-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QY54n2OtZFcgbz772851dOEKgL1d79UiQ16lr4rJ0T6HCxuxDrWfRqV2X3TG65SE +Q5Lu6VxWmqZaTpighKKyA== 0000950112-95-002984.txt : 19951120 0000950112-95-002984.hdr.sgml : 19951120 ACCESSION NUMBER: 0000950112-95-002984 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951114 SROS: BSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACTV INC /DE/ CENTRAL INDEX KEY: 0000854152 STANDARD INDUSTRIAL CLASSIFICATION: PATENT OWNERS & LESSORS [6794] IRS NUMBER: 942907258 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10377 FILM NUMBER: 95593118 BUSINESS ADDRESS: STREET 1: 1270 AVE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10020 BUSINESS PHONE: 2122622571 MAIL ADDRESS: STREET 2: 12270 AVE OF THE AMERICAS #2401 CITY: NEW YORK STATE: NY ZIP: 10020 10-Q 1 ACTV, INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1995 ------------------ ACTV, Inc. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 94-2907258 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1270 Avenue of the Americas New York, New York 10020 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (212) 262-2570 (Registrant's telephone number, including area code) - --------------- Securities registered pursuant to Section 12 (g) of the Act: Title of each class Name of exchange on which registered - ------------------- ------------------------------------ Common Stock, Par Value $0.10 Boston Stock Exchange Securities registered pursuant to Section 12 (g) of the Act: Common Stock, par value $0.10 per share --------------------------------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 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 --- --- As of November 14, 1995, there were 11,396,418 shares of the registrant's common stock outstanding. ACTV, INC. AND SUBSIDIARIES INDEX
PART I FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS Consolidated Balance Sheets at December 31, 1994, and September 30, 1995 (unaudited) ...................................................................................1 Consolidated Statements of Operations for the nine and three month periods ended September 30, 1994, and 1995 (all unaudited)...................................................2 Consolidated Statements of Cash Flows for the nine and three month periods ended September 30, 1994, and 1995 (all unaudited)...................................................3 Notes to Consolidated Financial Statements.....................................................4 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............................................5--10 PART II OTHER INFORMATION....................................................................11 Exhibit 11....................................................................................12 Signatures
ACTV, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
ASSETS December 31, September 30, 1994 1995 (unaudited) -------------- -------------- Current Assets: Cash and cash equivalents............... $ 2,479,840 $ 5,090,642 Accounts receivable..................... 198,353 337,211 Education equipment inventory........... 146,283 169,610 Other................................... 114,937 84,571 -------------- -------------- Total current assets................ 2,939,413 5,682,034 -------------- -------------- Property and equipment-net.............. 5,712 422,202 -------------- -------------- Other Assets: Video program inventory................. 644,472 322,236 Patents and patents pending............. 174,181 272,780 Goodwill................................ 3,920,304 3,600,525 Other................................... 49,232 155,157 -------------- -------------- Total other assets.................. 4,788,189 4,350,698 -------------- -------------- Total.......................... $ 7,733,314 $ 10,454,934 ============== ============== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses... $ 660,268 929,355 Deferred stock appreciation rights...... 750,192 1,294,148 Short-term note payable................. 25,250 -- -------------- -------------- Total current liabilities........... 1,435,710 2,223,503 -------------- -------------- Notes payable (related parties).............. 2,325,061 222,219 Shareholders' equity: Preferred stock, $.10 par value, 1,000,000 shares authorized, none issued...... -- -- Common stock, $.10 par value, 17,000,000 shares authorized: issued and outstand- ing 9,019,550 at December 31, 1994, 11,375,150 at September 30, 1995.... 901,955 1,137,515 Additional paid-in capital.............. 26,608,830 36,634,659 Notes receivable from stock sales....... -- (567,500) Accumulated deficit..................... (23,538,242) (29,195,462) -------------- -------------- Total shareholders' equity.......... 3,972,543 8,009,212 -------------- -------------- Total.......................... $ 7,733,314 $ 10,454,934 ============== ==============
