-----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, NXgmLsKneOzEuE7f/8fFzA/7sCyuWpNyqw6goU9QR7he1gPS8e3UMXCudSNjGmTS DISRpzk+ilTqQAVC44hfdA== 0000950146-99-001159.txt : 19990518 0000950146-99-001159.hdr.sgml : 19990518 ACCESSION NUMBER: 0000950146-99-001159 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 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: SEC FILE NUMBER: 001-10377 FILM NUMBER: 99627795 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 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 March 31, 1999 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) 217-1600 (Registrant's telephone number, including area code) - --------------- Securities registered pursuant to Section 12 (b) 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 May 17, 1999, there were 37,563,269 shares of the registrant's common stock outstanding. ACTV, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)
ASSETS December 31, March 31, 1998* 1999 ------------ ------------ Current Assets: Cash and cash equivalents................ $5,188,770 $3,706,938 Accounts receivable-net.................. 501,768 553,848 Education equipment inventory............ 110,405 77,231 Other.................................... 773,613 344,706 ------------ ------------ Total current assets................. 6,574,556 4,682,723 ------------ ------------ Property and equipment-net................... 2,365,775 2,607,211 ------------ ------------ Other Assets: Patents and patents pending.............. 832,336 841,874 Software development costs............... 1,098,756 1,254,169 Goodwill................................. 2,214,816 2,108,223 Other.................................... 519,802 414,966 ------------ ------------ Total other assets................... 4,665,710 4,619,232 ------------ ------------ Total ............................ $13,606,041 $11,909,166 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY) Current Liabilities: Accounts payable and accrued expenses..... $955,686 $1,492,037 Deferred stock appreciation rights........ 2,000,062 4,138,509 Preferred dividends payable............... 200,305 286,198 ------------ ------------ Total current liabilities............. 3,156,053 5,916,744 Long-Term Notes Payable 4,315,016 5,882,118 Put warrant 1,371,624 -- Shareholders' equity (deficiency): Preferred series A stock, $.10 par value, 1,000,000 shares authorized, issued and outstanding 56,300 at December 31, 1998, and 32,600 at March 31, 1999.............. 5,630 3,260 Preferred series B stock, $.10 par value, 1,000,000 shares authorized, issued and outstanding 5,018 at December 31, 1998, and March 31, 1999........................ 2,805,961 3,121,926 Common stock, $.10 par value, 65,000,000 shares authorized: issued and outstanding 29,759,459 at December 31, 1998, 33,611,255 at March 31, 1999.............. 2,975,946 3,361,125 Additional paid-in capital................ 71,068,230 72,896,983 Loans receivable from stock sales......... -- (199,900) Accumulated deficit....................... (71,892,519) (79,272,990) ------------ ------------ Total shareholders' equity (deficiency) 4,763,348 110,304 ------------ ------------ Total.............................. 13,606,041 11,909,166 ============ ============
See Notes to Consolidated Financial Statements *Derived from the Audited Financial Statements ACTV, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended March 31, 1998 1999 ------------ ------------- Revenues: Revenues........................... $361,247 $400,794 ------------ ------------- Total revenues.................. 361,247 400,794 Cost of Sales...................... 47,603 54,777 ------------ ------------- Gross profit.................... 313,644 346,017 Expenses: Operating expenses................. 362,714 361,472 Selling and administrative......... 2,043,516 2,819,848 Depreciation and amortization...... 212,501 370,314 Amortization of goodwill........... 106,593 106,593 Stock appreciation rights.......... 63,594 3,410,824 ------------ ------------- Total expenses.................. 2,788,918 7,069,051 Interest (income).................... (39,840) (51,022) Interest expense..................... 200,044 230,681 ------------ ------------- Interest expense (income) - net.... 160,204 179,659 Minority interest - subsidiary preferred stock dividend...................... 136,659 -- ------------ ------------- Net loss............................. 2,772,137 6,902,693 ------------ ------------- Preferred stock dividend and accretion -- 477,778 ------------ ------------- Net loss applicable to common shareholders $7,380,471 $2,772,137 ============ ============= Basic and diluted loss per common share $.17 $.23 ------------ ------------- Weighted average number of common shares outstanding.................. 16,088,087 31,990,224 ------------ -------------
