<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 13, 1996
Registration Statement No. 33-63879
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
ACTV, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 4894 94-2907258
- --------------------------------------------------------------------------------
(State or other (Primary Standard (IRS Employer
jurisdiction of Industrial Classification Identification No.)
incorporation or Code)
organization)
1270 Avenue of the Americas
New York, New York 10020
(212) 262-2570
---------------------
(Address, including zip code and telephone
number, including area code, of Registrant's
principal executive offices)
WILLIAM C. SAMUELS
President
ACTV, INC.
1270 Avenue of the Americas
New York, New York 10020
(212) 262-2570
(Name, address, including zip code and telephone number, including area code,
of agent for service)
---------------------
Copies To:
JAY M. KAPLOWITZ, ESQ.
Gersten, Savage, Kaplowitz & Curtin, LLP
575 Lexington Avenue
New York, New York 10022
(212) 752-9700
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement and from
time to time.
---------------------
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box [x]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier, effective registration statement
for the same offering. [ ]
<PAGE>
<PAGE>
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box [ ]
This Registration Statement also constitutes Post-Effective Amendment No. 2 to
ACTV, Inc.'s Registration Statement on Form S-1 (File No. 33-86540) and
Post-Effective Amendment No. 5 to ACTV, Inc.'s Registration Statement on Form
S-1 (File No. 33-61320).
* The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that the Registration Statement
shall become effective in accordance with Section 8(a) of the Securities Act of
1933 or until the Registration Statement shall become effective on such date as
the Commission, acting pursuant to said Section 8(a), may determine.
(ii)
<PAGE>
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================================
Title of Amount Being Proposed Maximum Proposed Amount of
Securities To Registered(1) Offering Price Per Maximum Registration
Be Registered Security(2) Aggregate Fee
Offering Price
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common
Stock, par
value $.10 per
share 2,500,000 $4.50 $11,250,000 $3,879.31
Common
Stock, par
value $.10 per
share 3,850,000 $3.53 $13,590,500 $4,686.38
====================================================================================================================================
Total
Registration $8,565.69(3)(4)
Fee
====================================================================================================================================
</TABLE>
(1) Pursuant to Rule 416, the Registration Statement also relates to an
indeterminate number of additional shares of Common Stock issuable upon the
exercise of options, warrants and SARs pursuant to anti-dilution provisions
contained therein, which shares of Common Stock are registered hereunder.
(2) Pursuant to Rule 457, estimated solely for the purpose of calculating the
registration fee, based on the average of the high and low prices of the
Registrant's Common Stock as quoted by the National Association of
Securities Dealers Automated Quotation System on October 30, 1995.
(3) In accordance with Rule 429 under the Securities Act of 1933, the
Prospectus included herein is a combined prospectus which also relates to
ACTV's Registration Statement on Form S-1, File No. 33-86540 (the "1995
Registration Statement"), and ACTV's Registration Statement on Form S-1,
File No. 33-61320 (the "1994 Registration Statement"). This Registration
Statement, which is a new registration statement, also constitutes
Post-Effective Amendment No. 2 to the 1995 Registration Statement and
Post-Effective Amendment No. 5 to the 1994 Registration Statement. The
amount of securities eligible to be sold under the 1995 Registration
Statement ($121.23 as of November 1, 1995) and the amount of securities
eligible to be sold under the 1994 Registration Statement ($5,379.73 as of
November 1, 1995) shall be carried forward to this Registration Statement
and the total registration fee is adjusted accordingly. Such Post-Effective
Amendment No. 2 to the 1995 Registration Statement and Post-Effective
Amendment No. 5 to the 1994 Registration Statement shall hereafter become
effective upon the effectiveness of this Registration Statement in
accordance with Section 8(a) of the Securities Act of 1933.
(4) Registrant paid such fee upon previous filings and therefore, no additional
fee is due.
(iii)
<PAGE>
<PAGE>
ACTV, INC.
FORM S-1
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Caption or
Item Number Heading in Prospectus
- ----------- ---------------------
<S> <C> <C>
1. Forepart of the Registra- Cover page of Registration Statement;
tion Statement and Outside and Outside Front Cover Page of
Front Cover Page of Prospectus.
Prospectus
2. Inside Front and Outside Inside Front and Outside Back Cover
Back Cover Pages of Pages of Prospectus; and Additional
Prospectus Information.
3. Summary Information, Risk Prospectus Summary; and Risk Factors.
Factors and Ratio of Earnings
to Fixed Charges
4. Use of Proceeds Use of Proceeds.
5. Determination of Offering Cover Page; Plan of Distribution.
Price
6. Dilution Dilution.
7. Selling Security Holders Selling Security Holders; Plan of
Distribution.
8. Plan of Distribution Cover Page; Selling Security Holders;
Plan of Distribution.
9. Description of Securities Description of Capital Stock.
to be Registered
10. Interests of Named Experts Principal Stockholders; Experts;
and Counsel Management; and Certain Transactions;
and Legal Matters.
</TABLE>
(iv)
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
11. Information with Respect to Cover Page; Prospectus Summary; The
Company; Registrant Dividend Policy;
Certain Market Information;
Capitalization; Selected Financial Data;
Management's Discussion and Analysis
of Financial Condition and Results of
Operations; Business; Management;
Certain Transactions; Principal
Stockholders and Financial Statements.
12. Disclosure of Commission's Not Applicable.
Position on Indemnification
for Securities Act Liabilities
</TABLE>
(v)
<PAGE>
<PAGE>
DATED MARCH 13, 1996
PROSPECTUS
ACTV, INC.
2,500,000 Shares of Common Stock Offered by the Company
3,850,000 Shares of Common Stock
(1) 122,855 Shares Issuable by the Company Upon the Exercise
of Options, Warrants, Pursuant to SARs, or to Others
(2) 3,727,145 Shares Offered by Selling Security Holders
This Prospectus relates to the offer by ACTV, Inc. (the "Company") of up to
2,500,000 shares of the Company's common stock, $.10 par value (the "Common
Stock"), to be offered for sale by the Company to institutional investors and
certain accredited individuals and organizations, at a price of $4.50 per share
(the "Company Shares"). See "PLAN OF DISTRIBUTION."
This Prospectus also relates to up to 3,850,000 shares of Common Stock (the
"Security Holders' Shares"). Up to 122,855 of such shares may be issued by the
Company upon the exercise of options, warrants or pursuant to SARs that are
currently outstanding and are not exercisable for a period of six months. Up to
3,727,145 of such shares may be sold by security holders (the "Selling Security
Holders") who have acquired or will acquire such shares from the Company (i)
upon the exercise of currently exercisable options and warrants, and pursuant to
SARs, (ii) upon issuance to consultants pursuant to existing agreements and
(iii) upon issuance in connection with certain financings. The Company will not
receive any of the proceeds from sales of Selling Security Holders' Shares, but
will receive the exercise price upon the exercise of the options or warrants
described above. See "SELLING SECURITY HOLDERS" and "PLAN OF DISTRIBUTION."
This Prospectus is a combined prospectus which also relates to ACTV's
Registration Statement on Form S-1, File No. 33-86540 (the "1995 Registration
Statement"), and ACTV's Registration Statement on Form S-1, File No. 33-61320
(the "1994 Registration Statement"). The Registration Statement, which this
Prospectus is a part of, is a new registration statement and also constitutes
Post-Effective Amendment No. 2 to the 1995 Registration Statement and Post-
Effective Amendment No. 5 to the 1994 Registration Statement.
The Company's Common Stock is traded on the over-the-counter market on the
NASDAQ SmallCap Market ("NASDAQ") and on the Boston Stock Exchange ("BSE"). On
March 12, 1996, the closing bid and asked quotations for the Common Stock as
reported by NASDAQ were $4 1/2 and $4 5/8 per share.
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL
DILUTION AND SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO LOSE THEIR
ENTIRE INVESTMENT. PURCHASERS SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED
UNDER "RISK FACTORS" BEGINNING ON PAGE 9.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR
HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The Date of this Prospectus is March 13, 1996
<PAGE>
<PAGE>
The Security Holders' Shares that may be offered from time to time by Selling
Security Holders may be sold through ordinary brokerage transactions in the
over-the-counter market or on the Boston Stock Exchange, in negotiated
transactions or otherwise, at market prices prevailing at the time of sale or at
negotiated prices.
The Selling Security Holders each may be deemed to be "an underwriter", as
defined in the Securities Act of 1933 (the "Securities Act"). If any
broker-dealers are used by the Selling Security Holders, any commissions paid to
broker-dealers and, if broker-dealers purchase any shares of Common Stock as
principals, any profits received by such broker-dealers on the resales of the
shares of Common Stock may be deemed to be underwriting discounts or commissions
under the Securities Act. In addition, any profits realized by the Selling
Security Holders may be deemed to be underwriting commissions. All costs,
expenses and fees in connection with the registration of the securities offered
by the Selling Security Holders will be borne by the Company. All brokerage
commissions, if any, attributable to the sale of the securities offered by the
Selling Security Holders will be borne by the Selling Security Holders. See
"SELLING SECURITY HOLDERS" and "PLAN OF DISTRIBUTION."
No dealer, salesman or other person has been authorized to give any information
or to make any representations other than those contained or incorporated by
reference in this Prospectus in connection with the offer contained in this
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company. Neither the delivery of
this Prospectus nor any sale hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of the Company
since the date hereof. This Prospectus does not constitute an offer to sell or a
solicitation by anyone in any jurisdiction in which such offer or solicitation
is not authorized, or in which the person making such offer or solicitation is
not qualified to do so, or to any person to whom it is unlawful to make such
offer or solicitation.
Under the Securities Exchange Act of 1934 (the "Exchange Act") and the
regulations thereunder, any person engaged in a distribution of the securities
offered by this Prospectus may not simultaneously engage in market-making
activities with respect to shares of the Common Stock during the applicable
"cooling off" period (two or nine days) prior to the commencement of such
distribution. In addition, and without limiting the foregoing, the Selling
Security Holders will be subject to applicable provisions of the Exchange Act
and the rules and regulations thereunder, including, without limitation, Rule
10b-5, in connection with transactions in the securities, which provisions may
limit the timing of purchases and sales of the securities by the Selling
Security Holders.
2
<PAGE>
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission ("Commission")
a registration statement (as amended, the "Registration Statement") under the
Securities Act with respect to the securities offered by this Prospectus. This
Prospectus does not contain all the information set forth in the Registration
Statement. For further information with respect to the Company and the
securities offered hereby, reference is made to the Registration Statement and
to the exhibits and schedules filed therewith, which may be inspected without
charge at the principal office of the Commission, 450 Fifth Street, NW,
Washington, DC, 20549, and copies of the material contained therein may be
obtained from the Commission upon payment of applicable copying charges.
Statements contained in this Prospectus as to the contents of any contract or
other document referred to are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference.
The Company is subject to the reporting and other informational requirements of
the Exchange Act and, in accordance therewith, files reports, proxy statements,
and other information with the Commission. Such reports, proxy statements, and
other information can be inspected and copied at the public reference facilities
maintained by the Commission at the offices of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, NW, Washington, DC, 20549, and at the
Commission's regional offices at Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois, 60661-2511, and at 7 World Trade Center,
New York, New York, 10048. Copies of such materials can also be obtained by
written request to the Public Reference Section of the Commission at Judiciary
Plaza, 450 Fifth Street, NW, Washington, DC, 20549, at prescribed rates.
The Company's Common Stock is listed on NASDAQ and the BSE at the offices of
NASDAQ at 1735 K Street, NW, Washington, DC, 20006 or the offices of the BSE at
1 Boston Place, Boston, Massachusetts, 02108, and the Company's periodic
reports, proxy statements, and other information can be inspected at NASDAQ and
the BSE at the offices of NASDAQ at 1735 K Street, NW, Washington, DC, 20006 or
the offices of the BSE at 1 Boston Place, Boston, Massachusetts, 02108.
3
<PAGE>
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed information
and financial statements with notes thereto appearing elsewhere in this
Prospectus.
THE COMPANY
General
ACTV, Inc. ("ACTV" or the "Company") has developed proprietary Programming
Technologies (the "Programming Technology") that individualize television
programming. ACTV's Programming Technology permits the delivery of
individualized television, which, in the Company's view, significantly enhances
the quality of most genres of television programming. ACTV's Programming
Technology provides instant and seamless changes in the live or prerecorded
video picture and/or audio and/or graphics in response to the various selections
supplied by each viewer. A specially produced ACTV program (the "ACTV Program"
or "ACTV Programming") is like a linear TV program, except that it appears to be
individualized for each viewer. (Linear programs are standard television
programs that can be viewed only as created and do not offer the viewer the
option to make choices as to the content of the program or to respond to the
contents of the program in an individualized way.) There is no limit to the
number of viewers who can interact simultaneously with an ACTV Program.
ACTV's individualized programming is designed to work with both single and
multiple channels of 6MHz band-width and with different modes of transmission:
cable, direct broadcast satellite ("DBS"), multi-microwave distribution systems
("MMDS"), broadcast systems, distance learning networks and closed circuit
televisions systems. It is compatible with commonly available one-way analog
systems as well as the newer digital systems that have recently begun to be
deployed.
ACTV's strategy is to generate revenues from the sale of ACTV Programming that
it either owns, has licensed or that has been created by a third party under a
license from ACTV, including fees paid by subscribers to premium cable networks
in which the Company has an ownership interest. The Company's mission is to
improve the quality of entertainment and education television programming.
