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, 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
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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
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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 July 31, 2001
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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, 2001 and September 30, 2000 3
Statements of Operations - Nine and Three Months Ended June 30, 2001 and 2000 4
Statement of Stockholders' Deficit - Nine Months Ended June 30, 2001 5
Statements of Cash Flows - Nine Months Ended June 30, 2001 and 2000 6
Notes to Financial Statements 7-9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9-11
PART II. OTHER INFORMATION
Item 3. Defaults Upon Senior Securities 11
2
INTERACTIVE GROUP, INC.
BALANCE SHEETS
ASSETS 6/30/2001 9/30/2000
Unaudited
------------ ------------
Current Assets
Cash $ 993 $ 1,952
Accounts receivable 0 1,280
Inventories 11,886 12,222
Prepaid expenses and other assets 150 628
Land, building and improvements held for sale 44,952 0
------------ ------------
Total current assets 57,981 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 June 30, 2001 and September 30, 2000 0 595
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0 49,067
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Total assets $ 57,981 $ 65,149
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Note payable, related party $ 500,000 $ 500,000
Current maturities of long-term debt 26,000 24,000
Accounts payable 11,495 63,076
Accounts payable, related parties 155,776 97,605
Accrued expenses 65,102 57,823
Accrued expenses, related parties 508,636 412,798
------------ ------------
Total current liabilities 1,267,009 1,155,302
------------ ------------
Long-term Debt, less current maturities 34,500 39,000
------------ ------------
Stockholders' Deficit
Series A preferred stock, 2,000,000 and 113,901 shares issued at
June 30, 2001 and September 30, 2000, liquidation preference of
outstanding shares at June 30, 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 June 30, 2001
and September 30, 2000 5,276 5,062
Additional paid-in capital 8,054,967 8,044,567
Accumulated deficit (9,305,771) (9,180,896)
------------ ------------
Total stockholders' deficit (1,243,528) (1,129,153)
------------ ------------
Total liabilities and stockholders' deficit $ 57,981 $ 65,149
============ ============
See Notes to Financial Statements.
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INTERACTIVE GROUP, INC.
STATEMENTS OF OPERATIONS
Nine and Three Months Ended June 30, 2001 and 2000
(Unaudited)
Nine months ended Three months ended
June 30, June 30,
2001 2000 2001 2000
------------------------ --------------------
Net sales $ 8,592 $ 16,442 $ 3,297 $ 4,827
Cost of goods sold 336 720 150 210
------------ ---------- --------- ---------
Gross profit 8,256 15,722 3,147 4,617
------------ ---------- --------- ---------
Operating expenses
Selling 19,913 37,433 6,676 11,519
General and administrative 64,745 59,869 11,989 16,266
------------ ---------- --------- ---------
84,658 97,302 18,665 27,785
------------ ---------- --------- ---------
Operating (loss) (76,402) (81,580) (15,518) (23,168)
------------ ---------- --------- ---------
Nonoperating income (expense):
Write off of accounts payable 52,921 0 18,263 0
Interest expense (102,959) (92,803) (35,418) (34,790)
Other income, net 1,565 2,027 25 407
------------ ---------- --------- ---------
(48,473) (90,776) (17,130) (34,383)
------------ ---------- --------- ---------
(Loss) before income taxes (124,875) (172,356) (32,648) (57,551)
------------ ---------- --------- ---------
Income tax expense (benefit) 0 0 0 0
------------ ---------- --------- ---------
Net (loss) $ (124,875) $(172,356) $(32,648) $(57,551)
============ ========== ========= =========
Loss per common share $ (0.02) $ (0.03) $ (0.01) $ (0.01)
============ ========== ========= =========
See Notes to Financial Statements.
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INTERACTIVE GROUP, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
Nine months ended June 30, 2001
(Unaudited)
Series A Series B Additional
Preferred Preferred Common Paid-in Accumulated
Stock Stock Stock 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 (124,875) (124,875)
----------- ----------- ----------- ---------- ------------- ------------
Balance, June0, 2001 $ 2,000 $ 0 $ 5,276 $8,054,967 $ (9,305,771) $(1,243,528)
=========== =========== =========== ========== ============= ============
See Notes to Financial Statements.
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INTERACTIVE GROUP, INC.
