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, 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 May 13, 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 - March 31, 2002 and September 30, 2001 3
Statements of Operations - Six and Three Months Ended March 31, 2002 and 2001 4
Statement of Stockholders' Deficit - Six Months Ended March 31, 2002 5
Statements of Cash Flows - Six Months Ended March 31, 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 3. Defaults Upon Senior Securities 10
2
INTERACTIVE GROUP, INC.
BALANCE SHEETS
3/31/2002
ASSETS Unaudited 9/30/2001
------------ ------------
Current Assets
Cash $ 2,881 $ 271
Accounts receivable 72 640
Inventories 5,850 5,925
Prepaid expenses and other assets 858 628
Land, building and improvements held for sale 38,395 38,395
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Total current assets 48,056 45,859
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Property and Equipment, at cost
Equipment, less accumulated depreciation of $10,675 and $10,573
at March 31, 2002 and September 30, 2001 2,019 446
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Total assets $ 50,075 $ 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 6,000 26,000
Accounts payable 22,394 8,789
Accounts payable, related parties 220,764 171,238
Accrued expenses 31,914 67,777
Accrued expenses, related parties 616,380 543,975
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Total current liabilities 1,397,452 1,317,779
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Long-term Debt, less current maturities 30,500 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 March 31, 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 (9,440,120) (9,366,717)
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Total stockholders' deficit (1,377,877) (1,304,474)
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Total liabilities and stockholders' deficit $ 50,075 $ 46,305
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See Notes to Financial Statements.
3
INTERACTIVE GROUP, INC.
STATEMENTS OF OPERATIONS
Six and Three Months Ended March 31, 2002 and 2001
(Unaudited)
Six months ended March 31, Three months ended March 31,
2002 2001 2002 2001
-------------- -------------- -------------- --------------
Net sales $ 1,907 $ 5,295 $ 555 $ 95
Cost of goods sold 75 186 15 6
-------------- -------------- -------------- --------------
Gross profit 1,832 5,109 540 89
-------------- -------------- -------------- --------------
Operating expenses
Selling 10,770 13,237 7,357 8,299
General and administrative 39,234 52,756 15,610 17,319
-------------- -------------- -------------- --------------
50,004 65,993 22,967 25,618
-------------- -------------- -------------- --------------
Operating (loss) (48,172) (60,884) (22,427) (25,529)
-------------- -------------- -------------- --------------
Nonoperating income (expense):
Write off of accounts payable
and debt, net 48,856 34,658 48,856 7,411
Interest expense (74,991) (67,541) (36,972) (34,343)
Other income, net 904 1,540 390 1,072
-------------- -------------- -------------- --------------
(25,231) (31,343) 12,274 (25,860)
-------------- -------------- -------------- --------------
(Loss) before income taxes (73,403) (92,227) (10,153) (51,389)
-------------- -------------- -------------- --------------
Income tax expense (benefit) 0 0 0 0
-------------- -------------- -------------- --------------
Net (loss) $ (73,403) $ (92,227) $ (10,153) $ (51,389)
============== ============== ============== ==============
Loss per common share $ (0.01) $ (0.02) $ 0.00 $ (0.01)
============== ============== ============== ==============
See Notes to Financial Statements.
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INTERACTIVE GROUP, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
Six months ended March 31, 2002
(Unaudited)
Series A Preferred Additional Paid-in Accumulated
Stock Common Stock Capital Deficit Total
------------------- ------------- ------------------- ------------- ------------
Balance, September 30, 2001 $ 2,000 $ 5,276 $ 8,054,967 $ (9,366,717) $(1,304,474)
Net loss - - - (73,403) (73,403)
------------------- ------------- ------------------- ------------- ------------
Balance, March 31, 2002 $ 2,000 $ 5,276 $ 8,054,967 $ (9,440,120) $(1,377,877)
=================== ============= =================== ============= ============
See Notes to Financial Statements.
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INTERACTIVE GROUP, INC.
STATEMENTS OF CASH FLOWS
Six Months Ended March 31, 2002 and 2001
(Unaudited)
2002 2001
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CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $(73,403) $(92,227)
Adjustments to reconcile net (loss) to net cash
(used in) operating activities:
Depreciation 102 4,115
Write off of accounts payable and debt, net (48,856) (34,658)
Change in assets and liabilities:
Decrease in accounts receivable 568 1,280
Decrease in inventories 75 186
(Increase) in prepaid expenses and other assets (230) (429)
Increase in accounts payable 556 1,907
Increase in accrued expenses 78,447 68,075
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Net cash (used in) operating activities (42,741) (51,751)
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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) -
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from related party 49,526 51,041
Principal payments on long-term debt (2,500) (1,000)
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Net cash provided by financing activities 47,026 50,041
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Net increase (decrease) in cash 2,610 (1,710)
CASH
Beginning 271 1,952
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Ending $ 2,881 $ 242
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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 six months ended March 31, 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 March 31, 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 $7,884,000 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 six and three
months ended March 31, 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 six month and three month periods ended
March 31, 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. 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 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, 2002 are 5,276,039 and for the six and three months ended March 31, 2001 are
5,198,407 and 5,253,259 respectively.