The Company also believes that the Programming Technology can enhance the
quality of television advertising by enabling the advertiser to customize each
commercial for various audience segments. It is the Company's objective to seek
advertiser support for its individualized home entertainment networks.
The chief markets presently targeted by the Company for the ACTV Programming
Technology are in-home entertainment, education (with an emphasis on distance
learning), site-based entertainment and internet applications. The Company seeks
to exploit these markets, principally in the U.S., through licensing the
Programming Technology, by creating joint venture relationships, and by direct
sales.
4
<PAGE>
<PAGE>
The Company has eight subsidiaries, which include a national entertainment
company, a national education company, a three-dimensional company, and five
regional television networks; ACTV Entertainment Inc., a New York corporation
("ACTV Entertainment") incorporated on March 9, 1988, ACTV Interactive, Inc., a
Delaware corporation incorporated on July 8, 1992, 3D Virtual, Inc., a Delaware
corporation incorporated on July 20, 1995, The Los Angeles Individualized
Television Network, Inc., a Delaware corporation incorporated on March 7, 1995,
The San Francisco Individualized Television Network, Inc., a Delaware
corporation incorporated on December 22, 1995, The Chicago Individualized
Television Network, Inc., a Delaware corporation incorporated on December 22,
1995, The New York Individualized Television Network, Inc., a Delaware
corporation incorporated on December 22, 1995, and The Atlanta Individualized
Television Network, Inc., a Delaware corporation incorporated on December 22,
1995. Unless otherwise indicated, all references in this Prospectus to the
Company or ACTV include ACTV and its eight subsidiaries.
ACTV was incorporated under the laws of the State of Delaware on July 24, 1989.
The Company is the successor, by merger effective November 1, 1989, to ACTV,
Inc., a California corporation, organized on July 11, 1983. The Company's
executive offices are located at 1270 Avenue of the Americas, New York, New
York, 10020, telephone number (212) 262-2570.
5
<PAGE>
<PAGE>
THE OFFERING
Securities Offered
Company Shares ................... 2,500,000 shares of Common Stock. See
"PLAN OF DISTRIBUTION - Company Shares."
Security Holders'
Shares .................. 3,850,000 shares of Common Stock. Up to
122,855 of such shares may be issued by
the Company upon the exercise of options,
warrants or pursuant to SARs that are
currently outstanding and are not
exercisable for a period of six months. Up
to 3,727,145 of such shares may be sold by
Selling Security Holders who have acquired
or will acquire such shares from the
Company (i) upon the exercise of currently
exercisable options and warrants, and
pursuant to SARs, (ii) upon issuance to
consultants pursuant to existing
agreements, and (iii) upon issuance in
connection with certain financings.
The Company will receive the net proceeds
of the sale of the Company Shares. It will
not receive any proceeds from sales of
Security Holders' Shares, but will receive
the proceeds of the exercise of any
options or warrants exercised by the
Selling Security Holders. See "SELLING
SECURITY HOLDERS" and "PLAN OF
DISTRIBUTION."
The exercise prices of the shares of
Common Stock issuable upon the exercise of
options and warrants, and the number of
shares issuable, may be subject to
adjustment in the event of a merger, stock
split, stock dividend and similar
transactions. See "MANAGEMENT - Stock
Options and Stock Appreciation Rights" and
"DESCRIPTION OF CAPITAL STOCK."
Common Stock Outstanding
At the Date of this
Prospectus(1)................... 11,426,875 Shares
After the Offering(1)(2).......... 15,088,448 Shares
Common Stock Symbols................ NASDAQ: IATV
BSE: IAT
6
<PAGE>
<PAGE>
Use of Proceeds..................... The net proceeds of the sale of the
Company Shares and any proceeds from the
exercise of options or warrants underlying
Security Holders' Shares being registered
hereunder will be applied to working
capital, which may include research and
development. A portion of the proceeds may
be utilized to repurchase shares of Common
Stock. The Company will not receive any
proceeds from the sales of the Security
Holders' Shares. See "USE OF PROCEEDS."
Risk Factors........................ An investment in the Company's Common
Stock involves a high degree of risk and
should be made only after a careful
consideration of the significant risk
factors that may affect the Company. Such
risks include special risks concerning the
Company and its business, including among
other risks, Operating Losses to Date,
Possible Need for Additional Financing and
Dilution. See "RISK FACTORS."
- ------------
(1) Does not include (a) 80,000 shares of Common Stock issuable pursuant to
options being offered pursuant to a separate Prospectus (the "Concurrent
Prospectus"). See "CONCURRENT OFFERING."
(2) Assumes the issuance of all the 2,500,000 Company Shares and the 1,161,573
unissued Security Holders' Shares being offered hereby, including those
underlying options and warrants. See "SELLING SECURITY HOLDERS" and "PLAN
OF DISTRIBUTION."
7
<PAGE>
<PAGE>
SUMMARY FINANCIAL DATA
(in dollars, except number of shares)
<TABLE>
<CAPTION>
Nine Months
Years Ended December 31, Ended September 30,
-------------------------------------------------------------------- ------------------------
1990 1991 1992 1993 1994 1994 1995
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations:
Revenues $ 615,011 $ 1,018,074 532,596(1) $ 164,602(1) $ 938,416 $ 768,739 $ 1,075,925
Operating Expenses 4,462,771 4,435,322 2,798,847(1) 3,443,513(1) 5,734,132 4,415,721 6,816,816
Equity in Net Loss of
ACTV Interactive (2) -- -- 187,781 506,303 143,500 143,500 --
Loss Before Extraordinary
Item (3) 3,093,512 3,313,998 2,778,085 4,156,955 5,122,010 3,929,357 5,751,337
Net Loss (3) 3,093,512 3,313,998 2,778,085 4,156,955 4,465,240 3,407,554 5,657,220
Weighted Average Shares
Outstanding 3,727,255 4,043,867 4,665,686 5,800,134 7,897,278 7,699,790 9,748,209
Loss Per Common Share
Before
Extraordinary Item (3) 0.83 0.82 0.59 0.72 0.65 0.51 0.59
Net Loss Per Common
Share (3) 0.83 0.82 0.59 0.72 0.57 0.44 0.58
Balance Sheet Data: 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 9/30/94 9/30/95
-------- -------- -------- -------- -------- ------- -------
Working Capital 2,397,952 128,834 (104,486) 2,263,225 1,503,703 (704,003) 3,458,531
Total Assets 6,211,803 2,828,119 3,146,503 5,920,720 7,733,314 6,129,878 10,454,934
Long Term Obligations 649,796 669,796 1,792,794 2,220,794 2,325,061 2,443,866 222,219
Stockholders' Equity (4) 5,089,036 1,775,038 1,006,314 1,910,603 3,972,543 1,956,892 8,009,212
Total Capitalization 5,738,832 2,444,834 2,799,108 4,131,397 6,297,604 4,400,758 8,231,431
</TABLE>
(1) For the period between July 15, 1992, and March 11, 1994, all education
sales and expenses were reported separately by the Company's 49% affiliate,
ACTV Interactive, and were not consolidated with the Company's statements
of operations. For the remainder of 1994, operational results related to
education were included with those of the Company, as a result of the
Company's March 11, 1994 purchase of the Post Company's 51% interest in
ACTV Interactive.
(2) The results of ACTV Interactive are accounted for under the equity method
of accounting for the years 1992 and 1993 and for the period January 1,
1994 to March 11, 1994.
(3) Includes for the year ended 12/31/94 and nine months ended 9/30/94
extraordinary gains of $656,770, ($.08 per share) and $521,803 ($.07 per
share), respectively, related to the extinguishment of debt and equipment
lease obligations. Includes for the nine months ended 9/30/95 an
extraordinary gain of $94,117 ($.01 per share) related to the
extinguishment of debt obligations.
(4) No cash or non-cash dividends have been paid or granted and the Company
does not anticipate the declaration or payment of dividends in the
foreseeable future.
8
<PAGE>
<PAGE>
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE HIGHLY SPECULATIVE AND SHOULD BE PURCHASED
ONLY BY PERSONS WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT IN THE COMPANY.
EACH PROSPECTIVE INVESTOR SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS,
AS WELL AS ALL OTHER INFORMATION SET FORTH ELSEWHERE IN THIS PROSPECTUS.
1. Operating Losses to Date. The Company has operated at a loss through the date
of this Prospectus. The Company's net losses for the nine months ended September
30, 1995 and 1994 (the "September 1995 period" and the "September 1994 period,"
respectively) were $5,657,220 and $3,407,554, respectively. The September 1995
Period includes an extraordinary gain of $94,117 while the September 1994 period
includes an extraordinary gain of $521,803. The Company had net losses of
$4,465,240 in the fiscal year ended December 31, 1994 ("Fiscal 1994"),
$4,156,955 in the fiscal year ended December 31, 1993 ("Fiscal 1993"), and
$2,778,085 in the fiscal year ended December 31, 1992 ("Fiscal 1992"). Through
September 30, 1995, the Company had an accumulated deficit of approximately
$29.2 million. To date, the Company has had limited revenues, including revenues
of $1,075,925 in the September 1995 period, $938,416 in Fiscal 1994, $164,602 in
Fiscal 1993, and $532,596 in Fiscal 1992.
The increase in revenues in Fiscal 1994 was partially the result of the
Company's including for the period March 11 to December 31 of Fiscal 1994 all
education sales, which were reported for Fiscal 1993 by ACTV Interactive, a
partnership in which ACTV held a 49% interest from July 14, 1992 to March 11,
1994. ACTV Interactive's gross sales were $839,165 in Fiscal 1993, compared with
$348,473 for the period from July 14, 1992, the partnership formation date, to
December 31, 1992. ACTV Interactive's results were accounted for under the
equity method of accounting.
There can be no assurance that the Company will generate significant revenues or
achieve profitability in the future.
2. Unproven Business Strategy. Other than the activities of ACTV Interactive,
the Company's prior activities in the education market and the arrangement with
LGV in the entertainment market, the Company has not had significant sales of
the Programming Technology. While ACTV has recently consummated its first sale
of the new distance learning technology, there can be no assurance that the
results of this project will support the continuation of the project or lead to
other sales. Also, while the Company has recently entered into agreements with a
large regional cable sports network, a national news service, and a cable
operator to create a trial for Los Angeles-based programming service, which was
launched in mid-1995, there can be no assurance that these agreements will
result in the development of a commercially successful programming service. In
addition, the Company is dependent on co- ventures or licenses with third
parties to produce ACTV Programs and the Company will be required to demonstrate
a market for such programs. There can be no assurance that co- venturers or
licensees, or ACTV's direct sales force will succeed in marketing the ACTV
Programs. See "BUSINESS - Entertainment."
9
<PAGE>
<PAGE>
Furthermore, the likelihood of the success of the Company must be considered in
light of the problems, costs, difficulties and delays encountered in connection
with the operation of a business, the operations of which consist of the
development and commercialization of new and unproven technologies, and the
competitive environment in which the Company operates. Accordingly, there can be
no assurance that the Company will successfully market the Programming
Technology or operate on a profitable basis. See "BUSINESS."
3. Possible Need for Additional Financing. To date, the Company's capital
requirements to develop the Programming Technology, produce ACTV Programming,
develop marketing approaches and strategic alliances, and to cover costs of
selling and general and administrative expenses, have been significant,
resulting in an accumulated deficit as of September 30, 1995 of approximately
$29.2 million. Although the Company will receive none of the proceeds from the
sale of the Selling Security Holders' Shares offered hereby, the Company could
receive proceeds of up to $10,125,000 if all the Company Shares are sold
(assuming a sale price of $4.50 per share and the payment of commissions and
other expenses of approximately $1,125,000) as well as up to approximately $3.0
million additional proceeds if the options and warrants underlying the Selling
Security Holders' Shares are exercised. However, there can be no assurance that
any of the Company Shares will be sold or that the options or warrants
underlying the Selling Security Holders' Shares will be exercised, that the
expenses of the offering will not exceed those anticipated, or that this
offering will result in any proceeds to the Company.
Management believes its current funds will enable the Company to finance its
operations for the next twelve month period. However, if the Company's
assumptions and beliefs prove to be incorrect, the Company may require
additional financing during this period. In the event that the Company does
require additional financing, the Company has no agreements, arrangements or
understandings to obtain such additional financing.
4. Patents and Proprietary Information. The Company has obtained patents
covering certain aspects of the Programming Technology and has patents pending
with respect to other developments or enhancements thereof. However, there can
be no assurance (i) that patents applied for will be granted, (ii) that the
patents the Company owns or has rights to or that may be granted or obtained by
the Company in the future will be enforceable or will provide the Company with
meaningful protection from competition, (iii) that any products developed by the
Company will not infringe any patent or rights of others, or (iv) that the
Company will possess the financial resources necessary to enforce any patent
rights which it holds. See "BUSINESS -- Patents, Applications and Proprietary
Information."
The Company requires each of its employees, consultants and advisors to execute
a confidentiality and assignment of proprietary rights agreement upon the
commencement of employment or a consulting relationship with the Company. These
arrangements generally provide that all inventions, ideas and improvements made
or conceived by the individual arising out of the employment or consulting
relationship shall be the exclusive property of the Company. This information
shall be kept confidential and not disclosed to third parties except by consent
of the Company or in other specified circumstances. There can be no assurance,
however, that these arrangements will provide effective protection of the
Company's proprietary information in the event of unauthorized use or disclosure
of such information.