See Notes to Consolidated Financial Statements ACTV, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31, 1998 1999 ------------- ------------- Cash flows from operating activities: Net loss....................................... $(2,772,137) $(7,380,471) ------------- ------------- Adjustments to reconcile net loss to net cash used in operations: Depreciation and amortization.................. 319,094 476,906 Stock appreciation rights...................... 63,594 3,410,824 Amortization of stock warrants................. 52,362 -- Notes receivable from stock sales.............. -- 199,900 Notes issued in lieu of cash................... -- 195,478 Stock issued in lieu of cash compensation...... 295,139 39,000 Common stock issued or reserved for preferred dividends and accretion.............. 70,189 75,920 Changes in assets and liabilities: Accounts receivable............................ (214,712) (52,080) Education equipment inventory.................. -- 33,175 Other assets................................... (69,339) 445,053 Preferred dividends and accretions -- 401,858 Accounts payable and accrued expenses....................................... (527,329) 536,350 ------------- ------------- Net cash used in operating activities................................. (2,783,139) (1,618,087) ------------- ------------- Cash flows from investing activities: Investment in patents pending.................. (50,000) (23,176) Investment in property and equipment........... (166,027) (412,696) Investment in systems.......................... (53,566) (252,142) ------------- ------------- Net cash used in investing activities.............. (269,593) (688,014) Cash flows from financing activities: Net proceeds from debt issuance................ 3,306,190 -- Preferred stock dividends payable.............. 66,470 -- Net proceeds from put warrant.................. 1,371,624 -- Redemption of preferred stock.................. (565,759) -- Proceeds from equity transactions.............. 1,391,749 824,269 ------------- ------------- Net cash provided by financing activities......................................... 5,570,274 824,269 ------------- ------------- Net (decrease) increase in cash and cash equivalents........................................ 2,517,542 (1,481,832) Cash and cash equivalents, beginning of period............................ 554,077 5,188,770 ------------- ------------- Cash and cash equivalents, end of period.................................. 3,071,619 3,706,938 ============= =============
See Notes to Consolidated Financial Statements. ACTV, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)(Unaudited)
Common Stock Preferred Series A Preferred Series B Additional Paid- Shares Amount Shares Amount Shares Amount in-Capital Deficit - --------------------------------------------------------------------------------------------------------------------- Balances January 1, 29,759,459 $2,975,946 56,300 $5,630 5,018 $2,805,961 $71,068,230 $(71,892,519) 1999 ---------------------------------------------------------------------------------------------------- Issuance of shares for services 7,800 780 38,220 Issuance of shares in connection with exchange of preferred stock 445,614 44,561 (23,700) (2,370) 33,728 Issuance of shares in connection with exercise of stock options & warrants 3,398,382 339,838 1,756,805 Net loss (6,902,693) Preferred dividends & accretions 315,965 (477,778) ---------------------------------------------------------------------------------------------------- Balances March 31, 1999 33,611,255 $3,361,125 32,600 $3,260 5,018 $3,121,926 $72,896,983 $(79,272,990) =====================================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 1998 and 1999 1. The consolidated financial statements are unaudited. 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 Annual Report on Form 10-K for the year ended December 31, 1998 as filed by ACTV, Inc. (the "Company"). The Company's policy is to capitalize the cost of computer software production once technological feasibility is established upon completion of a detailed program design or upon completion of a working model. The Company's balance sheets at March 31, 1999 and December 31, 1998 reflect capitalized software production costs of $1,254,169 and $1,098,756, respectively. 3. ACTV, Inc.'s balance sheets at March 31, 1999 and December 31, 1998 reflect expense accruals of $4,138,509 and $2,000,062, respectively, related to the Company's stock appreciation rights (SAR) plan. No SARs were exercised for cash during the first quarter of 1999. The accrual at March 31, 1999 is based on the closing market price of the Company's common stock of $11-3/8 on that date for all employees holding stock appreciation rights (SARs), with the exception of Messrs. Samuels, Reese, and Crowley. These executive officers agreed to limit their compensation and the corresponding liability to the Company related to all of their vested stock appreciation rights based on a common stock price of $3-15/16, and further agreed to be paid in unregistered common stock in lieu of cash for all of their vested SARs. As a result of these agreements, the Company's stock appreciation rights expense for the first quarter of 1999 was approximately $3.2 million less than it would have been otherwise. 