See Notes to Consolidated Financial Statements 1 ACTV, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Nine Month Periods Three Month Periods Ended September 30, Ended September 30, 1994 1995 1994 1995 -------------- -------------- -------------- -------------- Revenues: Sales revenues ................. $ 758,963 $ 1,075,925 $ 304,261 $ 322,036 Royalties from related party ... 9,776 -- -- -- -------------- -------------- --------------- --------------- Total revenues .............. 768,739 1,075,925 304,261 322,036 Cost of Sales .................. 233,661 318,665 95,215 106,328 -------------- -------------- --------------- --------------- Gross profit ................ 535,078 757,260 209,046 215,708 Expenses: Operating expenses ............. 751,581 829,781 250,383 300,743 Selling and administrative ..... 2,870,441 3,600,124 1,142,353 1,135,076 Depreciation and amortization .. 334,259 499,261 111,098 187,645 Amortization of goodwill ....... 236,874 319,779 106,593 106,593 Stock appreciation rights ...... (11,095) 1,249,206 (68,357) 800,851 -------------- -------------- --------------- --------------- Total expense ............... 4,182,060 6,498,151 1,542,070 2,530,908 Interest (income) ................. (37,995) (83,150) (7,358) (26,680) Interest expense - related parties 184,186 93,596 43,057 20,001 -------------- -------------- --------------- --------------- Interest expense (income) - net 146,191 10,446 35,699 (6,679) Other (income) .................... (7,316) -- (7,316) -- Loss before minority interest in equity of investee ............. 3,785,857 5,751,337 1,361,407 2,308,521 Interest in ACTV Interactive ...... 143,500 -- -- -- -------------- -------------- --------------- --------------- Net loss before extraordinary gain .............................. 3,929,357 5,751,337 1,361,407 2,308,521 Extraordinary gain on retirement of debt .............................. 521,803 94,117 289,958 -- -------------- -------------- --------------- --------------- Net loss .......................... $ 3,407,554 $ 5,657,220 $ 1,071,449 $ 2,308,521 ============== ============== =============== =============== Loss per share before extraordinary gain .............................. $.51 $.59 $.17 $.23 Loss per share after extraordinary gain .............................. $.44 $.58 $.13 $.23 ============== ============== =============== =============== Weighted average number of common shares outstanding ................ 7,699,790 9,748,209 8,156,466 9,981,194
See Notes to Consolidated Financial Statements 2 ACTV, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Month Periods Three Month Periods Ended September 30, Ended September 30, 1994 1995 1994 1995 ------------ ----------- ----------- ----------- Cash flows from operating activities: Net loss ................................................... $ 3,407,554 $ 5,657,220 $ 1,071,449 $ 2,308,521 ------------ ----------- ----------- ----------- Adjustments to reconcile net loss to net cash used in operations: Depreciation and amortization .............................. 571,133 926,402 217,691 401,367 Stock appreciation rights .................................. (11,095) 543,956 (68,357) 256,850 Gain on extinguishment of repayment pool and equipment lease obligations ....................... (521,804) -- (289,959) -- Gain on extinguishment of debt obligations ................................................ -- (94,717) -- -- Reclassification of equipment .............................. 1,151 -- 1,151 -- Common stock issued for services ........................... -- 563,430 -- 415,500 Changes in assets and liabilities: Loss from interest in ACTV Interactive ..................... 143,500 -- -- -- Accounts receivable ........................................ (179,195) (138,858) (30,182) 133,999 Other assets ............................................... (12,736) 56,992 (134) 50,126 Accounts payable and accrued expenses ...................... 160,420 3,986 (7,953) (138,367) Education equipment inventory .............................. 23,165 (23,327) 70,117 (24,996) Receivable from affiliate .................................. (15,324) -- -- -- Interest payable ........................................... 184,188 93,333 43,058 20,001 ------------ ----------- ----------- ----------- Net cash (used) in operating activities ........................................ (3,064,151) (3,726,023) (1,136,017) (1,194,041) ------------ ----------- ----------- ----------- Cash flows from financing activities: Proceeds from sale of common stock ......................... -- 8,951,859 -- 5,660,984 Proceeds from exercise of warrants and options ................................................ 1,608,660 68,600 98,229 -- Discounted prepayment of note .............................. -- (101,458) -- -- Note repayments ............................................ -- (2,025,250) -- (1,500,000) Equipment lease repayment .................................. (65,000) -- -- -- Repayment pool principal repayment ......................... (45,000) -- (10,000) -- ------------ ----------- ----------- ----------- Net cash provided by (used in) financing activities ...................................................... 1,498,660 6,893,751 88,229 4,160,984 Cash flows from investing activities: Cash acquired in acquisition of remaining interest in affiliate ...................................... 672,160 -- -- -- Cash paid for interest in affiliate ........................ (2,500,000) -- -- -- Investment in patents pending .............................. (111,691) -- (111,691) -- Investment in property and equipment ....................... (1,150) (556,926) -- (94,182) ------------ ----------- ----------- ----------- Net cash used in investing activities ........................... (1,940,681) (556,926) (111,691) (94,182) ------------ ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents ..................................................... (3,506,172) 2,610,802 (1,159,479) 2,872,761 Cash and cash equivalents, beginning of period ........................................ 3,858,863 2,479,840 1,512,170 2,217,881 ------------ ----------- ----------- ----------- Cash and cash equivalents, end of period .............................................. 352,691 5,090,642 352,691 5,090,642 ============ =========== =========== =========== Supplemental disclosure of noncash investing activity: see notes to consolidated financial statements 3
ACTV, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED SEPTEMBER 30, 1995 1. The consolidated financial statements are unaudited, except as indicated. In the opinion of management, these consolidated financial statements reflect all normal, recurring adjustments necessary for a fair presentation of the results for all periods. The financial results for the interim periods presented are not necessarily indicative of the results to be expected for either succeeding quarters or the full fiscal year. 2. For a summary of significant accounting policies and additional financial information, see the Company's Annual Report on Form 10-K for the year ended December 31, 1994. 3. The consolidated statements of operations for the nine month period ended September 30, 1995, reflect an extraordinary gain of $94,117 on the extinguishment of an obligation to Nolan Bushnell. On April 25, 1994, the Company entered into a Settlement Agreement (the "Bushnell Settlement Agreement") with Mr. Bushnell under which Mr. Bushnell released the Company from certain obligations. Pursuant to the Bushnell Settlement Agreement, ACTV issued to Mr. Bushnell, among other consideration, a promissory note in the principal amount of $190,000, payable in two installments on June 30, 1995, and June 30, 1996. In January 1995, the Company and Mr. Bushnell agreed to a discounting of the note for payment in full at that time. Separately, the consolidated statements of operations for the three month and nine month periods ended September 30, 1994, reflect an extraordinary gain of $231,845 on the extinguishment of certain obligations to Nolan Bushnell and Catalyst Technologies. 4. The Company's balance sheet at September 30, 1995 reflects a credit to shareholders' equity of $110,000 related to options issued but not yet vested at a price below the prevailing market price on the date of issuance. The options were issued to acquire a patent in September 1995. The Company's balance sheet at September 30, 1995 also reflects a debit to shareholders' equity of $567,500 related to non-recourse loans made by the Company to certain employees in August 1995 to purchase the Company's Common Stock by exercising options. The due dates of the non-recourse loans correspond with the respective expiration dates of the options exercised. 