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5. Technological Obsolescence; Research and Development. The Company is engaged
in a field characterized by extensive research efforts and rapid, significant
technological change. There can be no assurance that research or development by
others will not render the Programming Technology obsolete or that the limited
research and development performed by the Company will continue or will be
successful. In 1994, outside research and development costs totaled $476,155 and
were primarily related to development of a new analog/digital two-way distance
learning system. The Company believes that it may be required to expend
approximately $200,000 during the first quarter of 1996 to facilitate the
completion of current research and development projects, relating primarily to
development of the distance learning system. There can be no assurance that the
new distance learning system can be deployed on a timely basis, or that once
deployed, it will function satisfactorily. If the Company determines that
additional research and development is required, there can be no assurance that
the Company will have sufficient funds or access to additional funds to engage
in substantial additional research and development. See "BUSINESS -- Research
and Development."
6. Possible Shortage of Available Channels for In-Home Cable Applications. In
order for the ACTV Programming Technology to be delivered over cable, MMDS and
DBS systems for the in-home market, it must compete for channel space on cable,
MMDS and DBS systems, many of which have limited available channel capacity.
Although a simpler form of individualization can be achieved by the Company's
using one channel of band-width, the more sophisticated applications of ACTV
Programming currently require three to four channels of analog band-width. There
is no assurance that cable, MMDS and DBS operators will devote a sufficient
number of channels of band-width to the Programming Technology in the future.
Nor is there any assurance that the Company will be able to expand, unless
cable, MMDS, or DBS operators continue to upgrade and increase their channel
capacity by using some form of "compression technology," whereby the
digitalization of the information required to produce a television picture
reduces the channel capacity required for programming that incorporates the
Programming Technology. The compression technologies recently deployed and those
currently under development could enable the Company to use the more complex
applications of the Programming Technology on one channel of band-width. The
Company believes, although there can be no assurance, that the cable, MMDS and
DBS industry is, in general, moving in the direction of increasing channel
capacity. The costs associated with such compression technology may result
in substantial additional costs to cable, MMDS and DBS operators. However, the
Company's management cannot currently quantify such additional costs, which may
adversely affect the Company's future operations. See "BUSINESS."
7. Dependence Upon Licensees and Joint Venturers. The Company has adopted as a
business strategy the exploitation of the Programming Technology through
licensing, the arrangement of joint ventures and by means of a direct sales
force. While the Company has established a direct sales force of four employees
and fifteen distributors, and intends to increase its direct sales forces, the
Company will continue to be, in substantial part, dependent upon the ability of
its licensees and prospective joint venture partners to offer products and
services that are commercially viable. In addition, the Company, its licensees
or joint venture partners will need to provide individualized programming to
continue commercial cable operations, and they are dependent upon third parties
for such programming. The Company will be dependent upon its ability, and that
of its licensees and joint venture partners, to actively promote and distribute
the Programming Technology and the products. There is no assurance that the
Company's
11
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marketing strategy will be successful. Further, the Company may be adversely
affected by the financial and business considerations of its licensees and joint
venture partners.
The Company is engaged in an ongoing program designed to evaluate the
Programming Technology as applied to the cable television market. The results of
such programs cannot yet be determined. No assurance can be given that the
results of the evaluation will be positive or that one or more of the markets
which the Company is evaluating may prove to be viable for the Programming
Technology.
There is a possibility that in the structuring of future joint ventures and
license agreements that the licensees and joint venture partners may be granted
interests in the Company, and or any of its subsidiaries, in the form of equity
securities or options to acquire equity securities. See "BUSINESS -- Marketing
and Program Production."
8. Dependence upon Suppliers of Programming. The Company is dependent upon the
producers of linear programming that can be enhanced using the Programming
Technology to create individualized ACTV Programs. To date, the Company has
entered into agreements with eight such producers, but there can be no assurance
that such agreements will provide the Company with sufficient programming
appropriate for enhancement, that the Company will be able to develop additional
sources of programming, or that the enhanced programs can be successfully
marketed in an individualized format. See "BUSINESS - Marketing and Program
Production."
9. Government Regulation. The Company believes that neither its present nor any
proposed commercial implementation of the ACTV Programming Technology on cable,
DBS or MMDS will require governmental license or approval. Certain broadcast
application and copper pairs with ADSL may require governmental approval. No
assurance can be given that applicable laws will not change. In the event such
approval were to be required, there can be no assurance that the Company would
be able to obtain such approval or the licenses required for the further
implementation of the ACTV Programming Technology. See "BUSINESS Government
Regulation."
10. Dependence Upon Key Personnel. The Company has been largely dependent upon
the efforts of William C. Samuels in his roles as Chairman of the Board,
President, Chief Executive Officer and Director of the Company, David Reese as
Executive Vice President, President of ACTV Entertainment and a Director of the
Company, and Bruce Crowley, Executive Vice- President, President of ACTV
Interactive, Inc. and a Director of the Company. The Company has entered into
five-year employment agreements with Mr. Samuels and Mr. Reese. The Company
currently does not maintain "key employee" insurance on the lives of Messrs.
Samuels, Reese or Crowley and there can be no assurance that such insurance
would be available at an acceptable cost to the Company, should it seek to
acquire such insurance in the future. See "MANAGEMENT - Employment and
Consulting Agreements."
In order to compete in a marketplace with rapidly changing and expanding
technology, the Company requires employees not only with extensive management
experience, but also with certain technical abilities to direct the Company's
continuing research and development efforts. While the Company believes that it
currently employs such personnel, and that other persons
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could be retained in such capacities, there can be no assurance that if the
Company were required to replace such personnel, it could readily do so, or
that, even if such qualified replacements were retained, the development of the
Company's business would not be delayed. See "BUSINESS -- Research and
Development."
11. Competition. The Programming Technology competes with many other forms of
entertainment, education and information dissemination, many of which are
significantly more established, including the standard television industry, the
movie industry, cable television, programming services and other forms of
entertainment. There can be no assurance that products and services
incorporating the Programming Technology will ever be established in the
marketplace in a significant enough manner to make the Company profitable.
In addition, the Programming Technology may compete with other technologies
described as interactive television, some of which may be developed or promoted
by companies with resources significantly greater than the Company's. See
"BUSINESS -- Competition."
12. Dependence on Equipment Suppliers. The Company does not intend itself to
manufacture set-top converters, terminals, video servers, or other interactive
devices. Currently, in the entertainment market, the Videoway terminal
manufactured through LGV is the only ACTV compatible set-top converter available
to potential distributors of ACTV Programming. The Company intends to grant
licenses similar to the one granted to LGV to other manufacturers that are
selected by the future distributors of ACTV Programming. All of the ACTV
classroom and distance learning systems which incorporate the Programming
Technology and are sold by ACTV in the education market are manufactured by KDI
Precision Products, Inc. ("KDI"). While the Company believes that KDI can
produce sufficient systems to meet the anticipated needs of ACTV in the
education marketplace, in the event that KDI were unable to supply the systems,
there can be no assurance that the Company could produce sufficient systems or
obtain sufficient systems from another manufacturer at an acceptable price. The
inability of ACTV to obtain systems would have a material adverse effect on the
business of the Company. There is no assurance that the Company will be
successful in developing additional manufacturing licenses for the entertainment
and education markets; the failure of the Company to do so would have a material
adverse effect on the business of the Company. See "BUSINESS - Set Top
Converters, Terminals and Other Interactive Devices."
13. No Assurance of Public Market for Securities. Although the Company's Common
Stock is quoted on NASDAQ and listed on the Boston Stock Exchange, there can be
no assurance that the Company will be able to maintain such quotation or
listing, or that, if maintained, a significant public market will be sustained.
For continued listing on NASDAQ, the Company is required to maintain a minimum
stockholders' equity of $1,000,000 and assets of $2,000,000. The Boston Stock
Exchange's maintenance criteria require the Company to have total assets of at
least $1,000,000 and total stockholders' equity of at least $500,000. At
September 30, 1995, the Company had stockholders' equity of $8,009,212 and
assets of $10,454,934. The Company has continued to operate at a loss through
the date of this Prospectus.
In the event the Common Stock were delisted from NASDAQ, trading, if any, would
be conducted on the Boston Stock Exchange and in the over-the-counter market on
the NASD's
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electronic bulletin board, in what are commonly referred to as the "pink
sheets." As a result, an investor may find it more difficult to dispose of, or
to obtain accurate quotations as to the price of, the Company's securities. In
addition, the Common Stock would be subject to Rules 15g1-15g6 promulgated under
the Securities Exchange Act of 1934 (the "Exchange Act") that impose additional
sales practice requirements on broker-dealers who sell such securities to
persons other than established customers and accredited investors (generally, a
person with assets in excess of $1,000,000 or annual income exceeding $200,000
or $300,000 together with his or her spouse). For transactions covered by these
rules, the broker-dealer must make a special suitability determination for the
purchaser and have received the purchaser's written consent to the transaction
prior to sale. Consequently, these rules may affect the ability of
broker-dealers to sell the Company's securities and may affect the ability of
purchasers in the Offering to sell their securities in the secondary market.
The Commission has also recently adopted regulations that define a "penny stock"
to be any equity security that has a market price (as defined) of less than
$5.00 per share or an exercise price of less than $5.00 per share, subject to
certain exceptions. For any transaction involving a penny stock, unless exempt,
the regulations require the delivery, prior to the transaction, of a disclosure
schedule prepared by the Commission relating to the penny stock market. The
broker-dealer must also disclose the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and, if the broker-dealer is the sole market-maker, the broker-dealer
must disclose this fact and the broker-dealer's presumed control over the
market. Finally, monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks.
While many NASDAQ-listed securities are covered by the definition of penny
stock, transactions in a NASDAQ-listed security are exempt from all but the sole
market-maker provision for (i) issuers who have $2,000,000 in tangible assets
($5,000,000 if the issuer has not been in continuous operation for three years),
(ii) transactions in which the customer is an institutional accredited investor,
or (iii) transactions that are not recommended by the broker-dealer. In
addition, transactions in a NASDAQ security directly with a NASDAQ market-maker
for such security are subject only to the sole market-maker disclosure, and the
disclosure with respect to commissions to be paid to the broker-dealer and the
registered representative.
Finally, all NASDAQ securities would be exempt from the recently-adopted
regulations regarding penny stocks if NASDAQ raised its requirements for
continued listing so that any issuer with less than $2,000,000 in net tangible
assets or stockholders' equity would be subject to delisting. These criteria are
more stringent than the current NASDAQ maintenance requirements.
14. No Dividends. The Company has not paid any cash dividends on its Common
Stock since inception and does not intend to pay cash dividends on its Common
Stock for the foreseeable future. Although there are no restrictions on the
Company's ability to pay dividends, the Company intends to follow a policy of
retaining earnings, if any, to finance the development and expansion of its
business.
15. Preferred Stock Authorized. The Company's Board of Directors has the
authority, without further action of the stockholders, to issue shares of
preferred stock which have
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conversion, dividend, liquidation and voting rights that could adversely affect
holders of Common Stock or could be used to restrict the Company's ability to
merge with or sell its assets to a third party, thereby preserving control of
the Company by its present owners. Although the Company has no present intention
to issue any shares of preferred stock, there can be no assurance that the
Company will not do so in the future.
16. Rule 144 Sales. Of the shares of the Company's Common Stock presently
outstanding, approximately 3.0 million are "restricted securities" as that term
is defined by Rule 144 promulgated under the Securities Act and in the future
may be sold only in compliance with Rule 144 or pursuant to registration under
the Securities Act or pursuant to another exemption therefrom. For so long as
the Registration Statement of which the Concurrent Prospectus is a part is
current and effective, the shares owned by the selling security holder
thereunder and offered thereby (20,000) and the shares covered by the Concurrent
Prospectus that are issuable upon the exercise of options (80,000) may be sold
without regard to the volume limitations, described below, set forth in Rule
144. Generally, under Rule 144, each person having held restricted securities
for a period of two years may, every three months, sell in ordinary brokerage
transactions an amount of shares which does not exceed the greater of one
percent (1%) of the Company's then outstanding shares of Common Stock, or the
average weekly volume of trading of such shares of Common Stock as reported
during the preceding four calendar weeks. A person who has not been an affiliate
of the Company for at least the three months immediately proceeding the sale and
who has beneficially owned shares of the Common Stock for at least three years
is entitled to sell such shares under Rule 144 without regard to any of the
limitations described above. Of the restricted shares, a substantial number have
been held by non-affiliates of the Company for more than three years or have
been held by affiliates of the Company for more than two years. Actual sales, or
the prospect of sales by the present stockholders of the Company or by future
holders of restricted securities under Rule 144, or otherwise, may, in the
future, have a depressive effect upon the price of the Company's shares of
Common Stock in any market that may develop therefor, and also could render
difficult sales of the Company's securities purchased by investors herein.
17. Control by Officers, Directors and Principal Stockholders. The Company's
officers and directors own, of record, 289,196 outstanding shares of Common
Stock, of which 20,000 are being offered pursuant to the Concurrent Prospectus
(not including 80,000 shares, which are being offered pursuant to the Concurrent
Prospectus, issuable upon the exercise of options). In addition, William C.
