-----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, KKFDAxwSj5XQI2DAWUQXgk5Hlkw3NUzV8dyPeyqbJ19HVLIXiEKwKm81gDUu4uiB xPMAfh5PopKt5RIZWDQ+kg== 0000950117-96-000902.txt : 19960816 0000950117-96-000902.hdr.sgml : 19960816 ACCESSION NUMBER: 0000950117-96-000902 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: BSE SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACTV INC /DE/ CENTRAL INDEX KEY: 0000854152 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] 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: 96615213 BUSINESS ADDRESS: STREET 1: 1270 AVE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10020 BUSINESS PHONE: 2122622571 MAIL ADDRESS: STREET 1: 12270 AVE OF THE AMERICAS #2401 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 June 30, 1996 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 August 13, 1996, there were 11,892,105 shares of the registrant's common stock outstanding. ACTV, INC. AND SUBSIDIARIES INDEX PART I FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS Page Consolidated Balance Sheets at December 31, 1995 and June 30, 1996 (unaudited) ................................................2 Consolidated Statements of Operations for the six and three month periods ended June 30, 1995 and 1996 (unaudited)..............3 Consolidated Statements of Cash Flows for the six and three month periods ended June 30, 1995 and 1996 (unaudited)..............4 Notes to Consolidated Financial Statements................................5 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...............................6--11 PART II OTHER INFORMATION....................................................12 Exhibit 11...........................................................13 Signatures ACTV, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
ASSETS DECEMBER 31, JUNE 30, 1995 1996 (UNAUDITED) Current Assets: Cash and cash equivalents ............... $3,531,782 $1,189,507 Accounts receivable ..................... 349,291 467,925 Education equipment inventory ........... 112,218 220,993 Other ................................... 61,011 264,626 ---------- ---------- Total current assets ................ 4,054,302 2,143,051 ---------- ---------- Property and equipment-net .............. 416,895 659,918 ---------- ---------- Other Assets: Video program inventory-net ............. 214,824 -- Patents and patents pending-net ......... 268,980 261,379 Goodwill-net ............................ 3,493,932 3,280,746 Other ................................... 102,195 331,106 ---------- ---------- Total other assets .................. 4,079,931 3,873,231 ---------- ---------- Total .......................... $8,551,128 $6,676,200 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses... $1,090,392 $1,196,368 Deferred stock appreciation rights...... 566,883 621,466 ---------- ---------- Total current liabilities........... 1,657,275 1,817,834 ---------- ---------- Total liabilities................... 1,657,275 1,817,834 Shareholders' equity: Preferred stock, $.10 par value, 1,000,000 shares authorized, none issued.................................. -- -- Common stock, $.10 par value, 35,000,000 shares authorized: issued and outstanding 11,396,419 at December 31, 1995, 11,892,105 at June 30, 1996........................ 1,139,642 1,189,211 Additional paid-in capital............... 36,686,742 38,654,705 Notes receivable from stock sales........ (567,500) (567,500) ---------- ---------- Total................................ 37,258,884 39,276,416 Accumulated deficit...................... (30,365,031) (34,418,050) ---------- ---------- Total shareholders' equity........... 6,893,853 4,858,366 ---------- ---------- Total........................... $8,551,128 $6,676,200 ========== ==========
See Notes to Consolidated Financial Statements 2 ACTV, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
SIX MONTH PERIODS THREE MONTH PERIODS ENDED JUNE 30, ENDED JUNE 30, 1995 1996 1995 1996 ----------- ---------- ---------- ---------- Revenues: Sales revenues.................... $753,889 $763,515 $412,255 $419,993 License fees from related party... -- 10,081 -- 2,929 ---------- ---------- ---------- ---------- Total revenues................. 753,889 773,596 412,255 422,922 Cost of Sales..................... 212,337 314,610 125,236 106,600 ---------- ---------- ---------- ---------- Gross profit................... 541,552 458,986 287,019 316,322 Expenses: Operating expenses................ 529,038 1,005,988 312,895 487,886 Selling and administrative........ 2,465,048 2,968,882 1,329,625 1,438,263 Depreciation and amortization..... 311,616 325,236 202,937 137,357 Amortization of goodwill.......... 