5. The following pro forma consolidated statement of operations for the nine months ended September 30, 1994 has been prepared to reflect the financial effects of the Company's March 11, 1994, purchase of the Washington Post Company's interest in ACTV Interactive as if it had occurred on January 1, 1994. This statement consolidates the results of the Company and ACTV Interactive for the nine months ended September 30, 1994, with the following adjustments: elimination of intercompany sales and royalty expense, recognition of increased amortization expense related to goodwill, recognition of increased interest expense on the $2 million note payable to the Washington Post Company, and elimination of the Company's loss related to its interest in ACTV Interactive under the equity method of accounting. Revenues $958,795 Cost of sales 300,941 Operating expenses 844,681 General and administrative expenses 3,196,507 Depreciation and amortization 571,133 Stock appreciation rights (11,095) Net interest expense 142,659 Other income 7,316 Extraordinary gain 521,803 ------------- Net loss $3,556,912 ============= Net loss per share $.46 ============= 4 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE COMPANY ACTV, Inc. (the "Company") was organized to develop and market ACTV programming technology, which permits a viewer to experience instantly responsive interactive television. Since its inception, the Company has incurred operating losses approximating $29.2 million related directly to the development and marketing of the ACTV programming technology. In July 1992, the Company entered into an agreement with a subsidiary of the Washington Post Company (the "Post Company") to form ACTV Interactive, a partnership organized for the purpose of marketing products and services incorporating the programming technology to the education marketplace. A wholly owned subsidiary of the Company, ACTV Interactive, Inc. (formerly ACTV Education, Inc.) owned a 49% share in the partnership, and the subsidiary of the Post Company owned a 51% share. On March 11, 1994, the Company purchased the Post Company's full 51% interest in ACTV Interactive for consideration of $4.5 million, consisting of $2.5 million in cash at closing and a $2 million 8% note due December 31, 1996. Subsequently, all operations by the Company's subsidiaries associated with the education market have been consolidated with the results of the Company. In March 1988, the Company formed ACTV Entertainment Inc. (formerly ACTV Domestic Corporation) as an equal shareholder with Le Groupe Videotron ("LGV") of Canada. The Company granted to ACTV Entertainment the exclusive right to use the Company's programming technology in the United States DBS, cable, and broadcast television markets. In June 1993, LGV withdrew from its ownership in ACTV Entertainment, and the Company became the sole shareholder of ACTV Entertainment under the terms of an agreement with a subsidiary of LGV. In exchange for gaining full ownership and control of ACTV Entertainment in the settlement, the Company agreed to give up the license fee revenue it had received from LGV for LGV's use of the programming technology in Canada and Europe. In March 1995, the Company formed The Los Angeles Interactive Network, Inc., a wholly owned subsidiary of ACTV Entertainment, to operate the Company's interactive television trial in Southern California. In July 1995, the Company formed 3D Virtual, Inc., a wholly owned subsidiary that will explore the development of three dimensional applications of the Company's programming technology. RESULTS OF OPERATIONS Comparison of Nine Month Periods Ended September 30, 1995 and September 30, 1994 During the nine month period ended September 30, 1995, the Company's revenues increased 40%, to $1,075,925, from $768,739 in the nine month period ended September 30, 1994. The increase was the result of higher sales to the education market, including revenues relating to the Company's new distance learning product. The increase was also partially due to the inclusion of the Company's education sales for the entire nine month period of 1995 versus only a portion of the comparable period in 1994. From January 1, 1994, to March 11, 1994, education sales were reported separately by the Company's 49% subsidiary ACTV Interactive, which was acquired in full by ACTV, Inc. on 5 March 11, 1994. Prior to this purchase, the results of ACTV Interactive were accounted for under the equity method of accounting. Cost of sales in the nine months ended September 30, 1995, was $318,665, an increase of 36% over cost of sales of $233,661 in the nine months ended September 30, 1994. The Company's cost of sales as a percentage of sales revenue on a year to year basis remained stable at 30.4% in 1994 and 29.6% in the 1995 period. Total expenses excluding cost of sales and interest expense in the nine months ended September 30, 1995, increased 55%, to $6,498,151, from $4,182,060 in the comparable period in 1994. This increase was partially the result of the Company's recognition in the more recent period, as