Samuels, Chairman, President, Chief Executive Officer and a director of the
Company, pursuant to a voting agreement, has voting control of the 2,341,334
shares of Common Stock owned of record by the Post Company. In addition,
pursuant to a separate voting agreement, Mr. Samuels has voting control of the
shares owned by Dr. Freeman. Consequently, Mr. Samuels has voting control over
3,321,917 shares of Common Stock, or approximately 27.92% of the outstanding
shares of Common Stock, assuming issuance of 533,035 shares of Common Stock upon
exercise of options. Accordingly, Mr. Samuels could have substantial influence
over the affairs of the Company, including the election of directors.
18. Possible Acquisition of Control by The Washington Post Company. Through
March 17, 1997 (subject to extension in certain circumstances), the Post Company
shall have the right to purchase from the Company, at a price which has not yet
been determined, the amount of shares of Common Stock necessary to bring its
percentage ownership of the total then
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<PAGE>
outstanding shares of Common Stock to 51%. If the Post Company should choose to
exercise its right, the purchase price would be established after arms-length
negotiations between the parties. In the event that the parties fail to agree on
a purchase price, the parties would seek an outside appraisal. At present, the
Company does not have enough shares authorized to accommodate the Post Company
should it choose to exercise such right. If the Post Company decides to exercise
its right, the Company will seek to take the necessary action to fulfill its
obligations. If such right is exercised, the ability, pursuant to agreement, of
William C. Samuels, Chairman, President and Chief Executive Officer of the
Company, to vote the shares owned of record by the Post Company will terminate,
and the Post Company will be able to control the affairs of the Company.
19. Outstanding Options and Warrants. As of the date of this Prospectus, the
Company had granted options and warrants to purchase an aggregate of 2,704,582
shares of Common Stock that had not been exercised. Of the shares of Common
Stock subject to these unexercised options and warrants, 10,000 may be purchased
for less than $1.00; 12,000 may be purchased for between $1.00 and $1.99 per
share; 694,082 may be purchased for between $2.00 and $2.99 per share; 1,543,500
may be purchased for between $3.00 and $3.99 per share; 342,500 may be purchased
for between $4.00 and $4.99 per share; and 102,500 may be purchased for between
$5.00 to $5.99 per share. To the extent that the outstanding stock options and
warrants are exercised, dilution to the interests of the Company's stockholders
will occur. Moreover, the terms upon which the Company will be able to obtain
additional equity capital may be affected adversely, since the holders of the
outstanding options and warrants can be expected to exercise them at a time when
the Company would, in all likelihood, be able to obtain any needed capital on
terms more favorable to the Company than those provided in the outstanding
options and warrants.
20. Possible Volatility of Securities Prices. The market price of the Company's
securities may be highly volatile, as has been the case with the securities of
other companies engaged in high technology research and development. Factors
such as announcements by the Company or its competitors concerning technological
innovations, new commercial products or procedures, proposed government
regulations and developments or disputes relating to patents or proprietary
rights may have a significant impact on the market price of the Company's
securities.
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DILUTION
The difference between the offering price to the public per share of the Company
Shares and the net tangible book value per share of the Common Stock (assuming
no exercise of any options, offered pursuant to the Concurrent Prospectus) after
this Offering constitutes the dilution to investors in this Offering. Net
tangible book value per share is determined by dividing the net tangible book
value of the Company (total tangible assets less total liabilities), by the
number of outstanding shares of Common Stock. As of September 30, 1995, the
Company has an aggregate of 11,375,150 shares of Common Stock outstanding and a
net tangible book value (exclusive of intangible items of $3,873,305), as
reflected on its consolidated balance sheets as of the same date, of $4,135,907,
or approximately $.36 per share. All assets are assumed to be tangible assets,
other than patents and goodwill. Assuming that purchases of Company Shares in
this Offering are made at the offering price of $4.50 per share, purchasers of
the shares would suffer an immediate dilution of $3.47 per share. The following
table illustrates dilution to such purchasers on a per share basis:
<TABLE>
<S> <C> <C>
Assumed offering price per Company Share................................$ 4.50
Net tangible book value per share before
sale of the Company
Shares..........................................................$.36
Increase per share attributable to sale of
Company Shares on a pro forma basis...........................$.67
----
Pro forma net tangible book value per
share after sale of the Company Shares.................................$ 1.03
----
Dilution per share to new investors......................................$ 3.47(1)
====
</TABLE>
- --------
1 There is no assurance that all of the Company Shares will be sold. If
all of the Company Shares are not sold, dilution to such purchasers on
a per share basis will be greater.
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USE OF PROCEEDS
The Company will receive estimated net proceeds of up to $10,125,000 if all the
Company Shares are sold, as well as up to approximately $3.1 million additional
proceeds if all of the options and warrants for which the underlying Selling
Security Holders' Shares being offered hereby are exercised. However, there can
be no assurance that all the Company Shares will be sold or that such options or
warrants will be exercised. The Company cannot redeem or cancel such options or
warrants to encourage their exercise.
Such proceeds will be applied to working capital, which may include research and
development. A portion of the proceeds may be utilized to repurchase shares of
Common Stock at a price to be determined by the Board of Directors. To date, the
Company has not adopted any repurchase programs.
The foregoing represents the Company's estimate of the allocation of the net
proceeds of the offering, based upon the current status of its operations and
anticipated business plans. It is possible, however, that the application of
funds will differ from the estimates set forth herein due to changes in the
Company's planned business operations.
Until utilized, the net proceeds, if any, received from the sale of the Company
Shares and upon exercise of options and warrants may be invested in short-term
interest-bearing securities or their equivalent.
The Company will not receive any of the proceeds of the sale of the Selling
Security Holders' Shares.
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CERTAIN MARKET INFORMATION
The Company's Common Stock is and its Redeemable Warrants were, traded on the
Automated Quotation System of the National Association of Securities Dealers,
Inc. ("NASDAQ") and the Boston Stock Exchange under the symbols "IATV" and
"IATVW" and "IAT" and "IATW," respectively. The following table sets forth the
high and low sale prices for Common Stock and Redeemable Warrants as reported by
NASDAQ. The Redeemable Warrants were redeemed on May 7, 1993.
<TABLE>
<CAPTION>
Common Stock Redeemable Warrants
1996 Quarters High Low High Low
- ------------- ---- --- ---- ---
<S> <C> <C> <C> <C>
First 5 3 11/16 N/A N/A
Common Stock Redeemable Warrants
1995 Quarters High Low High Low
- ------------- ---- --- ---- ---
First 6 5/8 3 3/8 N/A N/A
Second 5 1/4 4 N/A N/A
Third 5 3/4 3 7/16 N/A N/A
Fourth 5 13/16 3 1/8 N/A N/A
Common Stock Redeemable Warrants
1994 Quarters High Low High Low
- ------------- ---- --- ---- ---
First 7 3/8 5 3/4 N/A N/A
Second 6 1/8 5 N/A N/A
Third 5 7/8 5 N/A N/A
Fourth 5 1/8 3 1/8 N/A N/A
Common Stock Redeemable Warrants
1993 Quarters High Low High Low
- ------------- ---- --- ---- ---
First 7 3/8 2 1/6 6 13/16
Second 8 1/8 4 3/4 5 2
Third 7 1/4 5 1/4 N/A N/A
Fourth 8 5/8 5 1/2 N/A N/A
</TABLE>
On March 12, 1996, there were approximately 300 holders of record of the
Company's 11,426,875 outstanding shares of Common Stock.
On March 12, 1996, the closing bid and asked prices of the Common Stock as
reported by NASDAQ were $4 1/2 and $4 5/8, respectively.
The Company has not paid cash dividends since its organization. The Company
plans to use earnings, if any, to fund growth and does not anticipate the
declaration or the payment of cash dividends in the foreseeable future.
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CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 1995. See "CERTAIN TRANSACTIONS" and Consolidated Financial
Statements of ACTV, Notes 12 and 13.
<TABLE>
<CAPTION>
September 30, 1995
<S> <C>
Long Term Debt:
Note Payable - Related Party $ 222,219
-----------
Shareholders' Equity:
Preferred stock, $.10 par value
1,000,000 shares authorized,
none issued ---
Common stock, $.10 par value
17,000,000 shares authorized,
11,375,150 issued and outstanding 1,137,515
Additional Paid-In Capital 36,634,659
Notes receivable from stock sales (567,500)
Accumulated Deficit (29,195,462)
----------
Total Shareholders' Equity 8,009,212
----------
Total Capitalization $ 8,231,431
============
</TABLE>
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DIVIDEND POLICY
The Company has not paid any dividends, cash or otherwise, since its inception.
The Company plans to use earnings, if any, to fund growth and presently has no
intention to pay any cash dividends in the foreseeable future.
SUMMARY FINANCIAL DATA
The selected financial data presented below as of and for the nine months ended
September, 1994 and 1995, and the years ended December 31, 1994, 1993, 1992,
1991, and 1990 are derived from the financial statements of the Company that,
with regard to the interim periods, are unaudited, and with regard to the annual
periods, have been audited. In the opinion of management, the unaudited
consolidated financial statements reflect all adjustments, consisting of normal
recurring items, necessary for a fair presentation of the financial position and
the results of operations of the Company 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. This data
should be read in conjunction with the financial statements referred to above,
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS," and the other financial data included herein.
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SUMMARY FINANCIAL DATA
(in dollars, except number of shares)
<TABLE>
<CAPTION>
Nine Months
Years Ended December 31, Ended September 30,
----------------------------------------------------------- ------------------------
1990 1991 1992 1993 1994 1994 1995
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations:
Revenues $615,011 $1,018,074 $532,596(1) $164,602(1) $938,416 $768,739 $1,075,925
Operating Expenses 4,462,771 4,435,322 2,798,847(1) 3,443,513(1) 5,734,132 4,415,721 6,816,816
Equity in Net Loss of
ACTV Interactive (2) -- -- 187,781 506,303 143,500 143,500 --
Loss Before Extraordinary
Item (3) 3,093,512 3,313,998 2,778,085 4,156,955 5,122,010 3,929,357 5,751,337
Net Loss (3) 3,093,512 3,313,998 2,778,085 4,156,955 4,465,240 3,407,554 5,657,220
Weighted Average Shares
Outstanding 3,727,255 4,043,867 4,665,686 5,800,134 7,897,278 7,699,790 9,748,209
Loss Per Common Share
Before
Extraordinary Item (3) 0.83 0.82 0.59 0.72 0.65 0.51 0.59
Net Loss Per Common
Share (3) 0.83 0.82 0.59 0.72 0.57 0.44 0.58
Balance Sheet Data: 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 9/30/94 9/30/95
-------- -------- -------- -------- -------- ------- -------
Working Capital 2,397,952 128,834 (104,486) 2,263,225 1,503,703 (704,003) 3,458,531
Total Assets 6,211,803 2,828,119 3,146,503 5,920,720 7,733,314 6,129,878 10,454,934
Long Term Obligations 649,796 669,796 1,792,794 2,220,794 2,325,061 2,443,866 222,219
Stockholders' Equity (4) 5,089,036 1,775,038 1,006,314 1,910,603 3,972,543 1,956,892 8,009,212
Total Capitalization 5,738,832 2,444,834 2,799,108 4,131,397 6,297,604 4,400,758 8,231,431
</TABLE>
(1) For the period between July 15, 1992, and March 11, 1994, all education
sales and expenses were reported separately by the Company's 49%
affiliate, ACTV Interactive, and were not consolidated with the
Company's statements of operations. For the remainder of 1994,
operational results related to education were included with those of
the Company, as a result of the Company's March 11, 1994 purchase of
the Post Company's 51% interest in ACTV Interactive.
(2) The results of ACTV Interactive are accounted for under the equity
method of accounting for the years 1992 and 1993 and for the period
January 1, 1994 to March 11, 1994.
(3) Includes for the year ended 12/31/94 and nine months ended 9/30/94
extraordinary gains of $656,770, ($.08 per share) and $521,803 ($.07
per share), respectively, related to the extinguishment of debt and
equipment lease obligations. Includes for the nine months ended 9/30/95
an extraordinary gain of $94,117 ($.01 per share) related to the
extinguishment of debt obligations.
(4) No cash or non-cash dividends have been paid or granted and the
Company does not anticipate the declaration or payment of dividends
in the foreseeable future.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and notes thereto, contained elsewhere in this
Prospectus.
THE COMPANY
ACTV, Inc. (the "Company") was organized to develop and market the ACTV
Programming Technology, which permits each viewer to simultaneously experience
individualized television programming. Since its inception, the Company has
incurred operating losses approximating $29.2 million related directly to the
development and marketing of the ACTV Programming Technology.
ACTV's individualized programming is designed to work with both single and
multiple channels of 6MHz band-width and with different modes of transmission:
cable, direct broadcast satellite ("DBS"), multi-microwave distribution systems
("MMDS"), broadcast systems, distance learning networks and closed circuit
televisions systems. It is compatible with commonly available one-way analog
systems as well as the newer digital systems that have recently begun to be
deployed.
ACTV's strategy is to generate revenues from the sale of ACTV Programming that
it either owns, has licensed or that has been created by a third party under a
license from ACTV, including fees paid by subscribers to premium cable networks
in which the Company has an ownership interest. The Company's mission is to
improve the quality of entertainment and education television programming.
