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, 1995
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ACTV, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 94-2907258
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1270 Avenue of the Americas
New York, New York 10020
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(Address of principal executive offices) (Zip Code)
(212) 262-2570 (Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12 (g) of the Act:
Title of each class Name of exchange on which registered
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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
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(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 10, 1995, there were 9,964,542 shares of the registrant's common
stock outstanding.
<PAGE>
ACTV, INC. AND SUBSIDIARIES
INDEX
<TABLE><CAPTION>
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
<S> <C>
Consolidated Balance Sheets at December 31, 1994, and June 30, 1995
(unaudited) 1
Consolidated Statements of Operations for the six and three month periods ended
June 30, 1994, and 1995 (all unaudited) 2
Consolidated Statements of Cash Flows for the six and three month periods ended
June 30, 1994, and 1995 (all unaudited) 3
Notes to Consolidated Financial Statements 4
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 5--10
PART II OTHER INFORMATION 11
Exhibit 11 12
Signatures
</TABLE>
<PAGE>
ACTV, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, June 30,
1994 1995
(unaudited)
------------ -----------
Current Assets:
Cash and cash equivalents $2,479,840 $2,217,881
Accounts receivable 198,353 471,211
Education equipment inventory 146,283 144,614
Other 114,937 108,071
------------ ------------
Total current assets 2,939,413 2,941,777
------------ ------------
Property and equipment-net 5,712 445,307
------------ ------------
Other Assets:
Video program inventory 644,472 429,648
Patents and patents pending 174,181 166,580
Goodwill 3,920,304 3,707,118
Other 49,232 248,058
------------ ------------
Total other assets 4,788,189 4,551,404
------------ ------------
Total $7,733,314 $7,938,488
============ ============
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $660,268 $1,067,723
Deferred stock appreciation rights 750,192 1,037,298
Short-term note payable 25,250 --
------------ ------------
Total current liabilities 1,435,710 2,105,021
------------ ------------
Notes payable (related parties) 2,325,061 1,702,218
Shareholders' equity:
Preferred stock, $.10 par value, 1,000,000
shares authorized, none issued -- --
Common stock, $.10 par value, 17,000,000
shares authorized: issued and outstand-
ing 9,019,550 at December 31, 1994,
9,839,560 at June 30, 1995 901,955 983,956
Additional paid-in capital 26,608,830 30,034,234
Accumulated deficit (23,538,242) (26,886,941)
------------ ------------
Total shareholders' equity 3,972,543 4,131,249
------------ ------------
Total $7,733,314 7,938,488
============ ============
See Notes to Consolidated Financial Statements
1
<PAGE>
ACTV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE><CAPTION>
Six Month Periods Three Month Periods
Ended June 30, Ended June 30,
1994 1995 1994 1995
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Revenues:
Sales revenues $454,702 $753,889 $384,637 $412,255
Royalties from related party 9,776 -- -- --
------------ ------------ ------------ -------------
Total revenues 464,478 753,889 384,637 412,255
Cost of Sales 138,446 212,337 134,214 125,236
------------ ------------ ------------ -------------
Gross profit 326,032 541,552 250,423 287,019
Expenses:
Operating expenses 501,198 529,038 362,232 312,895
Selling and administrative 1,728,088 2,465,048 1,045,940 1,329,625
Depreciation and amortization 223,161 311,616 111,099 202,937
Amortization of goodwill 130,281 213,186 106,593 106,593
Stock appreciation rights 57,262 448,355 54,535 (275,810)
------------ ------------ ------------ -------------
Total expense 2,639,990 3,967,243 1,680,399 1,676,240
Interest (income) (30,637) (56,470) (13,527) (26,691)
Interest expense - related parties 141,129 73,595 45,057 33,333
------------ ------------ ------------ -------------
Interest expense - net 110,492 17,125 31,530 6,642
Loss before minority interest in
equity of investee 2,424,450 3,442,816 1,461,506 1,395,863
Interest in ACTV Interactive 143,500 -- -- --
------------ ------------ ------------ -------------
Net loss before extraordinary
gain 2,567,950 3,442,816 1,461,506 1,395,863
Extraordinary gain on retirement
of debt 231,845 94,117 231,845 --
------------ ------------ ------------ -------------
Net loss $2,336,105 $3,348,699 $1,229,661 $1,395,863
============ ============ ============ =============
Loss per share before
extraordinary gain $.34 $.36 $.18 $.15
Loss per share after extraordinary
gain $.31 $.35 $.15 $.15
============ ============ ============ =============
Weighted average number of common
shares outstanding 7,467,667 9,452,332 8,131,918 9,493,367