213,186 213,186 106,593 106,593 Stock appreciation rights......... 448,355 54,583 (275,810) (339,008) ---------- ---------- ---------- ---------- Total expense.................. 3,967,243 4,567,875 1,676,240 1,831,091 Interest (income).................... (56,470) (55,870) (26,691) (22,633) Interest expense - related parties... 73,595 -- 33,333 -- ---------- ---------- ---------- ---------- Interest expense - net............ 17,125 (55,870) 6,642 (22,633) ---------- ---------- ---------- ---------- Net loss before extraordinary gain................................. 3,442,816 4,053,019 1,395,863 1,492,136 Gain on extinguishment of debt obligations.......................... 94,117 -- -- -- ---------- ---------- ---------- ---------- Net loss............................. $3,348,699 $4,053,019 $1,395,863 $1,492,136 ========== ========== ========== ========== Loss per share before extraordinary gain................................. $.36 $.35 $.15 $.13 Loss per share after extraordinary gain................................. $.35 $.35 $.15 $.13 ========== ========== ========== ========== Weighted average number of common shares outstanding.................. 9,452,332 11,684,987 9,493,367 11,891,160
See Notes to Consolidated Financial Statements 3 ACTV, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTH PERIODS THREE MONTH PERIODS ENDED JUNE 30, ENDED JUNE 30, 1995 1996 1995 1996 ---------- ---------- ---------- ---------- Cash flows from operating activities: Net loss $3,348,699 $4,053,019 $1,395,863 $1,492,136 ---------- ---------- ---------- ---------- Adjustments to reconcile net loss to net cash used in operations: Depreciation and amortization............. 525,035 538,422 309,530 243,950 Stock appreciation rights................. 287,106 54,583 (275,810) (339,008) Gain on extinguishment of debt obligations............................... (94,717) -- -- -- Common stock issued for services.......... 147,930 114,047 -- 14,281 Changes in operating assets and liabilities: Accounts receivable....................... (272,858) (118,634) (206,757) (163,517) Other assets.............................. 6,866 (211,163) 19,045 (132,288) Accounts payable and accrued expenses..... 142,354 105,976 535,609 (121,332) Education equipment inventory............. 1,669 (108,775) (30,016) (78,258) Interest payable.......................... 73,332 -- 33,333 -- ---------- ---------- ---------- ---------- Net cash (used) in operating activities....................... (2,531,982) (3,678,563) (1,010,929) (2,068,308) ---------- ---------- ---------- ---------- Cash flows from financing activities: Proceeds from sale of common stock........ 3,290,875 1,903,485 1,784,500 -- Proceeds from exercise of options......... 68,600 -- 60,300 -- Discounted prepayment of note............. (101,458) -- -- -- Repayment of note......................... (525,250) -- (500,000) -- ---------- ---------- ---------- ---------- Net cash provided by (used in) financing activities.............................. 2,732,767 1,903,485 1,344,800 -- Cash flows from investing activities: Investment in property and equipment...... 462,744 567,197 424,442 398,164 ---------- ---------- ---------- ---------- Net cash used in investing activities....................... 462,744 567,197 424,442 398,164 ---------- ---------- ---------- ---------- Net increase (decrease) in cash and cash equivalents.................................... (261,959) (2,342,275) (90,571) (2,466,472) Cash and cash equivalents, beginning of period....................... 2,479,840 3,531,782 2,308,452 3,655,979 ---------- ---------- ---------- ---------- Cash and cash equivalents, end of period............................. 2,217,881 1,189,507 2,217,881 1,189,507 ========== ========== ========== ==========
Supplemental disclosure of noncash investing activity: the consolidated balance sheet at June 30, 1995, reflects an increase of other assets -- net of $198,825 (net of accumulated amortization of $66,275) and a corresponding increase in accounts payable of $265,100. 4 ACTV, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 1996 1(a). 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. 