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, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 000-21898
INTERACTIVE GROUP, 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 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 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: 5,276,039 shares at February 7, 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)
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Balance Sheets - December 31, 2001 and September 30, 2001 3
Statements of Operations - Three Months Ended December 31, 2001 and 2000 4
Statement of Stockholders' Deficit - Three Months Ended December 31, 2001 5
Statements of Cash Flows - Three Months Ended December 31, 2001 and 2000 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
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INTERACTIVE GROUP, INC.
BALANCE SHEETS
12/31/2001 9/30/2001
ASSETS Unaudited
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Current Assets
Cash $ 2,007 $ 271
Accounts receivable 1,352 640
Inventories 5,865 5,925
Land, building and improvements held for sale 38,395 38,395
Prepaid expenses and other assets 578 628
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Total current assets 48,197 45,859
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Equipment, less accumulated deprecation of $10,610 and $10,573
at December 31, 2001 and September 30, 2001 409 446
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409 446
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Total assets $ 48,606 $ 46,305
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LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Notes payable, related party $ 500,000 $ 500,000
Current maturities of long-term debt 26,000 26,000
Accounts payable 7,614 8,789
Accounts payable, related parties 200,836 171,238
Accrued expenses 70,471 67,777
Accrued expenses, related parties 579,409 543,975
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Total current liabilities 1,384,330 1,317,779
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Long-term debt, less current maturities 32,000 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 of
outstanding shares at December 31, 2001 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 (9,429,967) (9,366,717)
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Total stockholders' deficit (1,367,724) (1,304,474)
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Total liabilities and stockholders' deficit $ 48,606 $ 46,305
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See Notes to Financial Statements.
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INTERACTIVE GROUP, INC.
STATEMENTS OF OPERATIONS
Three Months Ended December 31, 2001 and 2000
(Unaudited)
2001 2000
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Net sales $ 1,352 $ 5,200
Cost of goods sold 60 180
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Gross profit 1,292 5,020
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Operating expenses
Selling 3,413 4,938
General and administrative 23,624 35,437
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27,037 40,375
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Operating (loss) (25,745) (35,355)
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Nonoperating income (expense):
Write off of accounts payable 0 27,247
Interest expense (38,019) (33,198)
Other income, net 514 468
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(37,505) (5,483)
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(Loss) before income taxes (63,250) (40,838)
Income tax expense (benefit) 0 0
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Net (loss) ($63,250) ($40,838)
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Loss per common share ($0.01) ($0.01)
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See Notes to Financial Statements.
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INTERACTIVE GROUP, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
Three months ended December 31, 2001
(Unaudited)
Series A Additional
Preferred Common Paid-in Accumulated
Stock Stock Capital Deficit Total
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Balance, September 30, 2001 $ 2,000 $ 5,276 $ 8,054,967 ($9,366,717) ($1,304,474)
Net (loss) - - - (63,250) (63,250)
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Balance, December 31, 2001 $ 2,000 $ 5,276 $ 8,054,967 ($9,429,967) ($1,367,724)
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See Notes to Financial Statements.
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INTERACTIVE GROUP, INC.
STATEMENTS OF CASH FLOWS
Three Months Ended December 31, 2001 and 2000
(Unaudited)
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) ($63,250) ($40,838)
Adjustments to reconcile net (loss) to net cash (used in) operating activities:
Depreciation 37 2,341
Change in assets and liabilities:
(Increase) in receivables (712) (960)
Decrease in inventories 60 180
Decrease in prepaid expenses and other assets 50 200
(Decrease) in accounts payable (1,175) (12,327)
Increase in accrued expenses 38,128 32,519
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Net cash (used in) operating activities (26,862) (18,885)
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CASH FLOWS FROM FINANCING ACTIVITIES
Advances from related party 29,598 17,689
Principal payments on long term debt (1,000) (500)
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Net cash provided by financing activities 28,598 17,189
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Net increase (decrease) in cash 1,736 (1,696)
CASH
Beginning 271 1,952
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Ending $ 2,007 $ 256
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for interest $ 0 $ 0
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 three months ended December 31, 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 December 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 $7,811,000 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 three months ended
December 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 three months ended December 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, 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 three
months ended December 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, 226,010 shares of common stock issuable upon the
conversion of Series A preferred stock, 83,834 shares of common stock issuable
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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, 2001 and 2000 was 5,276,039 and 5,144,747,
respectively.
NOTE 4. NOTES PAYABLE
At December 31, 2001 and September 30, 2001, 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 December 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.
NOTE 6. CAPITAL STOCK AND REINCORPORATION
On January 19, 2001, InterActive Inc.'s shareholders approved a proposal to
change InterActive Inc.'s state of incorporation from South Dakota to Delaware
(the "Reincorporation"). The Reincorporation was consummated by merging
InterActive Inc. 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
InterActive Inc.'s common stock at the Reincorporation date (5,162,138 total
shares) were automatically converted on a one-for-one basis into shares of the
common stock of the Company, and each share of InterActive Inc.'s series A
preferred stock (113,901 total shares) was converted automatically into one
share of the common stock of the Company. In addition, all outstanding options
and warrants to purchase shares of InterActive Inc.'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 the
Company, at the same price per share and on the same terms and conditions.
InterActive Inc.'s outstanding series B preferred stock (2,000,000 total shares)
was also converted automatically as a consequence of the Reincorporation into an
equal number of shares of series A preferred stock of the Company having the
same rights, preferences, privileges and restrictions as InterActive Inc.'s
outstanding series B preferred stock formerly had.
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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, 2001 and 2000
were $1,352 and $5,200, respectively. The Company's decrease in sales is
attributable to less demand for its SoundXchange product.
Gross Profit. Gross profit decreased 74% to $1,292 for the three months
ended December 31, 2001 from $5,200 for the three months ended December 31,
2000, as a result of the lower level of sales.
Selling expenses. Selling expenses for the three months ended December 31,
2001 and 2000 were $3,000 and $5,000, 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, 2001 and 2000 were $24,000 and $35,000,
respectively. The decrease in the three month period ended December 31, 2001
from same period in the previous year is primarily due to an increased effort on
the Company's behalf to decrease expenses.
Depreciation. Depreciation expense for the three months ended December 31,
2001 and 2000 was $37 and $2,000, respectively. The decrease in depreciation
expense was mainly due to reclassifying land, building, and improvements as held
for sale during fiscal year 2001 and the ceasing of depreciation on such assets
at that time.
Nonoperating (expense). Nonoperating (expense) for the three months ended
December 31, 2001 and 2000 was ($38,000) and ($5,000) respectively. The
increase in nonoperating expense is mainly due to the decrease in the write off
of accounts payable.
Net Loss. The Company suffered a net loss for the three months ended
December 31, 2001 of $63,000 or $0.01 per share on 5,276,039 weighted average
shares outstanding compared to 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. The increase in net loss compared to the same period in 2000 was
primarily due to the write off of accounts payable recorded as income in 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company has sustained operating losses for several years and its current
liabilities exceeded current assets at December 31, 2001. In addition, the
Company has total stockholders' deficit of $1,367,724 as of December 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. The Company has several
judgments against it and more had been threatened as a result of the Company's
inability to pay its obligations to its unsecured creditors.
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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 December 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 and subordinated to certain senior
secured debt. The note bears interest at the rate of 15% and has accrued
interest of $41,905 at December 31, 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: February 10, 2002 INTERACTIVE GROUP, INC.
/s/ Robert Stahl
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Robert Stahl
President, Secretary
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