</TABLE>
See Notes to Consolidated Financial Statements
2
<PAGE>
ACTV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE><CAPTION>
Six Month Periods Three Month Periods
Ended June 30, Ended June 30,
1994 1995 1994 1995
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss $2,336,105 $3,348,699 $1,229,661 $1,395,863
------------ ------------ ------------ ------------
Adjustments to reconcile net loss to net
cash used in operations:
Depreciation and amortization 353,442 525,035 217,692 309,530
Stock appreciation rights 57,262 287,106 54,535 (275,810)
Gain on extinguishment of repayment
pool and equipment lease obligations (231,845) -- (231,845) --
Gain on extinguishment of debt
obligations -- (94,717) -- --
Common stock issued for services -- 147,930 -- --
Changes in assets and liabilities:
Loss from interest in ACTV Interactive 143,500 -- -- --
Accounts receivable (149,013) (272,858) (98,921) (206,757)
Other assets (12,602) 6,866 (10,424) 19,045
Accounts payable and accrued expenses 168,373 142,354 216,286 535,609
Education equipment inventory (46,952) 1,669 (50,949) (30,016)
Receivable from affiliate (15,324) -- -- --
Interest payable 141,130 73,332 45,058 33,333
------------ ------------ ------------ ------------
Net cash (used) in operating
activities (1,928,134) (2,531,982) (1,088,229) (1,010,929)
------------ ------------ ------------ ------------
Cash flows from financing
activities:
Proceeds from sale of common stock -- 3,290,875 -- 1,784,500
Proceeds from exercise of warrants
and options 1,510,431 68,600 10,431 60,300
Discounted prepayment of note -- (101,458) -- --
Note repayments -- (525,250) -- (500,000)
Equipment lease repayment (65,000) -- (65,000) --
Repayment pool principal repayment (35,000) -- (35,000) --
------------ ------------ ------------ ------------
Net cash provided by (used in) financing
activities 1,410,431 2,732,767 (89,569) 1,344,800
Cash flows from investing activities:
Cash acquired in acquisition of
remaining interest in affiliate (672,160) -- -- --
Cash paid for interest in affiliate 2,500,000 -- -- --
Investment in property and equipment 1,150 462,744 1,150 424,442
------------ ------------ ------------ ------------
Net cash used in investing activities 1,828,990 462,744 1,150 424,442
------------ ------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents (2,346,693) (261,959) (1,178,948) (90,571)
Cash and cash equivalents,
beginning of period 3,858,863 2,479,840 2,691,118 2,308,452
------------ ------------ ------------ ------------
Cash and cash equivalents,
end of period 1,512,170 2,217,881 1,512,170 2,217,881
============ ============ ============ =============
</TABLE>
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.
3
<PAGE>
ACTV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1995
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) The Company's continued marketing of all its products and
services on planned levels and timetables is dependent upon the
Company's obtaining the additional capital necessary to support the
Company's future operations at these levels. Management is
continuing its efforts to obtain such additional financing. If the
Company is not successful in obtaining such additional financing,
management believes that the Company can fund its operations
through the end of June 1996. To fund its operations through the
end of June 1996, without additional financing, the Company will 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, through the end of
June 1996. In the first six months of 1995, the Company raised
approximately $3.2 million from the private sale of shares of the
Company's common stock.
2. For a summary of significant accounting policies and additional
financial information, see the Company's Annual Report on Form 10-K
for the year ended December 31, 1994.
3. The consolidated statements of operations for the 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. Separately, the consolidated statements of operations
for the three month and six month periods ended June 30, 1994,
reflect an extraordinary gain of $231,845 on the extinguishment of
certain obligations to Nolan Bushnell and Catalyst Technologies.
4. The following pro forma consolidated statement of operations for
the six months ended June 30, 1994 has been prepared to reflect the
financial effects of the Company's March 11, 1994, purchase of the
Washington Post Company's interest in ACTV Interactive as if it had
occurred on January 1, 1994. This statement consolidates the
results of the Company and ACTV Interactive for the six months
ended June 30, 1994, with the following adjustments: elimination of
intercompany sales and royalty expense, recognition of increased
amortization expense related to goodwill, recognition of increased
interest expense on the $2 million note payable to the Washington
Post Company, and elimination of the Company's loss related to its
interest in ACTV Interactive under the equity method of accounting.
