-----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, P5g58imI66fQsxMLCLUllW/NfN7uXkPAz+HAqwSbqeEOmFA2GKrOnKApxDSCGXWy ZgEfwbQ0POSro2xHhg367Q== 0000929624-99-001983.txt : 19991117 0000929624-99-001983.hdr.sgml : 19991117 ACCESSION NUMBER: 0000929624-99-001983 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERACTIVE NETWORK INC /CA CENTRAL INDEX KEY: 0000879482 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 943025019 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19579 FILM NUMBER: 99756684 BUSINESS ADDRESS: STREET 1: 1161 OLD COUNTRY RD CITY: SAN JOSE STATE: CA ZIP: 94002 BUSINESS PHONE: 6505088793 MAIL ADDRESS: STREET 1: 1161 OLD COUNTRY RD CITY: SAN JOSE STATE: CA ZIP: 94002 10-Q 1 INTERACTIVE NETWORK, INC./FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) (x) Quarterly report pursuant to Section 13 or 15(9) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 1999 ------------------ ( ) Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period from to ------- ------- Commission file number 000-19579 INTERACTIVE NETWORK, INC. (Exact name of registrant as specified in its charter) California 94-3025019 (State of incorporation) (I.R.S. employer identification number) 1161 Old County Road Belmont, California 94002 (Address of principal executive offices and zip code) (650) 508-8793 (Registrant's telephone number, including area code) with a copy to Robert S. Townsend Morrison & Foerster, LLP 425 Market Street San Francisco, CA 94105 (415) 268-7000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 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 No x --- --- Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes x No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Shares outstanding as of November 10, 1999 - ----- ------------------------------------------ Common Stock 38,855,030 INTERACTIVE NETWORK, INC. INDEX
PART I. FINANCIAL INFORMATION Page ---- ITEM 1. FINANCIAL STATEMENTS..................................................... 1 CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1998 AND SEPTEMBER 30, 1999 (Unaudited)................... 1 CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1999............................... 2 STATEMENT OF CONSOLIDATED CASH FLOWS (Unaudited) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999........................... 3 NOTES TO FINANCIAL STATEMENTS............................................ 4 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......................... 4 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...................................................... 6 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS........................................................ 7 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS................................ 7 ITEM 6. EXHIBITS................................................................. 7 SIGNATURES ......................................................................... 8
i Financial Statements INTERACTIVE NETWORK, INC. CONSOLIDATED BALANCE SHEET
As of As of December 31, 1998 September 30, 1999 (Unaudited) Assets Current assets: Cash and cash equivalents $ 300,601 $ 1,519,029 Restricted cash --- 6,136,664 Prepaid expenses 78,256 79,817 ----------------- ------------------ Total current assets 378,857 7,735,510 Total assets $ 378,857 $ 7,735,510 ================= ================== Liabilities and shareholders' equity Current liabilities: Accounts payable $ --- $ 351,068 Other accrued liabilities 214,821 8,600 ----------------- ------------------ Total current liabilities 214,821 359,668 Liabilities subject to compromise 46,296,316 4,973,750 Long term liabilities --- 966,867 Shareholders' equity (deficiency): Common stock 103,281,755 142,374,810 Retained earnings (deficit) (149,414,035) (140,939,585) ----------------- ------------------ Total shareholders' equity (deficiency) (46,132,280) 1,435,225 ----------------- ------------------ Total liabilities and shareholders' equity $ 378,857 $ 7,735,510 ================= ==================
1 INTERACTIVE NETWORK, INC. CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
