan 100,000 -
Principal payments on long-term debt (4,000) (2,500)
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Net cash provided by financing activities 149,941 66,171
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Net increase (decrease) in cash 56,510 (959)
CASH
Beginning 271 1,952
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Ending $ 56,781 $ 993
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ - $ -
Income tax - -
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Issuance of common stock for satisfaction of accounts payable $ - $ 10,500
See Notes to Financial Statements.
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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 nine months ended June 30, 2002, 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 June 30, 2002, the Company has for tax reporting purposes approximately
$15,000 in unused research and development credits and a net operating loss
carryforward of approximately $8,038,000 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 2022. 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 nine and three
months ended June 30, 2002 and 2001. 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 nine month and three month periods ended
June 30, 2002, 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, 44,834 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. In addition, the 3,800,000 stock options contingently issuable
under the agreements with three independent sales consultants and any shares
which may be issuable upon conversion of the Bluestem Capital Partners III
Limited Partnership note payable described in Note 4, are not included in
diluted earnings per share. 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 nine month and three month periods ended June
30, 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, 44,834 shares of common stock issuable upon the exercise of
options, and 1,000,000 shares of common stock issuable upon the exercise of
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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 nine and three months
ended June 30, 2002 and 2001were 5,276,039.
NOTE 4. NOTES PAYABLE
At June 30, 2002 and September 30, 2001, the Company had a $500,000 note payable
to Old TPR, Inc. (TPR), a related party, that is due on demand. The note was
originally to a bank and was assumed by TPR in a prior year 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.
During fiscal 2002, the Company has entered into an agreement with Bluestem
Capital Partners III Limited Partnership (Bluestem), a related party. Under the
terms of a subordinated convertible note, Bluestem loaned the Company the sum of
$100,000 with interest to accrue at the rate of 10% per year. The note is
payable April 20, 2003, unless previously converted. If the loan is converted,
it would be converted into Company stock, at a number of shares to be agreed
upon by the parties. Repayment of the loan is expressly subordinated to payment
in full of any and all Senior Indebtedness (as defined in the convertible note)
of the Company.
NOTE 5. RECLASSIFICATION
The Company reclassified land, building and improvements from being held for
sale to being held and used during the quarter ending June 30, 2002, and
adjusted the carrying amount of the related assets to their carrying amount
before being classified as held for sale, adjusted for any depreciation expense
that would have been recognized had the assets been continuously classified as
held and used.
NOTE 6. MANAGEMENT'S PLANS
The Company has sustained operating losses for several years and its current
liabilities exceeded current assets at June 30, 2002. 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 developing a security products division with the
assistance of TPR Group (TPRG), a related party. In April 2002, the Company
announced that it created a Carlsbad Security Products Division (CSPD). This
division was formed to develop, market and sell networked monitoring and
security systems. These systems incorporate third party security components,
such as digital video recorders and video cameras, together with the Company's
SoundXchange products and proprietary software. The Company has signed
agreements with three independent sales consultants, which are expected to
assist the Company in exchange for a total of 3,800,000 nonqualified stock
options which are only exercisable upon the achievement of minimum gross margin
performance criteria of the Company as defined in the respective stock option
agreement with each independent sales consultant of the Company to build sales
and support capabilities for InterActive's networked monitoring and security
systems. The Company has recently begun marketing its two initial digital
security systems, one targeted to POS (Point of Sale) markets and one targeted
to markets requiring more sophisticated system integration of digital security
products. The Company will also continue efforts to generate cash through
private investments or loans.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenue. Net sales were $270 and $2,177 for the three and nine months
ended June 30, 2002 compared to $3,297 and $8,592 for the three and nine month
period ended June 30, 2001. The Company's decrease in sales is attributable
mainly to less emphasis on sales of its SoundXchange product.
Gross Profit. Gross profit decreased 92% to $261 for the three months
ended June 30, 2002 from $3,147 for the three months ended June 30, 2001. Gross
profit decreased 75% to $2,093 for the nine months ended June 30, 2002 from
$8,256 for the nine months ended June 30, 2001. The decrease in the three and
nine month period ended June 30, 2002 was due to less emphasis on the sale of
the Company's SoundXchange product during the period.