Revenues $654,534
Cost of sales 205,726
Operating expenses 594,298
General and administrative expenses 2,054,154
Depreciation and amortization 353,442
Stock appreciation rights 57,262
Net interest expense 106,960
Extraordinary gain 231,845
-------
Net loss $2,485,463
==========
Net loss per share $.33
==========
4
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE COMPANY
ACTV, Inc. (the "Company") was organized to develop and market ACTV
programming technology, which permits a viewer to experience
instantly responsive interactive television. Since its inception,
the Company has incurred operating losses approximating $27 million
related directly to the development and marketing of the ACTV
programming technology.
In July 1992, the Company entered into an agreement with a
subsidiary of the Washington Post Company (the "Post Company") to
form ACTV Interactive, a partnership organized for the purpose of
marketing products and services incorporating the programming
technology to the education marketplace. A wholly owned subsidiary
of the Company, ACTV Interactive, Inc. (formerly ACTV Education,
Inc.) owned a 49% share in the partnership, and the subsidiary of
the Post Company owned a 51% share.
On March 11, 1994, the Company purchased the Post Company's full
51% interest in ACTV Interactive for consideration of $4.5
million, consisting of $2.5 million in cash at closing and a $2
million 8% note due December 31, 1996. Subsequently, all operations
by the Company's subsidiaries associated with the education market
have been consolidated with the results of the Company.
In March 1988, the Company formed ACTV Entertainment Inc. (formerly
ACTV Domestic Corporation) as an equal shareholder with Le Groupe
Videotron ("LGV") of Canada. The Company granted to ACTV
Entertainment the exclusive right to use the Company's programming
technology in the United States DBS, cable, and broadcast
television markets.
In June 1993, LGV withdrew from its ownership in ACTV
Entertainment, and the Company became the sole shareholder of ACTV
Entertainment under the terms of an agreement with a subsidiary of
LGV. In exchange for gaining full ownership and control of ACTV
Entertainment in the settlement, the Company agreed to give up the
license fee revenue it had received from LGV for LGV's use of the
programming technology in Canada and Europe.
In March 1995, the Company formed The Los Angeles Interactive
Network, Inc., a wholly owned subsidiary of ACTV Entertainment, to
operate the Company's interactive television trial in Southern
California.
RESULTS OF OPERATIONS
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.
5
<PAGE>
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 Six Month Periods Ended June 30, 1994 and June 30,
1993
During the six month period ended June 30, 1994, the Company's
revenues increased 227%, to $464,478, from $142,089 in the six
month period ended June 30, 1993. The increase was primarily the
result the Company's recognition in the more recent period of the
sales of its education subsidiary, ACTV Interactive. Prior to the
Company's purchase in March 1994 of the Washington Post's 51%
interest in this subsidiary, in which the Company previously owned
the remaining 49% interest, the results of ACTV Interactive were
accounted for under the equity method of accounting.
On a pro forma basis, assuming that the Company's results were
consolidated with those of ACTV Interactive for the entire six
month period ended June 30, 1994, (see Note 4), revenues increased
19%, to $654,534, compared with revenues of $548,856 pro forma in
the six months ended June 30, 1993. Pro Forma education sales in
the six months ended June 30, 1994 were $654,534, an increase of
55% over pro forma education sales of $421,110 in the comparable
period in 1993.
Cost of sales in the six months ended June 30, 1994, was $138,446,
all of which cost related to education product sales. The Company
recorded no cost of sales for the six months ended June 30, 1993,
since it was reported separately by ACTV Interactive.
Total expenses excluding cost of sales and interest expense in the
six months ended June 30, 1994, increased 92%, to $2,639,990, from
$1,377,393 in the comparable period in 1993. This increase was
6
<PAGE>
partially the result of the Company's recognition in the more
recent period, as explained above, of the expenses of ACTV
Interactive, which in 1993 were reported separately. The increase
was due also to higher research and development expenses, and to
greater general and administrative costs associated with market and
product development for application of the programming technology
in the distance learning, in-home entertainment, and in-room hotel
entertainment markets. On a pro-forma basis, total expenses before
interest expense in the six month period ended June 30, 1994,
increased 57%, to $3,059,156, from $1,991,520 in the six months
ended June 30, 1993.