4. The Company's balance sheets at December 31, 1998 also reflect a contra shareholders' equity (deficiency) amount of $199,900, related to a loan made by the Company to an employee in August 1995 that was paid off during the first quarter of 1999. 5. In January 1998, the Company's subsidiaries, ACTV Entertainment, Inc., (the "Issuer") and The Texas Individualized Television Network, Inc., a wholly-owned subsidiary of the Issuer ("Texas Network"), entered into a Note Purchase Agreement, dated as of January 13, 1998 (the "Agreement") with certain private investors (the "Purchasers"). Pursuant to the Agreement, the Purchasers purchased $5.0 million aggregate principal amount notes from the Issuer and Texas Network. The notes bear interest at a rate of 13.0% per annum, payable semi-annually, with principal repayment in one installment on June 30, 2003. During the term of the note, the Issuer may, at its option, pay any four semi-annual interest payments in kind rather than in cash, with an increase in the rate applicable to such payments in kind to 13.75% per annum. The Note is secured by the assets of the Texas Network, and is guaranteed by ACTV, Inc. In connection with the purchase of such note, the Purchasers received on January 14, 1998 a warrant (the "Warrant") which allowed the holder to purchase up to 17.5% of the fully-diluted shares of common stock of Texas Network or the right, through July 14, 1999, to exchange the Warrant for such number of shares of the Company's Common Stock, at the time of and giving effect to such exchange, equal to 5.5% of the fully diluted number of shares of Common Stock outstanding, after giving effect to the exercise or conversion of all then outstanding options, warrants and other rights to purchase or acquire shares of Common Stock. For accounting purposes, the Company allocated approximately $1.4 million to the value of the Warrant. The Warrant was included outside of Consolidated Shareholders' Equity (Deficiency), due to its cash put feature and was being amortized as additional interest expense. The Warrant was exercised during the first quarter of 1999. 6. During May 1999, the Company redeemed all of the outstanding Series B Preferred Stock for a total of approximately $5.8 million, which represents a 10% premium above the stock's face value plus accrued dividends. Because the preferred stock was convertible into common stock at $2.00 per share beginning in November 1999, by redeeming this preferred stock the Company avoided the possible future issuance of more than 2.8 million shares of common stock. During 1996, the Company raised approximately $9.1 million net in net proceeds from the private placement of 5% exchangeable preferred stock (the "Exchangeable Preferred Stock") issued by its wholly-owned subsidiary and convertible into shares of the Company. The Exchangeable Preferred Stock was convertible into Common Stock of ACTV, Inc., beginning January 1, 1997. A preferred stock accretion of $136,659 was recorded and included as minority interest for the three months ended March 31, 1998. In November 1998, ACTV issued 5,018 shares of Series B Convertible Preferred Stock, common stock, and warrants to purchase approximately 1.95 million shares of common stock at $2.00 per share as a partial exchange for approximately 179,000 shares of exchangeable preferred stock, which had been issued by a subsidiary of ACTV. The excess of the fair value of this consideration over the carrying value of the convertible preferred stock for which it was issued is included in Minority Interest - Subsidiary Preferred stock dividend and accretion in the accompanying statement of operations. The Series B Preferred had a liquidation preference $1,000.00 per share and paid a dividend, in cash or accumulated and paid in common stock upon conversion, of 10% per annum. 7. The Company made no cash payments of interest or income taxes during the three months ended March 31, 1998 and 1999. 8. ACTV, Inc. has developed proprietary and patented software technologies for two principal business segments, Individualized Television and HyperTV. Individualized Television software provides the tools needed to create live or pre-recorded television programming that individualizes what the viewer sees and hears. The first commercial digital application of Individualized Television will be a subscription television network that presents regional sports programming. HyperTV software enables the simultaneous delivery of streamed video and complementary Internet content. The first commercial application of HyperTV was eSchool Online, designed for the online education market. Currently, all of the Company's revenues are derived from sales of eSchool Online software and related services. The operating segments, Individualized Television and HyperTV, have been determined based on the way the Company's business is managed. Information concerning the Company's business segments for the periods ending March 31, 1998 and 1999 are as follows:
1998 1999 Revenues Individualized Television $ -- $ -- HyperTV 361,247 400,794 Unallocated corporate -- -- ---------------- ---------------- Total $361,247 $400,794 ================ ================ Depreciation & Amortization Individualized Television $164,930 $189,980 HyperTV 17,854 144,120 Unallocated Corporate 136,310 142,807 ---------------- ---------------- Total $319,094 $476,907 ================ ================ Interest Expense (Income) Individualized Television $163,018 $216,726 HyperTV (864) 2,281 Unallocated corporate (1,950) (39,348) ---------------- ---------------- Total $160,204 $179,659 ================ ================
1998 1999 Net Loss Applicable to Common Shareholders Individualized Television $1,076,121 $1,176,232 HyperTV 409,270 676,324 Unallocated corporate 1,286,746 5,527,915 ---------------- ---------------- Total $2,772,137 $7,380,471 ================ ================ Capital Expenditures Individualized Television $16,290 $304,124 HyperTV 161,748 350,128 Unallocated corporate 91,555 33,762 ---------------- ---------------- Total $269,593 $688,014 ================ ================ Current Assets Individualized Television $2,979,129 $1,201,482 HyperTV 773,854 846,245 Unallocated corporate 2,821,573 2,634,996 ---------------- ---------------- Total $6,574,556 $4,682,723 ================ ================ Total Assets ACTV Entertainment, Inc. $6,076,012 $4,558,158 HyperTV 1,064,636 1,458,394 Unallocated corporate 6,465,393 5,892,614 ---------------- ---------------- Total $13,606,041 $11,909,166 ================ ================
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE COMPANY To the extent that the information presented in this report discusses financial projections, information or expectations about our products or markets, or otherwise makes statements about future events, such statements are forward-looking. Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, there are a number of risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. These include, among others: o the successful and timely development of new products; o market place acceptance of our new products; and o the availability of sufficient funding to effect such product development. ACTV, including its two principal wholly-owned subsidiaries, ACTV Entertainment, Inc. and HyperTV Networks, Inc. has developed proprietary and patented software technologies that we call Individualized Television and HyperTV(TM). These software technologies enable the creation of interactive programming for both digital television and for applications merging television and the Internet. Our Individualized Television software technology provides the tools needed to create live or pre-recorded television programming that individualizes what the viewer sees and hears. The proprietary software can remember all of the choices the viewer keys in with his TV remote control, allowing the television to literally respond to each viewer with tailored programming and advertising content. Using a standard digital remote control, television viewers switch channels seamlessly and instantly among multiple, real-time feeds of live or pre-recorded video, audio and data. Because there is no observed gap between the viewer's selection and the display on the television, viewers do not realize that they have changed channels, but perceive they are watching one channel that is responsive to their choices. In fact, Individualized Television is a multi-channel telecast of several elements of related programming material such as instant replay on demand, an isolation camera on a star player, and statistical data. To receive our individualized programming a viewer needs a standard digital television set-top box that is compatible with our Individualized Television software technology. The first commercial digital application of Individualized Television will be a subscription television network that presents regional sports programming. We plan to launch the network in the region served by FOX Sports Southwest. FOX Sports Southwest distributes programming to more than 5 million households in Texas, Louisiana, Arkansas, Oklahoma and nine New Mexico counties. The regional network will feature individualized telecasts of professional sports programming, along with college sporting events from the Big 12, Southeastern, Southland and Western Athletic Conferences. We have an agreement with ATT Broadband (formerly Tele-Communications Inc.), to distribute and market our regional network to its digital television subscribers in Texas. Later, we plan to expand into other regions served by FOX Sports Net. ACTV's first national individualized programming will be developed and managed through a joint venture