1(b) In August 1996, the Company raised $10 million (before expenses and commissions related to the fund raising) from the issuance by two wholly-owned subsidiaries of the Company, ACTV Holdings, Inc. and ACTV Financing, Inc., of convertible preferred shares to private investors. Pursuant to this transaction, the subsidiaries issued preferred shares that are convertible into common shares of ACTV, Inc. beginning January 1, 1997. The conversion price of the preferred shares is at a discount to the market price for the ACTV, Inc. common shares at the time of conversion. The percentage discount increases as the length of the holding period prior to conversion increases, from a base of 14% for conversion in January 1997 to a maximum of 30.375% for conversion in September 1997 or thereafter. The $10 million financing consists of $4 million in immediately available funds, with the remaining $6 million paid into an escrow account. The escrow funds are to become available to the Company contingent upon the satisfaction of certain conditions in the contracts with the holders of the preferred stock. The Company believes that it has sufficient resources to fund its operations for the next twelve months, whether or not it receives the $6 million in escrowed funds. However, if the Company does not receive these funds and does not obtain additional financing, it may be required to reduce certain planned expenditures in certain of the markets it is attempting to develop. If management's assumptions regarding future events prove incorrect, the Company may be unable to fund its operations, even at a reduced level, for the next twelve months. 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, 1995. 3. The consolidated statements of operations for the six month period ended June 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. 4. The Company's balance sheet at June 30, 1996 reflects a credit to shareholders' equity of $55,000 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 June 30, 1996 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 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 each viewer to simultaneously experience individualized television programming. Since its inception, the Company has incurred operating losses approximating $34.4 million related directly to the development and marketing of the ACTV programming technology. ACTV's individualized programming is designed to work with both single and multiple channels of 6MHz band-width and with different modes of transmission: cable, direct broadcast satellite ("DBS"), multi-microwave distribution systems ("MMDS"), broadcast systems, distance learning networks and closed circuit televisions systems. It is compatible with commonly available one-way analog systems as well as the newer digital systems that have recently begun to be deployed. ACTV's strategy is to generate revenues from the sale of ACTV programming that it either owns, has licensed or that has been created by a third party under a license from ACTV, including fees paid by subscribers to premium cable networks in which the Company has an ownership interest. The Company's mission is to improve the quality of entertainment and education television programming. The chief markets presently targeted by the Company for the ACTV programming technology are in-home entertainment, education (with an emphasis on distance learning), site-based entertainment and Internet applications. The Company seeks to exploit these markets, principally in the U.S., through licensing the programming technology, by creating joint venture relationships, and by direct sales. In March 1988, the Company formed ACTV Entertainment Inc. ("ACTV Entertainment") 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, at the Company's request, 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 and for the conversion of LGV's exclusive license for Canada and Europe to a non-exclusive license, the Company ceased providing programming to LGV and 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 Individualized Television Network, Inc., one of its wholly-owned subsidiaries, to operate the Company's individualized television trial in Southern California. If the trial is successful, this subsidiary will operate the planned regional television network targeting approximately 4.8 million sports subscribers in the region that reaches from Los Angeles to San Diego and Phoenix. The trial, which marks the introduction of the Company's first U.S. regional individualized network (the "Regional Network"), began in the Los Angeles area in May 1995. The trial involves 1,000 cable subscribers and will run throughout most of 1996 and may extend into 1997. The Company believes that the Regional Network is the first programming service in the U.S. to both enhance existing programming and offer new individualized content. Programming for the Regional Network is being provided to ACTV by Prime Sports West, a unit of Liberty Media's Liberty Sports division, which has approximately 4.8 million subscribers in the 6 Southwest region of the U.S.; Cable News Network, Inc. ("CNN"); the Game Show Network, a subsidiary of Sony