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NOTE 4. NOTES PAYABLE
At March 31, 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 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 March 31, 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 has created a Carlsbad Security Products Division (CSPD).
This division was formed to develop, market and sell networked monitoring and
security systems. These systems will 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 stock options of the Company to build
sales and support capabilities for InterActive's networked monitoring and
security systems. Additionally, 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 matures April 20, 2003, unless previously converted. At the time of
conversion, the loan would be converted into Company stock, at a number of
shares 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 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 $555 and $1,907 for the three and six months ended
March 31, 2002 compared to $95 and $5,295 for the three and six month period
ended March 31, 2001. The Company's decrease in sales is attributable mainly to
less demand for its SoundXchange Model K.
Gross Profit. Gross profit increased 506% to $540 for the three months
ended March 31, 2002 from $89 for the three months ended March 31, 2001. Gross
profit decreased 64% to $1,832 for the six months ended March 31, 2002 from
$5,109 for the six months ended March 31, 2001. The increase in the three month
period ended March 31, 2002 was due to an increase in sales of the Model K
product with its higher gross profit margin and the overall decrease in gross
profit for the six month period was due to the sales of product with a lower
gross profit margin.
Selling expenses. Selling expenses decreased to $7,357 for the three
months ended March 31, 2002 from $8,299 for the three months ended March 31,
2001. Selling expenses decreased to $10,770 for the six months ended March 31,
2002 from $13,237 for the six months ended March 31, 2001. This decrease was
primarily due to less emphasis on sales of the SoundXchange product.
General and administrative. General and administrative expenses were
$15,610 and $39,234 for the three and six months ended March 31, 2002 and
$17,319 and $52,756 for the three and six months ended March 31, 2001. The
decrease from the previous periods is primarily due to an increased effort on
the Company's behalf to decrease expenses.
Depreciation. Depreciation expense for the three months ended March 31,
2002 and 2001 was $65 and $1,774, respectively. Depreciation expense for the
six months ended March 31, 2002 and 2001 was $102 and $4,115, 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 income (expense). Nonoperating income (expense) for the three
months ended March 31, 2002 and March 31, 2001 was $12,274 and ($25,860),
respectively. Nonoperating (expense) for the six months ended March 31, 2002
and 2001 was ($25,231) and ($31,343), respectively. The decrease in
nonoperating expense is mainly due to a write off of a convertible note. Any
action to enforce the payment of the convertible note must have been commenced
prior to December 1, 2001.
Net Loss. Net loss for the three months ended March 31, 2002 was $10,153
or $0.00 per share compared to a net loss for the three months ended March 31,
2001 of $51,389 or ($0.01) per share. Net loss for the six months ended March
31, 2002 was $73,403 or ($0.01) per share compared to a net loss for the six
months ended March 31, 2001 of $92,227 or ($0.02) per share. The decrease in
losses was due largely to a write off of a convertible note payable which is
included in non-operating income.
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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 March 31, 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 has
created CSPD. This division was formed to develop, market and sell networked
monitoring and security systems. These systems will 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 stock options of the Company to
build sales and support capabilities for InterActive's networked monitoring and
security systems. Additionally, the Company has entered into an agreement with
Bluestem, a related party. Under the terms of the 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 matures April 20, 2003, unless previously
converted. At that time, the loan would be converted into Company stock, at a
number of shares agreed upon by the parties. Repayment of the bridge 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 will also continue
efforts to generate cash through private investments or loans.
The Company has approximately $14,000 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. The Company has also
been notified of the expiration of right of redemption effective June 4, 2002
for non-payment of property taxes on its real estate in the approximate amount
of $9,500. The Company intends to exercise it's right of redemption prior to
the expiration date.
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 had at December 31, 2001 a note in the amount of $20,000, which
was due to an individual on November 30, 1995 and was collateralized by
substantially all assets of the Company and subordinated to certain senior
secured debt. The note bore interest at the rate of 15% and had accrued
interest of $41,905 at December 31, 2001. At March 31, 2002, the Company has
written off this note and related accrued interest, as the note can no longer be
enforced. Any action to enforce the payment of the note must have been
commenced prior to December 1, 2001. The amount written off is included in
non-operating income at March 31, 2002.
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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: May 14, 2002 INTERACTIVE INC.
/s/ Robert Stahl
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Robert Stahl
President and Secretary
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