The chief markets presently targeted by the Company for the ACTV Programming
Technology are in-home entertainment, education (with an emphasis on distance
learning), site-based entertainment and internet applications. The Company seeks
to exploit these markets, principally in the U.S., through licensing the
Programming Technology, by creating joint venture relationships, and by direct
sales.
In March 1988, the Company formed ACTV Entertainment Inc. ("ACTV Entertainment")
as an equal shareholder with Le Groupe Videotron ("LGV") of Canada. The Company
granted to ACTV Entertainment the exclusive right to use the Company's
Programming Technology in the United States DBS, cable, and broadcast television
markets.
In June 1993, LGV withdrew from its ownership in ACTV Entertainment, and the
Company became the sole shareholder of ACTV Entertainment under the terms of an
agreement with a subsidiary of LGV. In exchange for gaining full ownership and
control of ACTV Entertainment in the settlement and for the conversion of LGV's
exclusive license for Canada and Europe to a non-exclusive license, the Company
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.
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The Company and LGV entered into their original agreement during the infancy of
the development of interactive television. LGV had developed its Videoway TV
set-top converter, which, among other things, enabled it to provide its
subscribers with interactive capacity. The arrangement provided the Company with
an outlet for its ACTV Programming while providing LGV with interactive product
for its Videoway converter.
As both companies developed, however, their missions began to diverge: LGV
wanted to market its Videoway converter in the United States, and was less
interested in the actual production of ACTV Programming, while the Company was
interested in expanding its production capacity and in making its ACTV
Programming available for use with set-top converters manufactured and
distributed by others, including other cable and broadcast network operators.
The restructuring of the relationship with LGV enabled both companies to focus
on their respective goals, in that LGV now has the non-exclusive right to market
the Videoway converter in the United States, and the Company has control of ACTV
Programming development. See "BUSINESS -- Entertainment -- Reorganization of
ACTV Entertainment and the LGV Agreements; Legal Proceedings."
In March 1995, the Company formed The Los Angeles Individualized Television
Network, Inc., one of its wholly-owned operating subsidiaries, to operate the
Company's individualized television trial in Southern California and, if the
trial is successful, the planned regional television network that would target
approximately 4.2 million sports subscribers in the region that reaches from Los
Angeles to San Diego and Phoenix.
The trial, which marked the introduction of the Company's first U.S. regional
individualized network (the "Regional Network"), commenced in the Los Angeles
area in May 1995. The trial involves 1,000 cable subscribers and will run
throughout most of 1996 and may extend into 1997. The Company believes that the
Regional Network is the first programming service in the U.S. to both enhance
existing programming and offer new individualized content.
Programming for the Regional Network is being provided to ACTV by Prime Sports -
West, currently a unit of Telecommunications, Inc.'s ("TCI") Liberty Media,
Liberty Sports division, which has approximately 4.2 million subscribers in the
Southwest region of the U.S., Cable News Network, Inc. ("CNN") and the Game Show
Network, a subsidiary of Sony Entertainment, Inc. ("Sony"). The cable operator
for the Regional Network is Ventura County Cablevision, currently a subsidiary
of Western Communications, whose ownership is scheduled to be transferred to TCI
in early 1996. TCI and News Corp. have announced a joint venture, which, if
completed, would see Liberty Sports become Fox Sports. See "BUSINESS -
Entertainment."
The Company has established four new wholly-owned subsidiaries which would serve
as additional regional individualized networks covering the San Francisco,
Chicago, New York and Atlanta regions in the event that the Company decides to
expand and provide similar services provided by the Regional Network in other
regions across the U.S. To date, the four new wholly-owned subsidiaries have not
engaged in any business activities, nor does the Company have any present
intention to launch their activities. The Regional Network, and any expansion
plans related thereto, is part of the Company's plan to develop the
entertainment division of its business which, to date, does not generate any
revenue for the Company.
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In January 1995, the Company signed an exclusive license with Greenwich
Entertainment Group ("The Greenwich Group") for the use of the Programming
Technology in the theater environment, specifically in shopping malls, museums
and entertainment centers. The first theater opened in the Mall of America in
Minneapolis, Minnesota on November 18, 1995. See "BUSINESS -- Site-Based
Entertainment."
In entertainment, the Company has licensed the Programming Technology to LGV and
The Greenwich Group and continues to seek other licensees and joint venture
partners both in and outside the United States. The Company is and will continue
to be dependent upon the ability of licensees and joint venture partners to
offer products and services that are commercially viable, and to actively
promote and distribute the Programming Technology.
The Company is and will continue to be dependent upon the ability of licensees
and joint venture partners in the entertainment arena to offer products and
services that are commercially viable, and to actively promote and distribute
the Programming Technology. There is no assurance that the Company will be
successful in reaching agreements with licensees and joint venture partners,
that the Company's strategy of marketing the Programming Technology through its
licensees and joint venture partners will be successful, or that the methods
which its licensees and joint venture partners choose to market the Programming
Technology will be successful. Further, the Company may be adversely affected by
the financial and business considerations of its licensees and joint venture
partners. Future joint venture and license agreements may provide that the
licensees and joint venture partners will receive equity interest in the Company
and/or its subsidiaries.
In July 1992, the Company entered into an agreement with a subsidiary of the
Washington Post Company (the "Post Company") to form ACTV Interactive, a
partnership organized for the purpose of marketing products and services
incorporating the Programming Technology to the education marketplace. The
subsidiary of the Post Company owned a 51% share.
On March 11, 1994, the Company purchased the Post Company's full 51% interest in
ACTV Interactive for consideration of $4.5 million, consisting of $2.5 million
in cash at closing and a $2 million promissory note (the "Note"). The principal
amount of, and accrued interest due on, the Note was paid in full in October
1995.
Through March 17, 1997 (subject to extension in certain circumstances), the Post
Company shall have the right to purchase from the Company, at a price to be
determined, the amount of shares of Common Stock necessary to bring its
percentage ownership of the total then outstanding shares of Common Stock to
51%. If such option is exercised, the Post Company will be able to control the
affairs of the Company. See "RISK FACTORS - Possible Acquisition of Control by
The Washington Post Company," "CERTAIN TRANSACTIONS" and "PRINCIPAL
STOCKHOLDERS."
The Company believes that channel capacity will not be a significant factor in
the distance learning or site-based entertainment market. However, in order to
be delivered over cable, MMDS or DBS systems for the in-home entertainment
market, the ACTV Programming must compete for channel space on these systems,
many of which have limited available channel capacity. Although a simpler form
of individualization can be achieved by the Company's using
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one channel of band-width, the more sophisticated applications of ACTV
Programming currently require three to four channels of analog band-width. There
is no assurance that cable, MMDS or DBS operators will devote a sufficient
number of channels of band-width to the Programming Technology in the future.
The Company may be limited in its ability to expand into the in-home
entertainment market, unless cable, MMDS and DBS operators continue to upgrade
and increase their channel capacity using some form of "compression technology,"
whereby the digitalization of the information required to produce a television
picture reduces the channel capacity required for programming that incorporates
the Programming Technology. The compression technologies recently deployed
and those currently under development would enable the Company
to use the more complex applications of the Programming Technology on one
channel of band-width. The Company believes, although there can be no
assurance, that the cable, MMDS and DBS industries are, in general, moving
in the direction of increasing channel capacity. The costs associated with
such compression technology may result in substantial additional costs to cable,
MMDS and DBS operators. However, the Company's management cannot currently
quantify such additional costs, which may adversely affect the Company's future
operations. The Company is continuing its investigation of various compression
techniques. See "BUSINESS."
The Company anticipates continued good working relationships with both the Post
Company and LGV and believes, although there can be no assurance, that the
restructuring of these relationships has put the Company in an improved position
with regard to its ability to enter into other strategic alliances and to seek
additional financing when required. There can be no assurance, however, that
such strategic alliances or additional financing will be available to the
Company when desired on terms acceptable to the Company or at all.
For purposes of discussing the combined statements of the Company, its
subsidiaries, and ACTV Interactive, all intercompany items have been eliminated.
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RESULTS OF OPERATIONS
Comparison of the Years Ended December 31, 1993 and December 31, 1994
During the year ended December 31, 1994, the Company's revenues increased 470%,
to $938,416, from $164,602 in the year ended December 31, 1993. The increase was
primarily the result of the Company's recognition in the more recent period of
the sales of its education subsidiary, ACTV Interactive. Prior to the Company's
purchase in March 1994 of the Washington Post's 51% interest in this subsidiary,
in which the Company previously owned the remaining 49% interest, the results of
ACTV Interactive were accounted for under the equity method of accounting. All
of the Company's revenues for the year ended December 31, 1994, were generated
by its ACTV Interactive subsidiary through its activities in the education
market.
On a pro forma basis, assuming that the Company's results were consolidated with
those of ACTV Interactive for the entire year ended December 31, 1994, (see Note
14), revenues increased 16%, to $1,128,472 compared with revenues of $970,498
pro forma in the year ended December 31, 1993. Pro Forma education sales in the
year ended December 31, 1994 were $1,128,472, an increase of 34% over pro forma
education sales of $842,752 in the comparable period in 1993.
Cost of sales in the year ended December 31, 1994, was $296,839, all of which
related to education product sales. The Company recorded no cost of sales for
the year ended December 31, 1993, since it was reported separately by ACTV
Interactive.
Total expenses excluding cost of sales and interest expense in the year ended
December 31, 1994, increased 58%, to $5,437,293, from $3,443,513 in the
comparable period in 1993. This increase was partially the result of the
Company's recognition in the more recent period, as explained above, of the
expenses of ACTV Interactive, which in 1993 were reported separately. On a pro
forma basis, total expenses (including cost of sales) before interest expense in
the year ended December 31, 1994, increased 10%, to $6,220,578, from $5,674,152
in the year ended December 31, 1993. 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 and in-home entertainment
markets.
Direct expenses related to the entertainment market for the fiscal year ended
December 31, 1994 were approximately $1.4 million, and direct expenses related
to the education market for the fiscal year ended December 31, 1994 were
approximately $1.5 million.
Depreciation and amortization expense for the year ended December 31, 1994,
increased 48%, to $789,559, from $534,947 for the year ended December 31, 1993.
This increase was the result of the Company's amortization of goodwill in the
more recent period arising from the purchase of the Washington Post's interest
in ACTV Interactive.
The Company's interest expense for the year ended December 31, 1994, decreased
47%, to $226,671, compared to $428,221 in the prior year's comparable period.
The decrease was due
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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 year ended December 31, 1994, increased 8%, to $47,409, compared
with $43,877 in the year ended December 31, 1993. The increase resulted from
higher available cash balances in the more recent period.
For the year ended December 31, 1994, the Company's net loss before
extraordinary items was $5,122,010, or $.65 per share, an increase of 23% over
the net loss of $4,156,955, or $.72 per share, incurred in the prior year's
comparable period. The Company recorded an extraordinary gain of $656,770 in the
year ended December 31, 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 year
ended December 31, 1994, was $4,465,240, or $.57 per share.
Comparison of Years Ended December 31, 1993 and December 31, 1992
During the fiscal year ended December 31, 1993 ("Fiscal 1993"), ACTV's revenues
decreased approximately 70% to $164,602 from $532,596 in the fiscal year ended
December 31, 1992 ("Fiscal 1992"). The decrease was partially the result of the
Company's having to exclude for the entire Fiscal 1993 all education sales,
which were reported in the more recent year by the Company's 49% subsidiary,
ACTV Interactive. ACTV Interactive's gross sales were $839,165 in Fiscal 1993,
compared with $348,473 for the period from the partnership formation date --
July 14, 1992 -- to December 31, 1992. Prior to the formation of the
partnership, the Company had recorded education sales in Fiscal 1992 of
$186,598. ACTV Interactive's results were accounted for under the equity method
of accounting.
Combined revenues of ACTV and ACTV Interactive in Fiscal 1993 were $970,498, an
11% increase over Fiscal 1992 combined revenues of $873,346 for the two
companies.
An additional factor in the Fiscal 1993 revenue decrease reported by ACTV was
the Company's June 1993 agreement with LGV, pursuant to which LGV now has a
royalty-free right to use the Company's Programming Technology. Pursuant to the
prior LGV agreement the Company had received $127,746 in license revenue from
LGV during 1993. The Company's Fiscal 1992 revenues related to LGV were
$338,275.
Total expenses before interest expense increased approximately 23% in Fiscal
1993 to $3,443,513 from $2,798,847 in Fiscal 1992. General and administrative
and operating expenses both decreased in 1993 as compared to 1992, but non-cash
compensation expense associated with the Company's SAR Plan increased due to an
increase in the market price of the Company's Common Stock. In 1992, the Company
recorded expenses for part of the year related to the education market that in
1993 were borne entirely by ACTV Interactive. Depreciation and amortization
expense declined to $534,947 in Fiscal 1993 from $635,275 in Fiscal 1992, a
decline of approximately 16%, as a result of the full amortization and
depreciation of certain
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programs and fixed assets, respectively, during 1993. Expenses related to the
Company's renewed research and development program were $171,802.
As has been noted above, since the formation of ACTV Interactive in mid-1992,
revenues and expenses relating to the education market previously included in
the financial statements of the Company have been reflected in the financial
statements of ACTV Interactive until March 1994. As a result, the Company has
experienced a general reduction in its revenue and cash expense levels. Combined
total expenses of ACTV and ACTV Interactive in Fiscal 1993 before interest
expense were $5,315,407, a 49% increase over Fiscal 1992 combined expenses of
$3,553,201 for the two companies.