formed in September 1998 with Liberty Media Corporation, called LMC IATV Events, LLC. LMC IATV Events, through an exclusive license from ACTV, has the right to produce and distribute telecasts of major events incorporating our individualized programming enhancements. As consideration for granting such a license, ACTV received a fixed one-third equity interest in the joint venture, with no obligations to make additional capital contributions. HyperTV(TM) software technologies enable the simultaneous delivery of streamed video and complementary material available on the World Wide Web directly to personal computer users or television viewers. We announced the introduction of HyperTV(TM) for entertainment applications in March 1999. The first commercial application of HyperTV(TM) was eSchool online, designed for the on-line education market including K-12 classrooms, universities, distance learning programs, and corporations. eSchool software products include content creation software, student and teacher user software, and software for assessing and storing student performance. We also provide clients with Internet content design assistance, the hosting of educational programs on our computer servers, and technical consulting. Currently, all of our revenues are derived from sales to the on-line learning market. Since its inception, we have incurred operating losses approximating $79 million related directly to the development and marketing of the Individualized Television and HyperTV. It is our belief that we have adequate funding to launch our first regional television network. However, there is no assurance that we will secure the funding necessary to effect additional launches in other regions, or that other factors might not delay or prohibit the successful implementation of the our regional network strategy. RESULTS OF OPERATIONS Comparison of Three Month Periods Ended March 31, 1999 and March 31, 1998 During the three month period ended March 31, 1999, our revenues increased 10.9%, to $400,794, from $361,247 in the three month period ended March 31, 1998. All of our revenues in the first quarter of 1999 and 98% of revenues in first quarter 1998 were derived from sales of our Internet/television convergence product, HyperTV, to the online learning market. The cost of sales, as a percentage of sales revenue, in the more recent quarter was 13.7%, compared to 13.2% in the corresponding 1998 quarter. Total expenses excluding cost of sales, interest expense, and minority interest - preferred stock dividends and accretion increased approximately 154% in the first quarter of 1999, to $7,069,051, from $2,788,918 in the first quarter of 1998. The increase was principally the result of sign ificantly higher stock appreciation rights (SARs) expense, which was the result of a large increase in the market price of our common stock in the first quarter of 1999. The SAR expense for the three months ended March 31, 1999 was $3,410,824, compared to $63,594 for the three months ended March 31, 1998. Selling and administrative expense also increased in the more recent quarter, to $2,819,848, from $2,043,516, due chiefly to an increase in non-cash compensation. Depreciation and amortization expense increased $157,813 in the first quarter of 1999, to $476,907, from $319,094 in the first quarter of 1998, due primarily to increased amortization of HyperTV software development costs. We incurred interest expense in the first quarter of 1999 of $230,681, compared to $200,044 in the first quarter of 1998. The interest expense for both periods relates to a note with an original face value of $5 million issued by a subsidiary of ACTV, Inc. in January 1998. The increase in interest expense in the more recent quarter is due mainly to an increase in the note's principal value from payments of interest in kind rather than in cash. In addition, the note was outstanding for the full 1999 quarterly period, compared to only a portion of the 1998 quarterly period. Interest income in first quarter of 1999 was $51,022, an increase of 28%, compared with $39,840 in the first quarter of 1998. The increase resulted from higher available cash balances in the more recent period. For the three months ended March 31, 1999, we accrued $477,778 for preferred stock dividends and accretion, compared to $0 for the three months ended March 31, 1998. In the three-month period ended March 31, 1998, we accrued $136,659 for minority interest -- subsidiary preferred stock dividends and accretion, related to exchangeable preferred stock issued by a subsidiary of ACTV, Inc. No exchangeable preferred stock was outstanding during the first quarter of 1999. We paid $70,189 in preferred dividends during the first quarter of 1998, by issuing shares of our common stock. For the three months ended March 31, 1999, our net loss applicable to common shareholders was $7,380,471 or $.23 per basic and diluted share, an increase of 266% compared to the net