explained above, of the expenses of ACTV Interactive, which for a portion of the 1994 period were reported separately. The increase was due also to significantly greater expenses related to the Company's SAR plan, higher research and development expenses, and to greater general and administrative costs associated with the launch in May 1995 of the Company's interactive television network trial in California. Depreciation and amortization expense for the nine months ended September 30, 1995, increased 43% to $819,040, from $571,133 for the nine months ended September 30, 1994. This increase was partially the result of the Company's amortization for the entire nine month period of 1995 versus a portion of the same period in 1994 of goodwill arising from the purchase of the Washington Post's interest in ACTV Interactive. In addition, for the nine months ended September 30, 1995, the Company recorded increased depreciation expense related to equipment purchased for the California trial referred to above. The Company's interest expense for the nine months ended September 30, 1995, decreased 49%, to $93,596, compared to $184,186 in the prior year's comparable period. The decrease was due in part to the elimination of expense related to original issue discount on the $1.5 million convertible note payable to the Washington Post Company. The full principal value of this note, plus all accrued interest, was converted by the Post Company into common shares of ACTV, Inc. in March 1994. Interest expense declined also due to a decrease in notes payable during the more recent period. Interest income in the nine months ended September 30, 1995, was $83,150, compared with $37,995 in the nine months ended September 30, 1994. The increase resulted from higher available cash balances and higher prevailing market rates of interest in the more recent period. For the nine months ended September 30, 1995, the Company's net loss before extraordinary items was $5,751,337 or $.59 per share, an increase of 46% over the net loss before extraordinary items of $3,929,537, or $.51 per share, incurred in the prior year's comparable period. The Company recorded extraordinary gains of $94,117 in the nine months ended September 30, 1995 and $521,803 in the nine months ended September 30, 1994, the result of the extinguishment of certain obligations for value that was less than the amounts recorded on the Company's books for such obligations. Net loss after extraordinary gain for the nine months ended September 30, 1995, was $5,657,220, or $.58 per share, an increase of 66% over the net loss after extraordinary gain for the comparable period of 1994 of $3,407,554, or $.44 per share. Comparison of Nine Month Periods Ended September 30, 1994 and September 30, 1993 During the nine month period ended September 30, 1994, the Company's revenues increased 391%, to $768,739, from $156,648 in the nine month period ended September 30, 1993. The increase was primarily the result of the Company's recognition in the more recent period of the sales of its education subsidiary, ACTV Interactive. Prior to the Company's purchase in March 1994 of the Washington Post's 51% interest in this subsidiary, in which the Company previously owned the remaining 49% interest, the results of ACTV Interactive were accounted for under the equity method of accounting. 6 On a pro forma basis, assuming that the Company's results were consolidated with those of ACTV Interactive for the entire nine month period ended September 30, 1994, (see Note 5), revenues increased 25%, to $958,795, compared with revenues of $765,471 pro forma in the nine months ended September 30, 1993. Pro Forma education sales in the nine months ended September 30, 1994 were $958,795, an increase of 50% over pro forma education sales of $637,725 in the comparable period in 1993. Cost of sales in the nine months ended September 30, 1994, was $233,661, all of which cost related to education product sales. The Company recorded no cost of sales for the nine months ended September 30, 1993, since it was reported separately by ACTV Interactive. Total expenses excluding cost of sales and interest expense in the nine months ended September 30, 1994, increased 93%, to $4,182,060, from $2,165,129 in the comparable period in 1993. This increase was partially the result of the Company's recognition in the more recent period, as explained above, of the expenses of ACTV Interactive, which in 1993 were reported separately. The increase was due also to higher research and development expenses, and to greater general and administrative costs associated with market and product development for application of the programming