Three months ended Nine months ended September 30, 1999 September 30, 1999 (Unaudited) (Unaudited) Revenues: $ --- $ --- General and administrative expenses: Salaries and wages 73,531 159,478 Contract labor 20,948 58,482 Professional services 54,383 100,700 Legal Fees 64,861 128,484 Travel 20,877 20,877 Rent 4,066 7,366 Other administrative costs 17,747 60,512 Unusual items: Audit fees -- 1995-1998 --- 180,000 Legal -- NTN litigation 8,113 15,733 Legal -- Litigation with Shareholder 19,725 19,725 Shareholder relations - proxy and annual meeting --- 51,259 Payroll taxes, penalty and interest - Q3'95 --- 12,157 ------------------ ------------------ Total general and administrative expenses 284,251 814,773 Reorganization items: Professional fees 107,207 862,853 U.S. Trustee Quarterly Fees 1,750 2,750 ------------------ ------------------ Total reorganization items 108,957 865,603 Other income: Proceeds from litigation --- 10,375,380 Other income (expense) 38,519 38,519 Interest income (expense) (99,411) (258,272) ------------------ ------------------ Net profit before provision for income taxes (454,100) 8,475,251 ------------------ ------------------ Federal and state income taxes --- 800 ------------------ ------------------ Net profit $ (454,100) $ 8,474,451 ================== ==================
2 INTERACTIVE NETWORK, INC. Statement of Consolidated Cash Flows (Unaudited)
Nine months ended September 30, 1999 Cash flows from operating activities: Net Income (loss) $ 8,474,451 Adjustments to reconcile net loss to net cash provided by (used for) operating activities: Reorganization expenses 1,074,074 Changes in assets and liabilities: Prepaid expenses (1,562) Accounts payable 248,861 Taxes payable --- Liabilities subject to compromise (41,322,566) Other accrued liabilities (211,221) ------------------ Cash provided by (used for) operating activities: (31,737,963) ------------------ Cash flows from financing activities: Sale of common stock 2,106 Exercise of stock options 18,000 Proceeds from settlement agreement 39,072,949 ------------------ Cash provided by financing activities: 39,093,055 ------------------ Net increase in cash $ 7,355,092 ================== Cash: Beginning of period $ 300,601 End of period $ 7,655,692
3 INTERACTIVE NETWORK, INC. Notes to Unaudited Consolidated Financial Statements September 30, 1999 The unaudited consolidated financial information of Interactive Network, Inc. (the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. This financial information reflects all adjustments, consisting only of normal recurring adjustments, which in the opinion of management, are necessary for a fair presentation. Operating results for the three and nine months ended September 30, 1999 are not necessarily indicative of the results that may be expected for any subsequent quarter or for the year ended December 31, 1999. For further information, reference is made to the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 1998. Restricted Cash consists of cash and cash equivalent investments set aside by the Company as a reserve to pay those claims of creditors which it is disputing under its plan of reorganization (discussed in "Legal Proceedings" below). Pursuant to the Chapter 11 Plan of Debtor and Debtor in Possession of Interactive Network, Inc., as modified by the Bankruptcy Court's confirmation order (the "Plan"), the Company is required to initially set aside 75% of the amount of any claim it wishes to dispute. These funds must remain segregated until the amount of restricted cash equals 100% of all remaining disputed amounts or all disputed claims have been resolved. Long Term liabilities consist of professional fees and expenses incurred in connection with the Company's Chapter 11 bankruptcy proceedings. Payment of these fees has been deferred by agreement until April 22, 2000, when payment is due in full without interest. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following discussion should be read in conjunction with Management's Discussion and Analysis of Financial Conditions and Results of Operations contained in the Company's Annual Report for the year ended December 31, 1998. The discussion of the Company's current business and future expectations under this item contain forward-looking statements that involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in the subsection entitled "Forward Looking Statements" below. Overview Interactive Network is a company that was originally founded to provide interactive television services, which it began providing in 1991. The Company incurred significant expenses in developing, testing and marketing its services, and was forced to curtail its operations by August, 1995, due to lack of ongoing financing. While in operation, the Company acquired key strategic investors such as TCI Cable (now a part of AT&T ), NBC, Gannet, Motorola, Sprint, and AC Nielson. Today, the Company owns certain intellectual property assets related to the interactive television market and related to other interactive technology. Our prior strategic investors remain as shareholders and current management is confident in its strategy to deliver shareholder value by marketing our intellectual property and by working toward enhancing and developing of our patent portfolio. We plan to concentrate on exploiting our patent portfolio in a cost effective