Depreciation and amortization expense for the six months ended June
30, 1994, increased to $353,442, from $255,720 for the six months
ended June 30, 1993. This increase was the result of the Company's
amortization in the more recent period of goodwill arising from the
purchase of the Washington Post's interest in ACTV Interactive.
The Company's interest expense for the six months ended June 30,
1994, decreased 62%, to $141,129, compared to $228,994 in the prior
year's comparable period. The decrease was due in part to the
elimination of expense related to original issue discount on the
$1.5 million convertible note payable to the Washington Post
Company. The full principal value of this note, plus all accrued
interest, was converted by the Post Company into common shares of
ACTV, Inc. in March 1994. Interest expense declined also due to the
repayment of certain obligations of the repayment pool, as well as
the accrual of interest payable on the repayment pool obligations
at lower rates, in reflection of a general decline in interest
rates. Interest income in the six months ended June 30, 1994, was
$30,637, compared with $13,250 in the six months ended June 30,
1993. The increase resulted from higher available cash balances in
the more recent period.
For the six months ended June 30, 1994, the Company's net loss
before extraordinary items was $2,567,950, or $.34 per share, an
increase of 54% over the net loss of $1,667,593, or $.32 per share,
incurred in the prior year's comparable period. The Company
recorded an extraordinary gain of $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 the
extraordinary gain for the six months ended June 30, 1994, was
$2,336,105, or $.31 per share.
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.
7
<PAGE>
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.
Comparison of Three Month Periods Ended June 30, 1994 and June 30,
1993
During the three month period ended June 30, 1994 (the "Second
Quarter 1994"), the Company's revenues increased to $384,637,
compared to revenues $4,272 the three month period ended June 30,
1993 (the "Second Quarter 1993"). The increase was primarily the
result the Company's recognition in the more recent period of the
sales of its education subsidiary, ACTV Interactive. Prior to the
Company's purchase in March 1994 of the Washington Post's 51%
interest in this subsidiary, in which the Company previously owned
the remaining 49% interest, the results of ACTV Interactive were
accounted for under the equity method of accounting. All of the
Company's revenues in the Second Quarter 1994 were from education
sales. Education sales for the Second Quarter 1993, which totaled
$263,469, were reported on the separate financial statements of
ACTV Interactive.
Cost of sales in the Second Quarter 1994 was $134,214, all of which
cost related to education product sales. The Company recorded no
cost of sales for the Second Quarter 1993, since it was reported
separately by ACTV Interactive.
Total expenses excluding cost of sales and interest expense
increased approximately 73% in the Second Quarter 1994, to
$1,680,399, from $973,915 in the Second Quarter 1993. This increase
was partially the result of the Company's recognition in the more
recent period, as explained above, of the expenses of ACTV
Interactive, which in 1993 were reported separately. The increase
was due also to higher research and development expenses, and to
greater general and administrative costs associated with market and
product development for application of the programming technology
in the distance learning, in-home entertainment, and in-room hotel
entertainment markets.
Depreciation and amortization expense increased in the Second
Quarter 1994 to $217,692, from $110,296 in the Second Quarter 1993,
due to the inclusion in the more recent quarter of goodwill
amortization expense of $106,593 related to the Company's purchase
of the Washington Post Company's interest in ACTV Interactive.
Interest expense declined 55% in the Second Quarter 1994, to
$45,057, from $99,406 in the Second Quarter 1993, due in part to
the elimination of expense related to original issue discount on
the $1.5 million convertible note payable to the Post Company. The
full principal value of this note, plus all accrued interest, was
converted by the Post Company into common shares of ACTV, Inc. in
March 1994. Interest expense declined also, due to the accrual of
interest expense on the repayment pool at lower rates, in
reflection of a general decline in interest rates. Interest income
in the Second Quarter 1994 was $13,527, compared with $9,479 in the
Second Quarter 1993. The increase resulted from higher available
cash balances in the more recent period.
8
<PAGE>
The Company's net loss for the Second Quarter before extraordinary
items was $1,461,506 or $.18 per share, an increase of 27% over the
net loss of $1,149,361 or $.21 per share incurred in Second Quarter
1993. 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 was $1,229,661 or $.15
per share.
Liquidity and Capital Resources
Since its inception, the Company (including its subsidiaries ACTV
Entertainment, ACTV Interactive, Inc., and Los Angeles Interactive
Network, Inc.) has not generated revenues sufficient to fund its
operations, and has incurred operating losses. Through June 30,
1995, the Company had an accumulated deficit of approximately $27
million. The Company's cash position on June 30, 1995, was
$2,217,881, compared to $2,479,840 on December 31, 1994.