technology in the distance learning, in-home entertainment, and in-room hotel entertainment markets. On a pro-forma basis, total expenses before interest expense in the nine month period ended September 30, 1994, increased 25%, to $4,182,060, from $3,347,857 in the nine months ended September 30, 1993. Depreciation and amortization expense for the nine months ended September 30, 1994, increased to $571,133, from $420,953 for the nine months ended September 30, 1993. This increase was the result of the Company's amortization in the more recent period of goodwill arising from the purchase of the Washington Post's interest in ACTV Interactive. The Company's interest expense for the nine months ended September 30, 1994, decreased 43%, to $184,186, compared to $321,000 in the prior year's comparable period. The decrease was due in part to the elimination of expense related to original issue discount on the $1.5 million convertible note payable to the Washington Post Company. The full principal value of this note, plus all accrued interest, was converted by the Post Company into common shares of ACTV, Inc. in March 1994. Interest expense declined also due to the repayment of certain obligations of the repayment pool, as well as the accrual of interest payable on the repayment pool obligations at lower rates, in reflection of a general decline in interest rates. Interest income in the nine months ended September 30, 1994, was $37,995, compared with $36,322 in the nine months ended September 30, 1993. The increase resulted from higher available cash balances in the more recent period. For the nine months ended September 30, 1994, the Company's net loss before extraordinary items was $3,929,357, or $.51 per share, an increase of 48% over the net loss of $2,646,382, or $.44 per share, incurred in the prior year's comparable period. The Company recorded an extraordinary gain of $521,803 in the nine months ended September 30, 1994, the result of the extinguishment of certain obligations for value that was less than the amounts recorded on the Company's books for such obligations. Net loss after the extraordinary gain for the nine months ended September 30, 1994, was $3,407,554, or $.44 per share. Comparison of Three Month Periods Ended September 30, 1995 and September 30, 1994 During the three month period ended September 30, 1995 (the "Third Quarter 1995"), the Company's revenues increased 6% to $322,036, compared to revenues of $304,261 for the three month period ended September 30, 1994 (the "Third Quarter 1994"). The increase was the result of higher education sales, including revenues related to the Company's new distance learning product. 7 Cost of sales in the Third Quarter 1995 was $106,328, an increase of 12% from cost of sales of $95,215 in the Third Quarter 1994. The increase was due to higher sales levels in the Third Quarter 1995 as compared to the Third Quarter 1994. The Company's cost of sales as a percentage of sales revenue on a quarter to quarter basis remained relatively stable at 31% in 1994 and 33% in the 1995 period. Total expenses excluding cost of sales and interest expense increased 64% in the Third Quarter 1995, to $2,530,908, from $1,542,070 in the Third Quarter 1994. This increase resulted from significantly greater expenses related to the Company's SAR plan, higher research and development expenses, higher general and administrative costs associated with the launch in May 1995 of the Company's interactive television network trial in California, and to increased depreciation and amortization expenses in the more recent period. Depreciation and amortization expense increased 35% in the Third Quarter 1995 to $294,238, from $217,691 in the Third Quarter 1994, due to higher depreciation expense related to equipment purchased for the California trial. Interest expense declined 54% in the Third Quarter 1995, to $20,001, from $43,057 in the Third Quarter 1994, due to decreased note payable obligations in the more recent quarter. Interest income in the Third Quarter 1995 was $26,680, compared with $7,358 in the Third Quarter 1994. The increase resulted from higher available cash balances and higher prevailing market rates of interest in the more recent period. The Company's net loss for the Third Quarter 1995 was $2,301,521 or $.23 per share, an increase of 70% compared to the net loss before extraordinary item of $1,361,407 or $.17 per share incurred in Third Quarter 1994. The Company recorded an extraordinary gain of $289,958 in the Third Quarter 1994, the result of the extinguishment of certain obligations for value that was less than the amounts recorded on the Company's books for such obligations. Net