During Fiscal 1993, interest expense was $428,221, compared to interest expense
of $343,008 for Fiscal 1992. Interest expense in both years related primarily to
the accrual of interest in connection with the $1,500,000 8% convertible note
payable to the Post Company (the "Convertible Note") and the amortization as
interest expense of the discount on such debt. Interest income in Fiscal 1993
was $56,480, compared to interest income of $18,955 for Fiscal 1992. The
increase was a result of the Company's higher cash balances during the more
recent period.
The Company's net loss in Fiscal 1993 increased approximately 49% to $4,156,955
($.72 per share) from $2,778,085 ($.59 per share) in Fiscal 1992, due primarily
to the decline in royalty revenues, resulting from the Company's June 1993
agreement with LGV, as explained above, higher non-cash compensation expense,
and to higher losses from ACTV Interactive under the equity method of
accounting.
Comparison of Nine Month Periods Ended September 30, 1995 and September 30, 1994
During the nine month period ended September 30, 1995, the Company's revenues
increased 40%, to $1,075,925, from $768,739 in the nine month period ended
September 30, 1994. The increase was the result of higher sales to the education
market, including revenues relating to the Company's new distance learning
product. The increase was also partially due to the inclusion of the Company's
education sales for the entire nine month period of 1995 versus only a portion
of the comparable period in 1994. From January 1, 1994, to March 11, 1994,
education sales were reported separately by the Company's 49% subsidiary ACTV
Interactive, which was acquired in full by ACTV, Inc. on March 11, 1994. Prior
to this purchase, the results of ACTV Interactive were accounted for under the
equity method of accounting.
Cost of sales in the nine months ended September 30, 1995, was $318,665, an
increase of 36% over cost of sales of $233,661 in the nine months ended
September 30, 1994. The Company's cost of sales as a percentage of sales revenue
on a year to year basis remained stable at 30.4% in 1994 and 29.6% in the 1995
period.
Total expenses excluding cost of sales and interest expense in the nine months
ended September 30, 1995, increased 55%, to $6,498,151, from $4,182,060 in the
comparable period in 1994. This increase was partially the result of the
Company's recognition in the more recent period, as explained above, of the
expenses of ACTV Interactive, which for a portion of the 1994 period
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were reported separately. The increase was due also to significantly greater
expenses related to the Company's SAR plan principally due to an increased
market price of the Company's Common Stock at September 30, 1995, higher
research and development expenses, and to greater general and administrative
costs associated with the launch in May 1995 of the Company's individualized
television trial in California. (See "Management -- Stock Options and Stock
Appreciation Rights.")
Depreciation and amortization expense for the nine months ended September 30,
1995, increased 43% to $819,040, from $571,133 for the nine months ended
September 30, 1994. This increase was partially the result of the Company's
amortization for the entire nine month period of 1995 versus a portion of the
same period in 1994 of goodwill arising from the purchase of the Post Company's
interest in ACTV Interactive. In addition, for the nine months ended September
30, 1995, the Company recorded increased depreciation expense related to
equipment purchased for the California trial referred to above.
The Company's interest expense for the nine months ended September 30, 1995,
decreased 49%, to $93,596, compared to $184,186 in the prior year's comparable
period. The decrease was due in part to the elimination of expense related to
original issue discount on the $1.5 million convertible note payable to the Post
Company. The full principal value of this note, plus all accrued interest, was
converted by the Post Company into common shares of ACTV, Inc. in March 1994.
Interest expense declined also due to a decrease in notes payable during the
more recent period. Interest income in the nine months ended September 30, 1995,
was $83,150, compared with $37,995 in the nine months ended September 30, 1994.
The increase resulted from higher available cash balances and higher prevailing
market rates of interest in the more recent period.
For the nine months ended September 30, 1995, the Company's net loss before
extraordinary items was $5,751,337 or $.59 per share, an increase of 46% over
the net loss before extraordinary items of $3,929,537, or $.51 per share,
incurred in the prior year's comparable period. The Company recorded
extraordinary gains of $94,117 in the nine months ended September 30, 1995 and
$521,803 in the nine months ended September 30, 1994, the result of the
extinguishment of certain obligations for value that was less than amounts
recorded on the Company's books for such obligations. Net loss after
extraordinary gain for the nine months ended September 30, 1995, was $5,657,220,
or $.58 per share, an increase of 66% over the net loss after extraordinary gain
for the comparable period of 1994 of $3,407,554, or $.44 per share.
Comparison of Nine Month Periods Ended September 30, 1994 and September 30, 1993
During the nine month period ended September 30, 1994, the Company's revenues
increased 391%, to $768,739, from $156,648 in the nine month period ended
September 30, 1993. The increase was primarily the result of the Company's
recognition in the more recent period of the sales of its education subsidiary,
ACTV Interactive. Prior to the Company's purchase in March 1994 of the Post
Company'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
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ACTV Interactive for the entire nine month period ended September 30, 1994, (see
Note 5), revenues increased 25%, to $958,795, compared with revenues of $765,471
pro forma in the nine months ended September 30, 1993. Pro Forma education sales
in the nine months ended September 30, 1994 were $958,795, an increase of 50%
over pro forma education sales of $637,725 in the comparable period in 1993.
Cost of sales in the nine months ended September 30, 1994, was $233,661, all of
which cost related to education product sales. The Company recorded no cost of
sales for the nine months ended September 30, 1993, since it was reported
separately by ACTV Interactive.
Total expenses excluding cost of sales and interest expense in the nine months
ended September 30, 1994, increased 93%, to $4,182,060 from $2,165,129 in the
comparable period in 1993. This increase was partially the result of the
Company's recognition in the more recent period, as explained above, of the
expenses of ACTV Interactive, which in 1993 were reported separately. The
increase was due also to higher research and development expenses, and to
greater general and administrative costs associated with market and product
development for application of the Programming Technology in the distance
learning, in-home entertainment, and in-room hotel entertainment markets. On a
pro forma basis, total expenses before interest expense in the nine month period
ended September 30, 1994, increased 25%, to $4,182,060, from $3,347,857 in the
nine months ended September 30, 1993.
Depreciation and amortization expense for the nine months ended September 30,
1994, increased to $571,133, from $420,953 for the nine months ended September
30, 1993. This increase was the result of the Company's amortization in the more
recent period of goodwill arising from the purchase of the Post Company's
interest in ACTV Interactive.
The Company's interest expense for the nine months ended September 30, 1994,
decreased 43%, to $184,186, compared to $321,000 in the prior year's comparable
period. The decrease was due in part to the elimination of expense related to
original issue discount on the $1.5 million convertible note payable to the Post
Company. The full principal value of this note, plus all accrued interest, was
converted by the Post Company into common shares of ACTV, Inc. in March 1994.
Interest expense declined also due to the repayment of certain obligations of
the Repayment Pool, as well as the accrual of interest payable on the Repayment
Pool obligations at lower rates, in reflection of a general decline in interest
rates. Interest income in the nine months ended September 30, 1994, was $37,995,
compared with $36,322 in the nine months ended September 30, 1993. The increase
resulted from higher available cash balances in the more recent period.
For the nine months ended September 30, 1994, the Company's net loss before
extraordinary items was $3,929,357, or $.51 per share, an increase of 48% over
the net loss of $2,646,382, or $.44 per share, incurred in the prior year's
comparable period. The Company recorded an extraordinary gain of $521,803 in the
nine months ended September 30, 1994, the result of the extinguishment of
certain obligations for value that was less than the amounts recorded on the
Company's books for such obligations. Net loss after the extraordinary gain for
the nine months ended September 30, 1994, was $3,407,554, or $.44 per share.
Liquidity and Capital Resources
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Since its inception, the Company (including its operating subsidiaries ACTV
Entertainment, ACTV Interactive, Inc., The Los Angeles Individualized Television
Network, Inc., and 3D Virtual, Inc.) has not generated revenues sufficient to
fund its operations, and has incurred operating losses. Through September 30,
1995, the Company had an accumulated deficit of approximately $29.2 million. The
Company's cash position on September 30, 1995, was $5,090,642, compared to
$2,479,840 on December 31, 1994.
During the nine month period ended September 30, 1995, the Company used
$3,726,023 in cash for its operations, compared with $3,064,151 for the nine
month period ended September 30, 1994. The increase in the nine month period
ended September 30, 1995, was due to higher selling and administrative expenses
and to increased operating activity in the more recent year related to the
Company's individualized television trial launched in May 1995. The Company met
its cash needs in the nine month period ended September 30, 1995, from the
proceeds of sales of common stock to private investors completed in the last
quarter of 1994 and during the first three quarters of 1995. The Company met its
cash needs in the nine month period ended September 30, 1994, from the remaining
proceeds of the redemption of its Redeemable Warrants in May 1993, as well as
from the exercise of warrants by the Post Company in March 1994.
With respect to investing activities in the nine month period ended September
30, 1995, the Company used cash of $556,926 related to equipment purchases for
the California trial referred to above. In the nine month period ended
September, 1994, the Company used cash of $2,500,000 to purchase the Post
Company's 51% interest in ACTV Interactive and cash of $111,691 related to new
patent filings.
ACTV Entertainment, ACTV Interactive and The Los Angeles Individualized
Television Network, Inc. and 3D Virtual, Inc. are dependent on advances from the
Company to meet their obligations.
The Company's balance sheet as of September 30, 1995, also reflects the accrual
of expenses of $1,294,148 related to the Company's stock appreciation rights
plan, a decrease of $101,458 in notes payable resulting from the discounted
prepayment of a note, and a decrease in notes payable of $2,000,000, the amount
of principal repayments that the Company made in May, July, and September 1995.
In addition, the Company repaid the remaining notes payable balance of
approximately $220,000 in October 1995.
During the year ended December 31, 1994, the Company used $3,885,852 in cash for
its operations, compared with $1,352,273 in the year ended December 31, 1993.
The increase in the more recent period was due to higher general and
administrative expenses as noted above, and to the inclusion of the results of
operations of the Company's education subsidiary. The Company met its cash needs
in the year ended December 31, 1994, principally from the remaining proceeds of
the redemption of its Redeemable Warrants in May 1993, from the exercise of
options by the Post Company and by others (aggregating $1,646,159 in proceeds)
and from a series of private sales of the Company's Common Stock during the
fourth quarter of the year (aggregating $2,968,338 in proceeds). During the year
ended December 31, 1994, the Company used cash of $136,020 and issued notes for
$215,000 to extinguish obligations recorded at an aggregate value of $1,000,666
as of December 31, 1993.
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During the year ended December 31, 1994, the Company advanced approximately
$350,000 to its ACTV Entertainment subsidiary, and approximately $390,000 to its
ACTV Interactive subsidiary. Advances are based upon budgeted expenses and
revenues for each respective subsidiary. Adjustments are made during the course
of the year based upon the subsidiary's performance versus the projections made
in the budget.
With respect to investing activities, the Company used cash of $2,500,000, to
purchase the Post Company's 51% interest in ACTV Interactive and cash of
$142,122 related to new patent filings. The Company had only minimal other
investing activities in the period.
During 1994, the Company raised $1,500,000 in equity from the conversion by the
Post Company of its option to purchase 750,000 shares of the Company's Common
Stock at $2.00 per share. In a separate transaction, the Company eliminated its
convertible note payable obligation to the Post Company, as the Post Company
converted the note's full principal and accrued interest of $1,742,667 into
871,334 shares of the Company's Common Stock at $2.00 per share. The Company's
balance sheet at December 31, 1994, reflects an increase in note payable of
$2,000,000, plus accrued interest, resulting from the purchase by the Company of
the Post Company's interest in ACTV Interactive. The Company's balance sheet at
December 31, 1994 also reflects the accrual of an expense of $750,192 related to
the Company's stock appreciation rights plan and an increase in note payable
resulting from the settlement of an equipment lease obligation.
During the twelve months ended December 31, 1993, the Company used $1,352,273 in
cash for its operations, compared with $1,537,419 in the twelve months ended
December 31, 1992. The decrease in net cash used in operations results primarily
from reduced expenditures associated with the education market.
During the twelve months ended December 31, 1993, the Company met its cash needs
primarily from the proceeds of warrant redemptions, which generated net proceeds
of approximately $4.5 million. The Company's investing activities reflect
minimal fixed asset additions.
The Company believes that it may be required to expend approximately $200,000 in
the first quarter of 1996 to facilitate the completion of current research and
development projects.
In the first nine months of 1995, the Company raised approximately $8.9 million
from the sale of shares of the Company's Common Stock (including approximately
$5.7 million during the three months ended September 30, 1995).
Management of the Company believes that its current funds will enable the
Company to finance its operations for at least the next twelve month period.
However, if the Company's assumptions and beliefs prove to be incorrect, the
Company may require additional financing during this period. In the event that
the Company does require additional financing, the Company has no agreements,
arrangements or understandings to obtain such additional financing.
The Company 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.