way through licenses, joint ventures, strategic alliances, or other methods that will not involve large overhead demands. To provide the technical and management expertise to assist in the fulfillment of our goals, we established an Advisory Panel of consultants, and have re-employed Interactive's former Chief Scientist, Dr. Robert Brown. Management is presently in discussion with additional prospective members who possess technical expertise we feel 4 would be of benefit to the Company. Further, management is planning to hire additional personnel to meet our anticipated future needs. We also continue to expend significant resources in finishing our bankruptcy reorganization, as well as in the enforcement of our intellectual property rights. We believe Interactive Network is once again positioned to participate in an exciting explosion of information technology which brings with it a resurgence of interactive technology. Management believes that our intellectual property assets put our company in a position to be a part of the interactive content and interactive services businesses currently being created. Management also believes that there is and will continue to be a large market in interactive applications in the fields of entertainment, advertising, games, and gambling through Internet and television delivery. Other Contingencies and Commitments: There have been no changes in the discussion of "Other Contingencies and Commitments" since the Company's discussion of that subject in its Quarterly Report for the quarter ended March 31, 1999. Liquidity and Capital Resources The Company has paid all undisputed claims under its recently consummated plan of reorganization and continues to dispute certain of the claims made by creditors in its bankruptcy proceedings. The Company has reserved $6,136,664 for disputed claims and deferred payments in accordance with its reorganization plan (a copy of which was filed with the SEC on April 15, 1999 by the Company on Form 8-K). The Company has also granted a lien on any income derived from its intellectual property assets until the reserve account balance equals 100% of the contested amount. The amount of funds available to the Company after resolution of contested claims will depend on the extent to which the Company is successful in substantially reducing, defeating or deferring payment of the claims the Company is contesting described in "Other Contingencies and Commitments--Claims in Chapter 11 Proceedings Which the Company is Contesting" in the Company's Annual Report for the year ended December 31, 1998. In the event the Company is not successful in defeating, substantially reducing or deferring payment of these claims, the Company's working capital requirements would need to be satisfied in part by external sources of financing to the extent revenues from exploitation of its patent portfolio are not sufficient. Financing Activities. During the nine months ended September 30, 1999, the Company received $18,000 upon the exercise of employee stock options and $2,106 from a director pursuant to Section 16(b) of the Exchange Act. At September 30, 1999, the Company's principal source of liquidity consisted of cash and cash equivalents totaling $7,655,693 . Our unrestricted working capital at September 30, 1999 was $1,519,029. The Company's current business plan continues to be one of exploiting its patent portfolio through licenses, joint ventures or other methods that will not involve large overhead or capital demands on the Company. The Company currently expects its need for working capital for the period from consummation of the Settlement Agreement through the end of 1999 to consist largely of general and administrative and patent development and marketing expenses of approximately $600,000, expected to be incurred in generating revenues from its Intellectual Property assets, and professional fees of approximately $180,000. The Company anticipates a total operating budget of approximately $1 million for this period. The Company continues to negotiate with professional firms to provide patent research and development assistance, which may be a substantial use of its liquid assets if an agreement is consummated. The Company continues its litigation against NTN Communications, Inc. in Canada for that company's alleged infringement of the Company's patents. The Company currently expects to incur aggregate additional expenses in excess of $100,000 in connection with the pursuit of this claim. 