Entertainment, Inc. ("Sony"); and Viacom. Liberty Media is jointly owned by Telecommunications Inc. ("TCI") and Fox Sports. The cable operator for the Regional Network is TCI of Ventura County. The Company has established five new wholly-owned subsidiaries that would operate additional regional individualized networks covering the San Francisco, Chicago, New York, Atlanta and Texas regions in the event that the Company decides to expand and provide similar services to those of the Regional Network in other regions across the U.S. To date, the five new wholly-owned subsidiaries have not engaged in any business activities, nor does the Company have any present intention to launch their activities. The Regional Network, and any expansion plans related thereto, is part of the Company's plan to develop the entertainment division of its business which, to date, does not generate any revenue for the Company. 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. 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 (the "Note"). Subsequently, all operations by the Company's subsidiaries associated with the education market have been consolidated with the results of the Company. During 1995, the Note, including accrued interest, was paid in full. In January 1995, the Company granted an exclusive license to Greenwich Entertainment Group ("The Greenwich Group") for the use of its programming technology in the theater environment, specifically in shopping malls, museums and entertainment centers. The Company's agreement with The Greenwich Group stipulates the payment of a license fee of 8% to 10% of annual ticket sales per theater, dependent upon each theater's volume. The agreement also calls for minimum annual payments of $200,000 in 1996, $500,000 in 1997, $1,000,000 in 1998, $1,250,000 in 1999 and $1,500,000 in the year 2000 and thereafter. If the minimum payments are not paid, the Company has the right to cancel the license. Additionally, the Company has made equity investments in The Greenwich Group of $24,325 in March 1996 and $250,000 in April 1996. In July 1995, the Company formed 3D Virtual, Inc., a wholly owned subsidiary engaged in the development of three dimensional applications of the Company's programming technology. In August 1996, the Company formed two wholly-owned subsidiaries, ACTV Financing, Inc. and ACTV Holding, Inc. to facilitate a fundraising transaction in which the Company raised $10 million (before expenses and commissions related to the fund raising). Pursuant to this transaction, the subsidiaries issued preferred shares that are convertible into common shares of ACTV, Inc. beginning January 1, 1997. The conversion price of the preferred shares is at a discount to the market price for the ACTV, Inc. common shares at the time of conversion. The percentage discount increases as the length of the holding period prior to conversion increases, from a base of 14% for conversion in January 1997 to a maximum of 30.375% for conversion in September 1997 or thereafter. The $10 million financing consists of $4 million in immediately available funds, with the remaining $6 million paid into an escrow account. The escrow funds are to become available to the Company contingent upon the satisfaction of certain conditions in the contracts with the holders of the preferred stock. 7 RESULTS OF OPERATIONS Comparison of Six Month Periods Ended June 30, 1996 and June 30, 1995 During the six month period ended June 30, 1996, the Company's revenues increased 3% to $773,596, from $753,889 in the six month period ended June 30, 1995. In the more recent period, the Company's revenues derived from education sales, as well as from license and executive producer fees related to its agreement with The Greenwich Group. All revenues in the six month period ended June 30, 1995 were derived from the education market. Cost of sales in the six months ended June 30, 1996, was $314,610, an increase of 48% over cost of sales of $212,337 in the six months ended June 30, 1995. The Company's gross margin declined to 59% in the more recent period, from 72% in the corresponding 1995 period. The decline was due to the inclusion in the more recent period of executive production fees, which carry a lower profit margin than the Company's other revenue sources, and from proportionately lesser revenues from education programs, when compared to the six months ended June 30, 1995. Education programs have a higher gross margin than other education products sold by the Company. Total expenses excluding cost of sales and interest expense in the six months ended June 30, 1996, increased 15%, to $4,567,875, from $3,967,243 in the comparable