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BUSINESS
General
ACTV, Inc. ("ACTV" or the "Company") has developed proprietary Programming
Technologies (the "Programming Technology") that individualize television
programming. ACTV's Programming Technology permits the delivery of
individualized television, which, in the Company's view, significantly enhances
the quality of most genres of television programming. ACTV's Programming
Technology provides instant and seamless changes in the live or prerecorded
video picture and/or audio and/or graphics in response to the various selections
supplied by each viewer. A specially prepared ACTV program (the "ACTV Program"
or "ACTV Programming") is like a linear TV program, except that it appears to be
individualized for each viewer. (Linear programs are standard television
programs that can be viewed only as created and do not offer the viewer the
option to make choices as to the content of the program or to respond to the
contents of the program in an individualized way.) There is no limit to the
number of viewers who can interact simultaneously with an ACTV Program.
ACTV's individualized programming is designed to work with both single and
multiple channels of 6MHz band-width and with different modes of transmission:
cable, direct broadcast satellite ("DBS"), multi-microwave distribution systems
("MMDS"), broadcast systems, distance learning networks and closed circuit
televisions systems. It is compatible with commonly available one-way analog
systems as well as the newer digital systems that have recently begun to be
deployed.
ACTV's strategy is to generate revenues from the sale of ACTV Programming that
it either owns, has licensed or that has been created by a third party under a
license from ACTV, including fees paid by subscribers to premium cable networks
in which the Company has an ownership interest. The Company's mission is to
improve the quality of entertainment and education television programming.
The Company also believes that the Programming Technology can enhance the
quality of television advertising by enabling the advertiser to customize each
commercial for various audience segments. It is the Company's objective to seek
advertiser support for its individualized home entertainment networks.
The chief markets presently targeted by the Company for the ACTV Programming
Technology are in-home entertainment, education (with an emphasis on distance
learning), site-based entertainment and internet applications. The Company seeks
to exploit these markets, principally in the U.S., through licensing the
Programming Technology, by creating joint venture relationships, and by direct
sales.
The Company has eight subsidiaries, which include a national entertainment
company, a national education company, a three-dimensional company, and five
regional television networks; ACTV Entertainment Inc., a New York corporation
("ACTV Entertainment") incorporated on March 9, 1988, ACTV Interactive, Inc., a
Delaware corporation incorporated on July 8, 1992, 3D Virtual, Inc., a Delaware
corporation incorporated on July 20, 1995, The Los Angeles Individualized
Television Network, Inc., a Delaware corporation incorporated on March 7, 1995,
The San Francisco Individualized Television Network, Inc., a Delaware
corporation
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incorporated on December 22, 1995, The Chicago Individualized Television
Network, Inc., a Delaware corporation incorporated on December 22, 1995, The New
York Individualized Television Network, Inc., a Delaware corporation
incorporated on December 22, 1995, and The Atlanta Individualized Television
Network, Inc., a Delaware corporation incorporated on December 22, 1995. Unless
otherwise indicated, all references in this Prospectus to the Company or ACTV
include ACTV and its eight subsidiaries.
ACTV was incorporated under the laws of the State of Delaware on July 24, 1989.
The Company is the successor, by merger effective November 1, 1989, to ACTV,
Inc., a California corporation, organized on July 11, 1983. The Company's
executive offices are located at 1270 Avenue of the Americas, New York, New York
10020, telephone number (212) 262-2570.
Entertainment
ACTV first introduced its individualized programming applications for
entertainment outside the United States. The Company is now in its fifth year of
regional commercialization in Canada and London through a license with Le Groupe
Videotron, Ltee. ("LGV"), the second largest Canadian cable/broadcast television
company and a major cable operator in London where it is building and operating
combined cable/telephone networks.
ACTV's Programming Technology is part of LGV's Videoway systems, which includes
a premium interactive cable channel, video games and various videotext offerings
("Videoway").
Under the LGV license, which was modified on June 8, 1993, LGV has a 20-year,
non-exclusive, royalty-free license to manufacture Videoway terminals that
incorporate ACTV's Programming Technology. The agreement also allows LGV to
produce ACTV Programming itself for a certain number of potential Videoway
subscribers in Canada (1,300,000), Europe (500,000), and the United States
(500,000). The license is subject to the condition that neither LGV nor its sub-
licensees receive any royalty or other fees with respect to ACTV Programming,
except for promotion and direct production expenses paid by LGV. Any royalties
from third parties will be paid exclusively to ACTV. See "Reorganization of ACTV
Entertainment and the LGV Agreements."
The Company and LGV entered into their original agreement during the infancy of
the development of interactive television. LGV had developed its Videoway TV
set-top converter, which, among other things, enabled it to provide its
subscribers with interactive capacity. The arrangement provided the Company with
an outlet for its ACTV Programming while providing LGV with interactive product
for its Videoway converter. As both companies developed, however, their missions
began to diverge: LGV wanted to market its Videoway converter in the United
States, and was less interested in the actual production of ACTV Programming,
while the Company was interested in expanding its programming capacity and in
making its ACTV Programming available for use with set-top converters
manufactured and distributed by others. The restructuring of the relationship
with LGV enabled both companies to focus on their respective goals, in that LGV
now has the non-exclusive right to market the Videoway converter in the United
States, and the Company has control of ACTV Programming development. See
"Reorganization of ACTV Entertainment and the LGV Agreements."
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ACTV's strategy is to take the regional experience gained in the last five years
in Canada and London and apply it in the U.S. The Company anticipates that its
individualized programming will be launched through regional premium cable
programming services that are advertiser-supported, with monthly subscription
prices comparable to other U.S. premium channels. While the Company has
commenced testing its individualized programming in the U.S., as set forth
below, no assurance can be given that such testing will be successful, or that
the Company will launch its individualized programming in the U.S.
In March 1995, the Company formed The Los Angeles Individualized Television
Network, Inc., one of its wholly-owned operating subsidiaries, to operate the
Company's individualized television trial in Southern California and the planned
regional television network that would roll-out to the potential 4.2 million
sports subscribers in the region that reaches from Los Angeles to San Diego and
Phoenix, if the trial is successful.
The trial, which marked the introduction of the Company's first U.S. regional
individualized network (the "Regional Network"), commenced in the Los Angeles
area in May 1995. The trial involves 1,000 cable subscribers and will run
throughout most of 1996 and may extend into 1997. The Company believes that the
Regional Network is the first programming service in the U.S. to both enhance
existing programming and offer new individualized content.
Programming for the Regional Network is being provided to ACTV by Prime Sports -
West, currently a unit of TCI's Liberty Media, Liberty Sports division, which
has 4.2 million subscribers in the Southwest region of the U.S. Prime Sports -
West is providing the Company with access to all its regional sports programming
at no cost to the Company. Similarly, Cable News Network, Inc. ("CNN") plans to
provide, at no cost to the Company, access to Prime News, Sports Tonight, Inside
Politics and other selected shows. In addition, the Game Show Network ("GSN"), a
subsidiary of Sony Entertainment, Inc. ("Sony") will provide GSN programs at no
cost to the Company in return for consumer research, pursuant to an agreement
entered into in November 1995.
The cable operator for the Regional Network is Ventura County Cablevision,
currently a subsidiary of Western Communications, whose ownership is scheduled
to be transferred to TCI in early 1996. TCI and News Corp. have announced a
joint venture which, if completed, would see Liberty Sports become Fox Sports.
In all cases, the Company is responsible for the incremental content,
transmission, delivery and master control costs incurred in connection with the
enhancement of the Prime Sports - West CNN and Sony programming.
In February 1994, the Company entered into an arrangement with Prime Sports,
with respect to the Regional Network. Assuming future commercialization of a
regional network in the footprint of Prime Sports - West no later than December
31, 1996, Prime Sports - West would receive an exclusive in its footprint for
sports programming and the companies will pursue a business understanding of
revenue sharing anticipated to include a license fee paid to Prime Sports - West
for each subscribing household on a monthly basis.
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In August 1995, the Company entered into an agreement with CNN with respect to
the Regional Network. Upon commercialization, CNN and ACTV will negotiate a
royalty agreement and/or advertising split for use of CNN programming. In
addition, CNN shall receive protection until December 31, 1997 to become ACTV's
exclusive provider of national and international news. CNN will also be given
the opportunity to be an equity investor in any new regional networks created by
ACTV.
Regional Network viewers, in addition to sports, news and game shows, are able
to individualize both CNN programs and L.A. Lakers basketball, L.A. Kings
hockey, California Angels baseball and other Prime Sports - West offerings. In
addition to sports, news events and game shows, the Regional Network is
transmitting other individualized programming, including children's and
education programs.
The Company plans, assuming a successful test phase, to direct initial marketing
of the Regional Network toward a majority of Ventura City Cablevision's 90,000
subscribers in the Los Angeles and Ventura County areas. In addition, expansion
could follow in other Prime Sports - West markets and, in stages, in other
regional markets within the U.S. The Company has established four new
wholly-owned subsidiaries which would serve as additional regional
individualized networks covering the San Francisco, Chicago, New York and
Atlanta regions in the event that the Company decides to expand and provide the
services provided by the Regional Network in other regions across the U.S. To
date, the four new wholly-owned subsidiaries have not engaged in any business
activities, nor does the Company have any present intention to launch their
activities. The Regional Network, and any expansion plans related thereto, is
part of the Company's plan to develop the entertainment division of its
business, which to date, does not generate any revenue for the Company. There
can be no assurance that the results predicted with respect to the Regional
Network will be realized, or if realized, will generate significant revenues for
the Company.
Education
ACTV's principal strategy in education is to become the leading individualized
programming technology in the developing field of distance learning, in which
ACTV Programming, both live and pre-recorded, can be transmitted simultaneously
to multiple sites in a satellite, fiber or microwave network.
ACTV is currently developing new two-way analog and digital programming
technologies for distance learning. This is a point-to-multipoint interactive
broadcast system that can deliver prerecorded interactive lessons or integrate
interactive segments into live distance learning lessons. By using a simple
remote control, the student is able to alter program content to suit specific
needs and interests. Students receive individualized responses to their input,
and at the end of the lesson, the classroom teacher receives a printout of the
performance of each class member.
ACTV's new distance learning system is being commercially introduced, with an
installation in Georgia, that the Company believes will represent one of the
industry's most advanced distance learning projects. ACTV and the State of
Georgia have entered into an agreement through which ACTV's distance learning
system and software will be integrated into the Georgia
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Statewide Academic and Medical System ("GSAMS"), an existing fully interactive
service providing audio, video and data to classrooms.
In addition, 123 individualized television titles have been produced and
introduced into the kindergarten to 12th grade market. The programs focus on
reading, math, and vocational education. To date, programs have been sold to
approximately 300 different schools across the U.S., along with an ACTV
classroom system -- a terminal with compatible ACTV Programming functionality
that currently permits up to 24 students in a classroom to view single
channel ACTV Programs simultaneously. Education products are marketed through
a direct and distributor sales force.
Individualized programming is produced jointly through license agreements with
educational publishers, including Turner Educational Services, Inc. ("Turner"),
Phoenix, Bergwall, AIT, AIMS, Hastey Pudding and TakeOff.
In 1995, the Company also signed a distance learning agreement with General
Instrument Corporation ("GI"). ACTV's Programming Technology for distance
learning will be integrated with GI's DigiCipher'r' system. The new digital
system will be called "DigiCipher/ACTV Distance Learning System" and will allow
programming networks to develop individualized programming and distribute it
digitally to their customers.
The Company markets its products through its wholly owned subsidiary ACTV
Interactive, Inc., which was formed in 1992. Originally a joint venture general
partnership with the Washington Post Company (the "Post Company"), ACTV
Interactive became a wholly owned subsidiary of the Company in March 1994.
Site-Based Entertainment and Internet Applications
In January 1995, the Company granted an exclusive license to Greenwich
Entertainment Group ("The Greenwich Group") for the use of its Programming
Technology in the theater environment, specifically in shopping malls, museums
and entertainment centers.
The Company will receive an 8% to 10% royalty of annual ticket sales per
theater, dependent upon each theater's volume. The Company will receive a
minimum royalty of $200,000 in 1996, $500,000 in 1997, $1,000,000 in 1998,
$1,250,000 in 1999 and $1,500,000 in the year 2000 and thereafter. If the
minimum is not paid, the Company has the right to cancel its license as to
future theaters.
The first theater opened in the Mall of America in Minneapolis, Minnesota on
November 18, 1995.
In July 1995, the Company established a new wholly-owned subsidiary, 3D Virtual,
Inc., to explore the commercial possibilities of integrating three-dimensional
("3D") technology and the Company's Programming Technology, using new technology
for which a patent is currently pending. Initial business activity for the
development of a prototype has just commenced.
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In December 1995, the Company entered into a joint venture agreement with
EarthWeb, LLC, a developer of internet technologies and a pioneer in JAVA'tm'
language applications, to develop new joint internet software applications.
ACTV Programming Technology
The ACTV Programming Technology provides instant and seamless changes in the
live or prerecorded video picture and/or audio and/or graphics based on various
selections made by viewers. The program appears to be a standard TV program, as
if it were individualized for each viewer. Viewer selections are made through a
four-button remote control, thereby limiting the viewer's number of
choices when inputting each response to four answers previously anticipated by
the program's creators.
ACTV's process of creating individualized television programming involves viewer
selection from a multiple number of frame-synchronized video, graphics, and/or
audio signals delivered at one time. The viewer sees and/or hears only one of
the signals at a given moment; the other signals are transparent. Using a remote
control, the viewer interacts with the television by making selections or
decisions called for by the specially prepared programming. In response to
viewer's inputs, the ACTV Programming Technology, which uses a microprocessor,
automatically switches at pre-determined intervals between various segments of
the multiple signals. In one-way analog transmission, this switching will occur
in the viewer's cable box, such as LGV's Videoway, while with two way
transmission, it may occur at the source of the transmission. The viewer cannot
detect when such a switch takes place because it occurs instantly and with frame
accuracy.