loss after the extraordinary gain for the Third Quarter 1994 was $1,071,449 or $.13 per share. Comparison of Three Month Periods Ended September 30, 1994 and September 30, 1993 During the three month period ended September 30, 1994 (the "Third Quarter 1994"), the Company's revenues increased to $304,261, compared to revenues $14,559 the three month period ended September 30, 1993 (the "Third Quarter 1993"). The increase was primarily the result the Company's recognition in the more recent period of the sales of its education subsidiary, ACTV Interactive. Prior to the Company's purchase in March 1994 of the Washington Post's 51% interest in this subsidiary, in which the Company previously owned the remaining 49% interest, the results of ACTV Interactive were accounted for under the equity method of accounting. All of the Company's revenues in the Third Quarter 1994 were from education sales. Education sales for the Third Quarter 1993, which totaled $216,615, were reported on the separate financial statements of ACTV Interactive. Cost of sales in the Third Quarter 1994 was $95,215, all of which cost related to education product sales. The Company recorded no cost of sales for the Third Quarter 1993, since it was reported separately by ACTV Interactive. Total expenses excluding cost of sales and interest expense increased approximately 96% in the Third Quarter 1994, to $1,542,070, from $787,736 in the Third Quarter 1993. This increase was partially the result of the Company's recognition in the more recent period, as explained above, of the expenses of ACTV Interactive, which in 1993 were reported separately. The increase was due also to higher research and development expenses, and to greater general and administrative costs associated with 8 market and product development for application of the programming technology in the distance learning and in-home entertainment markets. Depreciation and amortization expense increased in the Third Quarter 1994 to $217,691, from $165,233 in the Third Quarter 1993, due to the inclusion in the more recent quarter of goodwill amortization expense of $106,593 related to the Company's purchase of the Washington Post Company's interest in ACTV Interactive. Interest expense declined 53% in the Third Quarter 1994, to $43,057, from $92,005 in the Third Quarter 1993, due in part to the elimination of expense related to original issue discount on the $1.5 million convertible note payable to the Post Company. The full principal value of this note, plus all accrued interest, was converted by the Post Company into common shares of ACTV, Inc. in March 1994. Interest expense declined also, due to the accrual of interest expense on the repayment pool at lower rates, in reflection of a general decline in interest rates. Interest income in the Third Quarter 1994 was $7,358, compared with $23,071 in the Third Quarter 1993. The increase resulted from lower available cash balances and lower market rates of interest in the more recent period. The Company's net loss for the Third Quarter before extraordinary items was $1,361,407 or $.17 per share, an increase of 39% over the net loss of $978,790 or $.16 per share incurred in Third Quarter 1993. The Company recorded an extraordinary gain of $289,958 in the Third Quarter 1994, the result of the extinguishment of certain obligations for value that was less than the amounts recorded on the Company's books for such obligations. Net loss after the extraordinary gain for the Third Quarter was $1,071,449 or $.13 per share. Liquidity and Capital Resources Since its inception, the Company (including its subsidiaries ACTV Entertainment, ACTV Interactive, Inc., Los Angeles Interactive Network, Inc., and 3D Virtual, Inc.) has not generated revenues sufficient to fund its operations, and has incurred operating losses. Through September 30, 1995, the Company had an accumulated deficit of approximately $29.2 million. The Company's cash position on September 30, 1995, was $5,090,642, compared to $2,479,840 on December 31, 1994. During the nine month period ended September 30, 1995, the Company used $3,726,023 in cash for its operations, compared with $3,064,151 for the nine month period ended September 30, 1994. The increase in the nine month period ended September 30, 1995, was due to higher selling and administrative expenses and to increased operating activity in the more recent year related to the Company's interactive network trial launched in May 1995. The Company met its cash needs in the nine month period ended September 30, 1995, from the proceeds of sales of common stock to private investors completed in the last quarter of 1994 and during the first