period in 1995. The increase was due also to higher research and development expenses, and to greater operating and selling and administrative costs associated with the Company's interactive television network trial in California. The trial was launched in May 1995. Depreciation and amortization expense for the six months ended June 30, 1996, increased 3% to $538,422, from $524,802 for the six months ended June 30, 1995. This increase was related primarily to the equipment purchased for the California trial referred to above. The Company incurred no interest expense for the six months ended June 30, 1996, compared to interest expense of $73,595 in the prior year's comparable period. During 1995, the Company paid in full all of its short and long-term interest bearing obligations. Interest income in the six months ended June 30, 1996, was $55,870, compared with $56,470 in the six months ended June 30, 1995. For the six months ended June 30, 1996, the Company's net loss was $4,053,019, or $.35 per share, an increase of 18% over the net loss before extraordinary gain of $3,442,816, or $.36 per share, incurred in the prior year's comparable period. The Company recorded extraordinary gains of $94,117 in the six months ended June 30, 1995, the result of the extinguishment of debt 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 six months ended June 30, 1995, was $3,348,699, or $.35 per share. Comparison of Six Month Periods Ended June 30, 1995 and June 30, 1994 During the six month period ended June 30, 1995, the Company's revenues increased 62%, to $753,889, from $464,478 in the six month period ended June 30, 1994. The increase was the result of higher education sales as well as the Company's recognition for a greater proportion of 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. Cost of sales in the six months ended June 30, 1995, was $212,337, an increase of 53% over cost of sales of $138,446 in the six months ended June 30, 1994. 8 Total expenses excluding cost of sales and interest expense in the six months ended June 30, 1995, increased 50%, to $3,967,243, from $2,639,990 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 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 six months ended June 30, 1995, increased 48% to $524,802, from $353,442 for the six months ended June 30, 1994. This increase was partially the result of the Company's amortization for the entire six 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 six months ended June 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 six months ended June 30, 1995, decreased 48%, to $73,595, compared to $141,129 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 six months ended June 30, 1995, was $56,470, compared with $30,637 in the six months ended June 30, 1994. The increase resulted from higher available cash balances in the more recent period. For the six months ended June 30, 1995, the Company's net loss before extraordinary items was $3,442,816, or $.36 per share, an increase of 42% over the net loss of $2,567,950, or $.34 per share, incurred in the prior year's comparable period. The Company recorded extraordinary gains of $94,117 in the six months ended June 30, 1995 and $231,845 in the six months ended June 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 six months ended June 30, 1995, was $3,348,699, or $.35 per share, an increase of 43% over the net loss after extraordinary gain for the comparable period of 1994 of $2,336,105, or $.31 per share. Comparison of Three Month Periods Ended June 30, 1996 and June 30, 1995 During the three month period ended June 30, 1996 ("Second Quarter 1996"), the Company's revenues increased approximately 3%, to $422,922, from $412,255 in the three month period ended June 30, 1995 ("Second Quarter 1995"). In the more recent quarter, the Company's revenues derived from education sales, as well as from license and executive producer fees related to its agreement with The Greenwich Group. All revenues in Second Quarter 1995 were derived from the education market. Cost of sales in Second Quarter 1996 was $106,600, a 15% decrease compared to Second Quarter 1995's cost of sales of $125,236. The Company's gross margin increased to 75% in the more recent quarter, from 70% in the corresponding 1995 quarter. The gross margin increase was due principally to a higher percentage of education program sales in the revenue mix for the more recent quarter. Education programs have a higher gross margin than other education products sold by the Company. Total expenses excluding cost of sales and interest expense increased approximately 9% in Second Quarter 1996, to $1,831,091, from $1,676,240 in Second Quarter 1995. The increase was due principally to higher operating and selling and administrative expenses associated with the Company's operation of its Los Angeles Regional Network. Depreciation and amortization expense decreased in Second Quarter 1996 to $243,950, from $309,530 in Second Quarter 1995. The decrease resulted from the full depreciation prior to Second Quarter 1996 9 of certain equipment used in the Los Angeles Regional Network. The depreciation expense in Second Quarter 1995 related to this equipment was $66,000. The Company incurred no interest expense in Second Quarter 1996, compared to interest expense of $33,333 in Second Quarter 1995. During 1995, the Company paid in full all of its short and long-term interest bearing obligations. Interest income in Second Quarter 1996 was $22,633, a decrease of 15% compared with $26,691 in Second Quarter 1995. The decrease resulted from lower available cash balances in the more recent period. The Company's net loss in Second Quarter 1996 increased approximately 7%, to $1,492,136, or $.13 per share, from $1,395,863, or $.15 per share, in Second Quarter 1995, principally the result of greater operating and selling and administrative expenses related to the Los Angeles Regional Network. Comparison of Three Month Periods Ended June 30, 1995 and June 30, 1994 During the three month period ended June 30, 1995 (the "Second Quarter 1995"), the Company's revenues increased 7% to $412,255, compared to revenues of $384,637 for the three month period ended June 30, 1994 (the "Second Quarter 1994"). The increase was the result of higher education sales in the more recent quarter. Cost of sales in the Second Quarter 1995 was $125,236, a decrease of 7% from cost of sales of $134,214 in the Second Quarter 1994. The decrease was due to proportionately greater sales of higher margin education software in the Second Quarter 1995. Total expenses excluding cost of sales and interest expense declined slightly in the Second Quarter 1995, to $1,676,240, from $1,680,399 in the Second Quarter 1994. This decrease resulted from lower operating expenses coupled with a gain related to stock appreciation rights, which more than compensated for higher selling and administrative expenses as well as increased depreciation and amortization expenses in the more recent period. The increase in selling and administrative expenses was due to higher research and development expenses for both the education and entertainment markets, 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 increased in the Second Quarter 1995 to $309,530, from $217,692 in the Second Quarter 1994, due to higher depreciation expense related to equipment purchased for the California trial. Interest expense declined 26% in the Second Quarter 1995, to $33,333, from $45,057 in the Second Quarter 1994, due to decreased note payable obligations in the more recent quarter. Interest income in the Second Quarter 1995 was $26,691, compared with $13,527 in the Second Quarter 1994. The increase resulted from higher available cash balances in the more recent period. The Company's net loss for the Second Quarter 1995 was $1,395,863 or $.15 per share, a decrease of 4% compared to the net loss before extraordinary item of $1,461,506 or $.18 per share incurred in Second Quarter 1994. The Company recorded an extraordinary gain of $231,845 in the Second 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 Second Quarter 1994 was $1,229,661 or $.15 per share. Liquidity and Capital Resources 10 Since its inception, the Company (including its operating subsidiaries) has not generated revenues sufficient to fund its operations, and has incurred operating losses. Through June 30, 1996, the Company had an accumulated deficit of approximately $34.4 million. The Company's cash position on June 30, 1996 was $1,189,507, compared to $3,531,782 on December 31, 1995. During Second Quarter 1996 the Company used $2,068,308 in cash for its operations, compared with $1,010,929 in Second Quarter 1995. The increase in Second Quarter 1996 was due principally to asset and liability changes between the two periods. The Company met its cash needs in Second Quarter 1996 from the remaining proceeds of private sales of common stock effected in 1995, as well as from sales of common stock totaling $1.9 million that were concluded during the first quarter of 1996. The Company met its cash needs in Second Quarter 1995 from the proceeds of sales of common stock to private investors completed in the last quarter of 1994 and the first two quarters of 1995. With respect to investing activities, in Second Quarter 1996 and 1995 the Company