loss of $2,772,137 or $.17 per basic and diluted share for the three months ended March 31, 1998. The increase in loss applicable to common shareholders during the more recent quarter was the result principally of higher stock appreciation rights expense in the more recent quarter. Comparison of Three Month Periods Ended March 31, 1998 and March 31, 1997 During the three month period ended March 31, 1998, our revenues decreased 60.2%, to $361,247, from $907,944 in the three month period ended March 31, 1997. All but 2% of total revenues in the first quarter 1998 were derived from sales of Internet/television convergence products, compared to the first quarter of 1997, when all revenues were related to television-based education hardware and content. The cost of sales, as a percentage of sales revenue, decreased to 13% in the more recent quarter as compared to 31% in the corresponding 1997 quarter. The decrease was the result of the shift in the more recent quarter, as noted above, to the sale of Internet/television convergence products and services, which carry a higher profit margin than our television-based education revenue sources. Total expenses excluding cost of sales, interest expense, and minority interest - preferred stock dividends and accretion increased approximately 26%, by $580,247 in the first quarter of 1998, to $2,788,918, from $2,208,671 in the first quarter of 1997. The increase was due principally to increases in stock appreciation rights (SARs) expense and depreciation expense. We recognized an expense related to SARs of $63,594 in the more recent quarter, compared to income in the amount of $277,037 in the first quarter of 1997. The difference of $340,631 was the result of an increase in the price of our common stock during the first quarter of 1998, compared to a price decrease during the first quarter of 1997. Depreciation and amortization expense increased $164,521 in the first quarter of 1998 to $319,094, from $154,573 in the first quarter of 1997, due to higher depreciation in the more recent quarter related primarily to our master control facility in Texas, which was completed in the last quarter of 1997. We incurred interest expense and accretion in the first quarter of 1998 of $200,204, compared to $0 interest expense and accretion in the first quarter of 1997. The increase was the result of the issuance of debt and associated warrants in January 1998 by a wholly-owned subsidiary of ACTV, Inc. Interest income in the first quarter of 1998 was $39,840, a decrease of 31%, compared with $58,137 in the first quarter of 1997. The decrease resulted from lower available cash balances and prevailing market interest rates in the more recent period. For the three months ended March 31, 1998 and the three months ended March 31, 1997, we accrued $136,659 for dividends and $746,542 for dividends and accretions, respectively, related to exchangeable preferred stock issued in August 1996 by one of our wholly-owned subsidiaries, which was accounted for as minority interest. We paid $70,189 and $2,679 in preferred dividends during the first quarter of 1998 and the first quarter of 1997, respectively, by issuing shares of our common stock. For the three months ended March 31, 1998, our net loss was $2,772,137 or $.17 per basic and diluted share, an increase of 22% compared to the net loss of $2,271,302 or $.19 per basic and diluted share for the three months ended March 31, 1997. The increase in loss applicable to common shareholders during the more recent quarter was the result of lower gross revenues and higher depreciation expense, stock appreciation rights expense and interest and accretion expense in the more recent quarter. Liquidity and Capital Resources Since its inception, ACTV, Inc. (including its operating subsidiaries) has not generated revenues sufficient to fund its operations, and has incurred operating losses. Through March 31, 1999, we had an accumulated deficit of approximately $79 million. Our cash position on March 31, 1999 was $3,706,938, compared to $5,188,770 on December 31, 1998. During the three months ended March 31, 1999, we used $1,618,087 in cash for operations, compared with $2,783,139 for the three months ended March 31, 1998. The decrease in the first quarter 1999 was due principally to changes in assets and liabilities. We met our cash needs in the first quarter of 1999 from the exercise of warrants and options during the quarter and from the remaining proceeds of stock sales during 1998 to private investors totaling $10.8 million. We met our cash needs in the first quarter of 1998 from a series of private placements of our common stock (net proceeds of $1.4 million) with an institutional investor during this period and from the issuance of debt by a wholly-owned subsidiary (net proceeds of $4.7 million). With regard to investing activities, in the three months ended March 31, 1999 and 1998, respectively, we used cash of $688,014 and $269,593, respectively. Investing activities in both years were related to television and computer equipment, patents and systems. ACTV, Inc.'s balance sheets at March 31, 1999 and December 31, 1998 reflect expense accruals of $4,138,509 and $2,000,062, respectively, related to the Company's stock appreciation rights (SAR) plan. No SARs were exercised for cash during the first quarter of 1999. The accrual at March 31, 1999 is based on the closing market price of the Company's common stock of $11-3/8 on that date for all employees holding stock appreciation rights (SARs), with the exception of Messrs. Samuels, Reese, and Crowley. These executive officers agreed to limit their compensation and the corresponding liability to the Company related to all of their vested stock appreciation rights based on a common stock price of $3-15/16, and further agreed to be paid in unregistered common stock in lieu of cash for all of their vested SARs. As a result of these agreements, the Company's stock appreciation rights expense for the first quarter of 1999 was approximately $3.2 million less than it would have been otherwise. During April 1999, we raised approximately $8.6 million in total net proceeds from the private sale of common stock and from the exercise of warrants. In addition, we received commitments for an additional $14 million of funding from a private investor, pursuant to the purchase of unregistered stock and the exercise of warrants. During May 1999, we redeemed all of the outstanding Series B Preferred Stock for a total of approximately $5.8 million, which represents a 10% premium above the stock's face value plus accrued dividends. Because the preferred stock was convertible into our common stock at $2.00 per share beginning in November 1999, by redeeming this preferred stock we avoided the possible future issuance of more than 2.8 million shares of common stock. We believe that our current funds, taking into account the $8.6 million raised in April and the commitments we have received for $14 million of additional funding, will enable us to finance our operations at their present level for at least the next twelve months. Such belief is based on assumptions that may not materialize, in which case we may require additional capital to finance such operations during this period. While we believe that we have adequate funds to launch and operate our planned southwest regional network, we will need additional funding for regional network expansion. During April 1999, we invested approximately $400,000 in computer equipment and related software to build a point of presence for our HyperTV entertainment application. We do not have any additional material contractual commitments for capital expenditures. However, the expansion of our individualized television business into markets beyond the southwest will likely require investments in master control facility equipment for each additional regional network. Similarly, the growth of HyperTV for entertainment applications may require that we expand the capacity of our point of presence or create additional points of presence by further investing in computer equipment and related software. 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 11 Computation of Loss per Share 27 Financial Data Schedule (b) Reports on Form 8-K: None. 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: May 14, 1999 /s/ William C. Samuels --------------------------- William C. Samuels Chairman, Chief Executive Officer and Director Date: May 14, 1999 /s/ Christopher C. Cline --------------------------- Christopher C. Cline Senior Vice President (principal financial and accounting officer) EX-11 2 EXHIBIT 11 ACTV, INC. AND SUBSIDIARIES COMPUTATION OF LOSS PER SHARE Three Months Ended March 31, 1998 1999 (as restated) ------------- ------------ Weighted average shares outstanding.. 16,088,087 31,990,224 Common stock equivalents............. -- -- ------------- ------------ Total....................... 16,088,087 31,990,224 ============= ============ Net loss applicable to common shareholders......................... $2,772,137 $7,380,471 ============= ============ Basic and diluted loss per common share $.17 $.23 EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTERLY PERIODS ENDED MARCH 31, 1998, AND MARCH 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS. 0000854152 ACTV, Inc 3-MOS 3-MOS DEC-31-1998 DEC-31-1999 MAR-31-1998 MAR-31-1999 3,071,619 3,706,938 0 0 560,944 576,725 43,188 22,877 237,757 77,231 4,225,555 4,682,723 3,599,145 4,377,383 1,006,065 1,770,174 10,976,197 11,909,166 2,088,363 7,156,806 3,679,877 5,882,118 0 0 8,620 3,125,186 1,698,058 3,361,125 (2,637,235) 7,616,069 10,976,197 11,909,166 361,247 400,794 361,247 400,794 47,603 54,777 2,406,230 6,847,648 479,507 657,437 0 0 200,044 230,681 (2,772,137) (7,380,471) 0 0 (2,772,137) (7,380,471) 0 0 0 0 0 0 (2,772,137) (7,380,471) (0.17) (0.23) (0.17) (0.23)
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