Selling expenses. Selling expenses increased to $19,622 for the three
months ended June 30, 2002 from $6,676 for the three months ended June 30, 2001.
Selling expenses increased to $30,392 for the nine months ended June 30, 2002
from $19,913 for the nine months ended June 30, 2001. This increase was
primarily due to the Company's efforts to begin selling digital security
products. See also "Liquidity and Capital Resources" section below.
General and administrative. General and administrative expenses were
$29,510 and $68,744 for the three and nine months ended June 30, 2002 and
$11,989 and $64,745 for the three and nine months ended June 30, 2001. The
increase from the previous periods is primarily due to increased costs in
support of the Company's efforts to enter new markets.
Depreciation. Depreciation expense for the three months ended June 30,
2002 and 2001 was $5,011 and $0, respectively. Depreciation expense for the
nine months ended June 30, 2002 and 2001 was $5,112 and $4,115, respectively.
The increase in depreciation expense was mainly due to reclassifying land,
building, and improvements from being held for sale to being held and used
during the quarter ending June 30, 2002 and adjusting the carrying amount of the
related assets to their carrying amount before being classified as held for
sale, adjusted for any depreciation expense that would have been recognized had
the assets been continuously classified as held and used.
Nonoperating (expense). Nonoperating (expense) for the three months ended
June 30, 2002 and June 30, 2001 was ($39,212) and ($17,130), respectively.
Nonoperating (expense) for the nine months ended June 30, 2002 and 2001 was
($64,443) and ($48,473), respectively. The increase in nonoperating expense is
mainly due to an increase in interest expense to the Company as a result of the
additional related party loan.
Net Loss. Net loss for the three months ended June 30, 2002 was $80,583 or
$0.02 per share compared to a net loss for the three months ended June 30, 2001
of $32,648 or ($0.01) per share. Net loss for the nine months ended June 30,
2002 was $153,986 or ($0.03) per share compared to a net loss for the nine
months ended June 30, 2001 of $124,875 or ($0.02) per share. The increase in
losses was due largely to increase in expense associated with the Company's
effort to develop and market its new digital security related products.
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LIQUIDITY AND CAPITAL RESOURCES
The Company has sustained operating losses for several years and its
current liabilities exceeded current assets at June 30, 2002. 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 developing a security products division
with the assistance of TPRG. In April 2002, the Company announced that it
created Carlsbad Security Products Division. This division was formed to
develop, market and sell networked monitoring and security systems. These
systems incorporate third party security components, such as digital video
recorders and video cameras, together with the Company's SoundXchange products
and proprietary software. The Company has signed agreements with three
independent sales consultants, which are expected to assist the Company, in
exchange for a total of 3,800,000 nonqualified stock options which are only
exercisable upon the achievement of minimum gross margin performance criteria of
the Company as defined in the respective stock option agreement with each
independent sales consultant of the Company to build sales and support
capabilities for InterActive's networked monitoring and security systems. The
Company has begun marketing its two initial digital security systems, one
targeted to POS (Point of Sale) markets and one targeted to markets requiring
more sophisticated system integration of digital security products. The Company
will also continue efforts to generate cash through private investments or
loans.
During fiscal 2002, the Company has entered into an agreement with
Bluestem, a related party. Under the terms of a subordinated convertible note,
Bluestem loaned the Company the sum of $100,000 with interest to accrue at the
rate of 10% per year. The note is payable April 20, 2003, unless previously
converted. If the loan is converted, it would be converted into Company stock,
at a number of shares to be agreed upon by the parties. Repayment of the loan
is expressly subordinated to payment in full of any and all Senior Indebtedness
(as defined in the convertible note) of the Company. The Company is in process
of negotiating with related parties for future financing for the Company, There
can be no assurance that these negotiations will be successful.
The Company has approximately $9,000 in past due accounts payable with
judgments against these amounts. The Company is in the process of negotiating
to try to resolve these debts and corresponding judgments.
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 6.EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBIT 99.1 PRINCIPAL OFFICERS CERTIFICATION
b. NO REPORTS ON FORM 8-K HAVE BEEN FILED DURING THE QUARTER FOR WHICH THIS
REPORT IS FILED
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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: August 15, 2002 INTERACTIVE INC.
/s/ Robert Stahl
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Robert Stahl
President and Secretary
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