During the six month period ended June 30, 1995, the Company used
$2,531,982 in cash for its operations, compared with $1,928,134 for
the six month period ended June 30, 1994. The increase in the six
month period ended June 30, 1995, was due to higher selling and
administrative expenses and to increased operating activity in the
more recent year related to the Company's interactive network trial
launched in May 1995. The Company met its cash needs in the six
month period ended June 30, 1995, from the proceeds of sales of
common stock to private investors completed in the last quarter of
1994 and during the first two quarters of 1995. The Company met its
cash needs in the six month period ending June 30, 1994, from the
remaining proceeds of the redemption of its Redeemable Warrants in
May 1993, as well as from the exercise of warrants by the
Washington Post Company in March 1994.
With respect to investing activities in the six month period ended
June 30, 1995, the Company used cash of $462,744 related to
equipment purchases for the California trial referred to above.
ACTV Entertainment, ACTV Interactive and the Los Angeles
Interactive Network, Inc. are dependent on advances from the
Company to meet their obligations.
The Company's balance sheet at June 30, 1995, also reflects the
accrual of expense of $1,037,298 related to the Company's stock
appreciation rights plan, a decrease of $196,175 in notes payable
resulting from the discounted prepayment of a note, and a decrease
in notes payable of $500,000, the amount of a principal repayment
that the Company made in May 1995. In addition, the Company made an
additional principal repayment in the amount of approximately
$700,000 in July 1995.
In the first six months of 1995, the Company raised approximately
$3.2 million from the private sale of shares of the Company's
common stock (including approximately $1.7 million during the three
months ended June 30, 1995). In addition, the Company raised
$470,000 from a private sale of shares in July 1995.
The Company's continued marketing of all its products and services
on planned levels and timetables is dependent upon the Company's
obtaining the additional capital necessary to support the Company's
future operations at these levels. Management is continuing its
efforts to obtain such additional financing. If the Company is not
successful in obtaining such additional financing, management
believes that the Company can fund its operations through the end
of June 1996. To fund its operations through the end of June 1996,
without additional financing, the Company will 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, through the end of June 1996.
9
<PAGE>
The Company believes that it may be required to expend
approximately $200,000 in the remainder of 1995 to facilitate the
completion of current research and development projects, relating
primarily to the development of a new analog/digital two-way
distance learning system. The Company has no agreements,
arrangements or understandings to obtain additional financing, and
there can be no assurance that additional financing will be
available on terms satisfactory to the Company or at all.
The Company does not have any material contractual commitments for
capital expenditures.
Impact of Inflation
Inflation has not had any significant effect on the Company's
operating costs.
10
<PAGE>
PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
There are no pending material legal proceedings to which the
Company is a party.
ITEM 2 CHANGES IN SECURITIES
None.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
None.
ITEM 5 OTHER INFORMATION
None.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -- Exhibit 11, Computation of Loss per Share
(b) Reports on Form 8-K: None.
11
<TABLE><CAPTION>
EXHIBIT 11
ACTV, INC. AND SUBSIDIARIES
COMPUTATION OF LOSS PER SHARE
Six Month Period Three Month Period
Ended June 30, Ended June 30,
1994 1995 1994 1995
---------- ------------- --------- ------------
<S> <C> <C> <C> <C>
Weighted average shares outstanding 7,467,667 9,452,332 8,131,918 9,493,367
Common stock equivalents -- -- -- --
------------ ------------ ------------ ------------
Total 7,467,667 9,452,332 8,131,918 9,493,367
============ ============ ============ ============
Net loss before extraordinary gain $2,567,950 $3,442,816 $1,461,506 $1,395,863
Net loss after extraordinary gain $2,336,105 $3,348,699 $1,229,661 $1,395,863
============ ============ ============ ============
Loss per share before extraordinary gain $.34 $.36 $.18 $.15
Loss per share after extraordinary gain $.31 $.35 $.15 $.15
============ ============ ============ ============
</TABLE>
12
<PAGE>
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 11, 1995 /s/ William C. Samuels
--------------- ----------------------
William C. Samuels
President, Chief Executive
Officer and Director
Date: August 11, 1995 /s/ Christopher C. Cline
--------------- ------------------------
Christopher C. Cline
Vice President (principal
financial and accounting
officer)