used cash of $398,164 and $424,442, respectively, principally for equipment purchases related to the Los Angeles Regional Network. The Company's operating subsidiaries are dependent on advances from the Company to meet their obligations. The Company's balance sheets at June 30, 1996 and June 30, 1995 reflect expense accruals of $621,466 and $1,037,298, respectively, related to the Company's stock appreciation rights plan. In August 1996, the Company raised $10 million (before expenses and commissions related to the fund raising) from the issuance by two wholly-owned subsidiaries of the Company, ACTV Holdings, Inc. and ACTV Financing, Inc., of convertible preferred shares to private investors. Pursuant to this transaction, the subsidiaries issued preferred shares that are convertible into common shares of ACTV, Inc. beginning January 1, 1997. The conversion price of the preferred shares is at a discount to the market price for the ACTV, Inc. common shares at the time of conversion. The percentage discount increases as the length of the holding period prior to conversion increases, from a base of 14% for conversion in January 1997 to a maximum of 30.375% for conversion in September 1997 or thereafter. The $10 million financing consists of $4 million in immediately available funds, with the remaining $6 million paid into an escrow account. The escrow funds are to become available to the Company contingent upon the satisfaction of certain conditions in the contracts with the holders of the preferred stock. The Company believes that it has sufficient resources to fund its operations for the next twelve months, whether or not it receives the $6 million in escrowed funds. However, if the Company does not receive these funds and does not obtain additional financing, it may be required to reduce certain planned expenditures in certain of the markets it is attempting to develop. If management's assumptions regarding future events prove incorrect, the Company may be unable to fund its operations, even at a reduced level, for the next twelve months. The Company has no agreements, arrangements or understanding to obtain additional financing, other than as disclosed herein. There can be no assurance that additional financing, if it should be needed, will be available on terms satisfactory to the Company or at all. In the three months ended March 31, 1996, the Company raised approximately $1.9 million from the private sale of shares of the Company's common stock. The Company believes that it may be required to expend approximately $300,000 in the remainder of 1996 to facilitate the completion of current research and development projects, relating primarily to the development of software to implement the Company's programming technology in digital set-top terminals. The Company does not have any material contractual commitments for capital expenditures. 11 Impact of Inflation Inflation has not had any significant effect on the Company's operating costs. 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. 12 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: August 13, 1996 /s/ William C. Samuels --------------- ---------------------- William C. Samuels Chairman, Chief Executive Officer and Director Date: August 13, 1996 /s/ Christopher C. Cline --------------- ------------------------ Christopher C. Cline Vice President (principal financial and accounting officer) 13 EX-11 2 EXHIBIT 11 EXHIBIT 11 ACTV, INC. AND SUBSIDIARIES COMPUTATION OF LOSS PER SHARE
SIX MONTH PERIOD THREE MONTH PERIOD ENDED JUNE 30, ENDED JUNE 30, 1995 1996 1995 1996 ---------- ---------- --------- ---------- Weighted average shares outstanding .... 9,452,332 11,684,987 9,493,367 11,891,160 Common stock equivalents ............... -- -- -- -- ---------- ---------- ---------- ----------- Total ......................... 9,452,332 11,684,987 9,493,367 11,891,160 ========== ========== ========== =========== Net loss before extraordinary gain .. $3,442,816 $4,053,019 $1,395,863 $ 1,492,136 Net loss after extraordinary gain ... $3,348,699 $4,053,019 $1,395,863 $ 1,492,136 ========== ========== ========== =========== Loss per share before extraordinary gain $ .36 $ .35 $ .15 $ .13 Loss per share after extraordinary gain $ .35 $ .35 $ .15 $ .13 ========== ========== ========== ===========
EX-27 3 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS. 6-MOS DEC-31-1996 JUN-30-1996 1,189,507 0 467,925 0 220,993 2,143,051 842,901 182,983 6,676,200 1,817,834 0 1,189,211 0 0 3,669,155 6,676,200 763,515 773,596 314,610 3,974,870 593,005 0 0 (4,053,019) 0 (4,053,019) 0 0 0 (4,053,019) $.35 $.35
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