STATEMENTS OF CASH FLOWS
Nine Months Ended June 30, 2001 and 2000
(Unaudited)
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $(124,875) $ (172,356)
Adjustments to reconcile net (loss) to net cash
(used in) operating activities:
Depreciation 4,115 6,190
Change in assets and liabilities:
Decrease in accounts receivable 1,280 9,744
Decrease in inventories 336 699
Decrease in prepaid expenses and other assets 478 172
Increase (decrease) in accounts payable (51,581) 2,419
Increase in accrued expenses 103,117 94,144
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Net cash (used in) operating activities (67,130) (58,988)
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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 68,671 61,652
Principal payments on long-term debt (2,500) (1,500)
---------- -----------
Net cash provided by financing activities 66,171 60,152
---------- -----------
Net increase (decrease) in cash (959) 422
CASH
Beginning 1,952 124
---------- -----------
Ending $ 993 $ 546
========== ===========
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.
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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, 2001, 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, 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 $7,702,000 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 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, 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 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
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 nine month and three month periods ended June 30,
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
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(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, 2001 are 5,276,039 and 5,276,039 respectively and for the nine
and three months ended June 30, 2000 are 5,007,411 and 5,062,138 respectively.
NOTE 4. NOTES PAYABLE
At June 30, 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 5. MANAGEMENT'S PLANS
The Company has sustained operating losses for several years and its
current liabilities exceeded current assets at June 30, 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.
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 June 30, 2001:
Series A convertible preferred stock, voting, $.001 par value, authorized
2,000,000 shares; issued and outstanding 2,000,000 shares,
liquidation preference of outstanding shares at June 30, 2001
of $300,000 $2,000
Common stock, voting, $.001 par value, authorized 50,000,000 shares;
issued and outstanding 5,276,039 shares 5,276
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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
June 30, 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 June 30, 2001.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenue. Net sales were $3,297 and $8,592 for the three and nine months
ended June 30, 2001 compared to $4,827 and $16,442 for the three and nine month
period ended June 30, 2000. The Company's decrease in sales is attributable
mainly to less demand for its SoundXchange Model K.
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Gross Profit. Gross profit decreased 32% to $3,147 for the three months
ended June 30, 2001 from $4,617 for the three months ended June 30, 2000. Gross
profit decreased 47% to $8,256 from $15,722 for the nine months ended June 30,
2000.
Selling expenses. Selling expenses decreased to $6,676 for the three
months ended June 30, 2001 from $11,519 for the three months ended June 30,
2000. Selling expenses decreased to $19,913 for the nine months ended June 30,
2001 from $37,433 for the nine months ended June 30, 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
$11,989 and $64,745 for the three and nine months ended June 30, 2001 and
$16,266 and $59,869 for the three and nine months ended June 30, 2000. The
decrease for the three month period from the previous year is mainly
attributable to expenses incurred in 2000 for building maintenance. The
increase in the nine month period 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 June 30,
2001 and 2000 was $0 and $2,067, respectively. Depreciation expense for the
nine months ended June 30, 2001 and 2000 was $4,115 and $6,190, respectively.
The decrease in depreciation expense was due to reclassifying the building asset
to current assets during the quarter ended March 31, 2001.
Nonoperating (expense). Nonoperating (expense) for the three months ended
June 30, 2001 and 2000 was ($17,130) and ($34,383), respectively. Nonoperating
(expense) for the nine months ended June 30, 2001 and 2000 was ($48,473) and
($90,776), 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 June 30, 2001 was $32,648 or
($0.01) per share compared to a net loss for the three months ended June 30,
2000 of $57,551 or ($0.01) per share. Net loss for the nine months ended June
30, 2001 was $124,875 or ($0.02) per share compared to a net loss for the nine
months ended June 30, 2000 of $172,356 or ($0.03) per share. The decrease in
losses was due largely to a write off of certain accounts payable which is
included in non-operating income.
LIQUIDITY AND CAPITAL RESOURCES
The Company has sustained operating losses for several years and its
current liabilities exceeded current assets at June 30, 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.
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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 3. DEFAULTS UPON SENIOR SECURITIES
The Company has at June 30, 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 $37,808 at June 30, 2001.
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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: July 30, 2001 INTERACTIVE INC.
/s/ Robert Stahl
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Robert Stahl
President and Secretary
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