5 Results of Operations Revenues. During the nine months ended September 30, 1999, the Company realized no revenues. Costs of Revenues. The Company incurred no costs of revenues in the nine months ended September 30, 1999. Research and Development. The Company incurred no research and development expenses in the nine months ended September 30, 1999. Selling and Marketing. The Company incurred no selling and marketing expenses in the nine months ended September 30, 1999. General and Administrative. The Company incurred general and administrative expenses of $814,773 in the nine months ended September 30, 1999. Of these, $180,000 related to professional fees for accounting and audit services, which reflects a negotiated reduction of $50,000 in the Company's audit fees, expenses of $51,259 related to its proxy solicitation and annual meeting, $12,157 in payroll taxes, penalties and interest related to 1995 payroll expenses, legal expense of $15,733 related to the Company's litigation with NTN Communications, Inc. and legal expense of $19,725 related to the Company's litigation with one of its shareholders. Interest Income (Expense). The Company realized $89,728 of interest income and accrued approximately $348,000 of interest expense during the nine months ended September 30, 1999 related to the liabilities subject to compromise. Net Income. During the nine months ended September 30, 1999, the Company had a net income of $8,478,951. This income resulted primarily from payments received in connection with consummation of the Settlement Agreement and subsequent interest earned thereon. Item 3. Quantitative and Qualitative Disclosures About Market Risk Interest Rate Risk. It is our policy not to enter into derivative financial instruments. Due to this, we did not have significant overall interest rate risk exposure at September 30, 1999. Foreign Currency Rate Risk. We have no transactions in currencies other than U.S. Dollars. We do not currently have any significant foreign currency exposure and do not expect to incur significant currency-related gains and losses in 1999. We did not engage in foreign currency hedging activities during the nine months ended September 30, 1999. Forward Looking Statements. The Management's Discussion and Analysis of Financial Condition and Results of Operations sections of this quarterly report contain forward-looking statements that are based on current expectations, estimates, forecasts and projections about the Company's future prospects, plans and strategies, management's beliefs and assumptions made by management. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," variations on such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions which are difficult to predict. Therefore, actual results may differ significantly from the results described in these forward-looking statements, including changes that could affect the value of the Company's intellectual property assets and decisions by the bankruptcy court in which the Company's Chapter 11 proceeding is pending with respect to allowance of contested claims which may cause a resulting increase in post-petition interest on claims and could reduce the Company's anticipated working capital. The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. 6 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Registrant continues to pursue its earlier claims for patent infringement against NTN Communications, Inc. in Canada and intends to litigate these claims to full resolution, and continues to dispute certain claims in its bankruptcy proceeding. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS (c) Recent Sales of Unregistered Securities On August 3, 1999 the Registrant issued Mr. John Bohrer 50,000 shares of its common stock upon his exercise of his stock option for those shares. The Registrant received $4,500 as the exercise price for this purchase, and the issuance was made pursuant to Section 4(2) of the Securities Act. ITEM 6. EXHIBITS (a) Exhibits Exhibit 27.1 Financial Data Schedule. ----------------------- 7 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. Date: November 15, 1999 INTERACTIVE NETWORK, INC. (Registrant) By: /s/ Bruce Bauer ------------------------------ Bruce W. Bauer Chairman of the Board President and Chief Executive Officer 8 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE FINANCIAL STATEMENTS OF INTERACTIVE NETWORK, INC. FOR FISCAL QUARTER ENDED SEPTEMBER 30, 1999, AS PRESENTED IN ITS FORM 10-Q FOR SUCH PERIOD, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS. 3-MOS 9-MOS DEC-31-1999 DEC-31-1999 JUL-01-1999 JAN-01-1999 SEP-30-1999 SEP-30-1999 7,655,693 7,655,693 0 0 0 0 0 0 0 0 7,735,510 7,735,510 0 0 0 0 7,735,510 7,735,510 359,668 359,668 0 0 0 0 0 0 142,374,810 142,374,810 0 0 7,735,510 7,735,510 0 0 0 0 0 0 284,251 814,773 108,957 865,603 0 0 99,411 258,272 (454,100) (1,900,129) 0 800 0 0 0 0 0 10,375,380 0 0 (454,100) 8,474,451 (.012) .218 (.011) .206
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