three quarters of 1995. The Company met its cash needs in the nine month period ended September 30, 1994, from the remaining proceeds of the redemption of its Redeemable Warrants in May 1993, as well as from the exercise of warrants by the Washington Post Company in March 1994. With respect to investing activities in the nine month period ended September 30, 1995, the Company used cash of $556,926 related to equipment purchases for the California trial referred to above. In the nine month period ended September 30, 1994, the Company used cash of $2,500,000 to purchase the Washington Post Company's 51% interest in ACTV Interactive and cash of $111,691 related to new patent filings. ACTV Entertainment, ACTV Interactive and the Los Angeles Interactive Network, Inc. and 3D Virtual, Inc. are dependent on advances from the Company to meet their obligations. 9 The Company's balance sheet at September 30, 1995, also reflects the accrual of expense of $1,294,148 related to the Company's stock appreciation rights plan, a decrease of $101,458 in notes payable resulting from the discounted prepayment of a note, and a decrease in notes payable of $2,000,000, the amount of principal repayments that the Company made in May, July and September 1995. In addition, the Company repaid the remaining notes payable balance of approximately $220,000 in October 1995. In the first nine months of 1995, the Company raised approximately $8.9 million from the private sale of shares of the Company's common stock (including approximately $5.7 million during the three months ended September 30, 1995). Management of the Company believes that its current funds will enable the Company to finance its operations for at least the next twelve month period. However, if the Company's assumptions and beliefs prove to be incorrect, the Company may require additional financing during this period. In the event that the Company does require additional financing, the Company has no agreements, arrangements or understandings to obtain such additional financing. The Company believes that it may be required to expend approximately $200,000 in the remainder of 1995 to facilitate the completion of current research and development projects, relating primarily to the development of a new analog/digital two-way distance learning system. The Company does not have any material contractual commitments for capital expenditures. Impact of Inflation Inflation has not had any significant effect on the Company's operating costs. 10 PART II OTHER INFORMATION ITEM 1 LEGAL PROCEEDINGS There are no pending material legal proceedings to which the Company is a party. ITEM 2 CHANGES IN SECURITIES None. ITEM 3 DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS None. ITEM 5 OTHER INFORMATION None. ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits -- Exhibit 11, Computation of Loss per Share (b) Reports on Form 8-K: None. 11 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ACTV, Inc. Registrant Date: November 14, 1995 /s/ William C. Samuels ----------------- ---------------------- William C. Samuels President, Chief Executive Officer and Director Date: November 14, 1995 /s/ Christopher C. Cline ------------------ ------------------------ Christopher C. Cline Vice President (principal financial and accounting officer) EX-11 2 EXHIBIT 11
ACTV, INC. AND SUBSIDIARIES COMPUTATION OF LOSS PER SHARE Nine Month Periods Three Month Periods Ended September 30, Ended September 30, 1994 1995 1994 1995 ------------- ------------- ------------ ------------- Weighted average shares outstanding.......... 7,699,790 9,748,209 8,156,466 9,981,194 Common stock equivalents -- -- -- --------------- --------------- --------------- --------------- Total............................... 7,699,790 9,748,209 8,156,466 9,981,194 =============== =============== =============== =============== Net loss before extraordinary gain........ $3,929,357 $5,751,337 $1,361,407 $2,308,521 Net loss after extraordinary gain......... $3,407,554 $5,657,220 $1,071,449 $2,308,521 =============== =============== =============== =============== Loss per share before extraordinary gain..... $.51 $.59 $.17 $.23 Loss per share after extraordinary gain...... $.44 $.58 $.13 $.23 =============== =============== =============== =============== 12
EX-27 3
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS. 9-MOS DEC-31-1995 SEP-30-1995 5,090,642 0 337,211 0 169,610 5,682,034 469,288 47,086 10,454,934 2,223,503 222,219 1,137,515 0 0 6,871,697 10,454,934 1,075,925 1,075,925 318,665 4,429,905 2,068,246 0 93,596 (5,751,337) 0 (5,751,337) 0 94,117 0 (5,657,220) .58 .58
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