The results appear seamless and uninterrupted -- for the viewer the programming
is completely individualized. Although an individualized program and its
associated branches are taped in a normal linear fashion, the program, when
shown, has thousands of possible permutations and combinations available for
each viewer to experience. The particular version seen is based on each viewer's
individually selected preferences and inputs. An unlimited number of independent
viewers can interact with an ACTV Program simultaneously.
The ACTV microprocessor receives digital information from codes embedded into
the video program material. It thus maintains "memory" on the progress of the
viewer and provides automatic branching. At appropriate times during the
program, the microprocessor circuitry will make branch switches automatically,
accumulate data, recall information, create graphics and/or implement a
pre-programmed set of instructions.
In single channel analog (6MHz of band-width) applications, ACTV's Programming
Technology can individualize audio and/or graphics, based on multiple signals.
When additional analog channels of band-width are available, video can be
individualized as well. In digital systems multiple video, audio and graphics
can be individualized in 6MHz of band-width.
To develop individualized programming the Company generally seeks to form joint
ventures or licensing agreements with producers of standard linear shows or with
networks that have rights to such shows. ACTV Programming can be created in a
number of ways: enhancing existing programs that have been produced in a
standard linear format, adding "piggy-back" branch
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alternatives during the shooting of ongoing shows, or creating entirely original
productions that are solely for ACTV's purposes.
The cost of ACTV original productions has been on average approximately 20%
higher than a linear version of the same program of comparative length. However,
production costs are significantly lower than regular linear television shows
when existing material can be enhanced, or when productions are "piggy-backed."
Production costs vary significantly based upon the nature and type of
programming to be produced. An advantage of individualized programming is its
higher repeatability, as compared to standard programming, since an
individualized program's cost can be amortized over a greater number of
showings.
The types of entertainment programs that the Company plans to emphasize are
sports, news, education, game shows, children's programs and music. The Company
envisions that its in-home services will be supported by individualized
advertising. The programming focus for education is reading, math and vocational
education. Examples of ACTV Programming are:
1) Sports. Sporting events in the ACTV individualized format allow each viewer
in essence to become the director of the program by selecting close-ups, wide
angle shots, replays, statistics, player interviews and other features as may be
provided. ACTV's Programming Technology also allows the viewer to respond to
questions posed throughout the game. The system's memory records these responses
and winners may be offered promotional premiums, such as tickets to future
games.
2) News. In the first segment of a news program, viewers can choose between
in-depth follow-ups of headline stories. Later in the program, viewers can
choose segments on different categories of news (international, financial,
entertainment, politics, etc.).
3) Children's Programs. ACTV's Programming Technology allows children to
participate in television programs by answering questions from the characters on
screen, giving the characters advice -- even changing the plot of the program.
In addition to this dialogue children can have with the characters, children can
also be asked to predict the outcome of events, or as with sports, see an event
from different angles.
4) Music. Viewers are able to select a particular music video they want to see,
or the order they want to see them. Viewers may also choose to see the lyrics of
a music video, or access other information about the musicians. In addition,
with live or prerecorded concert performances, viewers can select from up to
four camera angles in a manner similar to live sports broadcasting.
5) Game Shows. The Programming Technology allows game show viewers to actively
participate in the game. They can decide which celebrity team to play on, enter
their answers and receive individualized responses to their choices. The
system's memory ability keeps the viewers informed of their performance and
provides final results at the conclusion of the show. This provides advertisers
and sponsors with the opportunity to offer promotional premiums to viewers with
the best scores.
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6) Advertising. ACTV's Programming Technology offers television advertisers
unique opportunities to target their message. Commercials can be targeted
demographically: men, women, boys and girls can all see different commercials
during the same commercial break. By asking the viewer basic questions at the
beginning of the program, the ACTV Programming Technology can recall this
information during a commercial break and based upon such information send the
viewer the appropriate advertisement. A second advantage for advertisers is the
concept of individualized commercials. For example, before a commercial break in
a sporting event, viewers are asked which type of car they would like to hear
about: sedan, truck, sport utility or luxury sedan. ACTV's Programming
Technology records this choice, then sends the appropriate commercial to each
viewer. This same choice can be recalled at a later commercial break to provide
additional information.
7) Live Distance Learning. Distance learning ("DL") networks typically involve a
teacher broadcasting a lesson to dozens or even hundreds of remote classroom
sites. ACTV's Programming Technology for DL allows the DL teacher to create
questions or offer choices relating to the lesson and pre-record individualized
responses. At selected points in the lesson, the DL teacher can initiate the
questions and interactions, with each student across the network receiving
individualized responses. In addition, the ACTV Programming Technology gives the
teacher immediate feedback on the students' responses, allowing the teacher to
pace the lesson accordingly. The system's memory component can recall each
student's performance throughout the entire semester, giving the teacher a
detailed accounting of their progress.
8) Educational Programming. Younger classroom students learn basic reading and
math skills, and older students learn vocational and career skills, in
pre-recorded individualized television programs using the ACTV Programming
Technology. Just as in the case of the DL programming, as the pre-recorded
television program progresses, a teacher appears on screen and asks the students
questions about the material presented. Students respond to the questions, then
receive individualized feedback based on their answers. At the end of the
lesson, the classroom teacher receives a report detailing the results of the
performance of the entire class, as well as the performance of each individual
student.
Research and Development
The Company is engaged in a field characterized by extensive research efforts
and rapid, significant technological change. During 1993, the Company began its
current research and development projects, relating primarily to the development
of a new analog/digital two-way distance learning system. The Company believes
that it may be required to expend approximately $200,000 in the first quarter of
1996 to complete the development of this system. There can be no assurance that
research or development by others will not render the Programming Technology
obsolete or that the research and development performed by the Company and/or
its licensees and joint venture partners will continue or will be successful.
The Company entered into a collaborative agreement in August, 1995 with The
David Sarnoff Research Center to investigate and potentially develop digital
applications of the Programming Technology.
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Government Regulation
The Company believes, on the basis of its review of current legislation and
regulations that neither its present nor any proposed commercial implementation
of the ACTV Programming Technology on distance learning networks, closed circuit
television systems, cable, DBS or MMDS will require governmental license or
approval. Certain broadcast applications and copper pairs with ADSL may require
governmental approval. No assurance can be given that applicable laws will not
change. In the event such approval were to be required, there can be no
assurance that the Company would be able to obtain such approval or the licenses
required for the further implementation of the ACTV Programming Technology.
Marketing and Program Production
The primary markets targeted by the Company for the ACTV Programming Technology
are in-home entertainment, education (with an emphasis on distance learning),
and site-based entertainment. The Company seeks to exploit these markets
principally in the US through licensing the Programming Technology, by creating
joint venture relationships, and by direct sales. To date, the Company's capital
requirements to develop the Programming Technology, produce ACTV Programming,
develop marketing approaches and strategic alliances, and to cover costs of
sales and general and administrative expenses, have been significant, resulting
in an accumulated deficit as of September 30, 1995 of approximately $29.2
million.
The Company will continue to implement a marketing program consisting of the
employment of sales and marketing personnel, contracting with sales and
marketing consultants, and the use of promotional efforts, including product
demonstrations and participation in trade shows and conferences. The Company
currently has two entertainment marketing executives, four educational sales
people and fifteen educational distributors.
In entertainment, the Company has licensed the Programming Technology to LGV and
The Greenwich Group and continues to seek other licensees and joint venture
partners both in and outside the United States. The Company is and will continue
to be dependent upon the ability of licensees and joint venture partners to
offer products and services that are commercially viable, and to actively
promote and distribute the Programming Technology.
According to LGV, Videoway subscribers use an average of 13 hours per week of
interactive services: 5.5 hours of video games, 2.5 hours of information
services, and 5 hours of ACTV Programming -- primarily consisting of sports,
news, game shows, and children's shows. In addition, focus group testing in Los
Angeles that preceded the Prime Sports - West and CNN agreements indicated
interest in ACTV sports, news, game shows, and in its educational and children's
programming.
The Greenwich Group has licensed the Programming Technology for use in the
theater environment, principally in shopping malls. The first children's theater
opened in the Mall of America in Minneapolis, Minnesota, on November 18, 1995.
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In March 1995, the Company formed The Los Angeles Individualized Television
Network, Inc., one of its wholly-owned operating subsidiaries, to operate the
Company's individualized television trial in Southern California and the planned
regional television network that would roll-out to the potential 4.2 million
sports subscribers in the region that reaches from Los Angeles to San Diego and
Phoenix, if the trial is successful.
The trial, which marked the introduction of the Company's first U.S. regional
individualized network (the "Regional Network"), commenced in the Los Angeles
area in May 1995. The trial involves 1,000 cable subscribers and will run
throughout most of 1996 and may extend into 1997. The Company believes that the
Regional Network is the first programming service in the U.S. to both enhance
existing programming and offer new individualized content.
Programming for the Regional Network is being provided to ACTV by Prime Sports -
West, currently a unit of TCI's Liberty Media, Liberty Sports division, which
has approximately 4.2 million subscribers in the Southwest region of the U.S.,
CNN and GSN. The cable operator is Ventura County Cablevision, currently a
subsidiary of Western Communications, whose ownership is scheduled to be
transferred to TCI in early 1996. TCI and News Corp. have announced a joint
venture, which, if completed, would see Liberty Sports become Fox Sports.
See "BUSINESS -- Entertainment."
The Company has established four new wholly-owned subsidiaries which would serve
as additional regional individualized networks covering the San Francisco,
Chicago, New York and Atlanta regions in the event that the Company decides to
expand and provide the services provided by the Regional Network in other
regions across the U.S. To date, the four new wholly-owned subsidiaries have not
engaged in any business activities, nor does the Company have any present
intention to launch their activities. There can be no assurance that the results
predicted with respect to the Regional Network will be realized, or if realized,
will generate significant revenues for the Company.
The Company, its licensees or joint venture partners must produce and/or provide
individualized programming for the Company to continue commercial entertainment
operations in the U.S. For the most part, the Company, its licensees and joint
venture partners are dependent upon third parties as sources for the linear
programming that is to be enhanced into ACTV Programming. For the entertainment
market, all programming to date has been produced either through LGV or by the
Company itself.
With respect to the education market, the Company has executed non-exclusive
agreements with seven entities to obtain linear programming that it can enhance
to create ACTV Programs. Linear programs are standard television programs that
can be viewed only as created and do not offer the viewer the option to make
choices as to the content of the program or to respond to the program in an
individualized way.
The Company has entered into agreements with Turner Educational Services, Inc.,
Phoenix Learning Group, Bergwall Productions, Inc., The Hasty Pudding Puppet
Co., AIMS Media, Agency for Instructional Technology ("AIT") and Takeoff/Video
Educational Excellence. Each of these agreements gives ACTV worldwide, perpetual
marketing rights (except for the AIT agreement, which limits the rights to 15
years) to the programming produced. The companies
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are to receive quarterly royalties, based on the number of units of ACTV
Programs sold.
There can be no assurance that the Company will be successful in reaching
agreements with licensees and joint venture partners, that the Company's
strategy of marketing the Programming Technology through its licensees and joint
venture partners will be successful, or that the methods that its licensees and
joint venture partners choose to market the Programming Technology will be
successful. Further, the Company may be adversely affected by the financial and
business considerations of its licensees and joint venture partners. Future
joint venture and license agreements may provide that the licensees and joint
venture partners will receive equity interest in the Company and/or its
subsidiaries.
Set-Top Converters, Terminals, and Other Interactive Devices
The Company does not intend to manufacture set-top converters, terminals, video
servers, or other interactive devices.
In the entertainment market, ACTV signed, on June 8, 1993, a 20-year,
non-exclusive, royalty-free manufacturing license with LGV. Today, the Videoway
terminal manufactured through LGV is the only ACTV-compatible set-top converter
available to potential distributors of ACTV Programming. The Company intends to
grant licensees similar to the one granted to LGV to other manufacturers that
are selected by the future distributors of ACTV Programming.
ACTV's Programming Technology can work with different modes of transmission
(cable, DBS, broadcast, and MMDS), and is compatible with commonly available
one-way, analog systems. In addition, it is compatible with the newer digital
systems that are just starting to be deployed. Therefore, there are many ways to
design a distribution system that is compatible with ACTV's Programming
functionality. The Company believes that the incremental cost of adding ACTV
Programming functionality will not be significant in digital systems.
There can be no assurance that the Company will be successful in developing
additional manufacturing licenses.
In the education market, the Company entered into an arrangement in March 1995,
with General Instrument Corporation ("GI") pursuant to which ACTV's Programming
Technology for distance learning will be integrated with GI's DigiCipher system.
The DigiCipher is a digital decoder used by many distance learning networks that
distribute their television signal digitally and require that the signal be
decoded at their downlink sites. The new digital system will be called
"DigiCipher/ACTV Distance Learning System," and will allow programming networks
to develop individualized programming and distribute it digitally to their
customers. Under the arrangement, the companies will cooperate technically, each
paying their own costs, and GI would receive any revenues generated from the
DigiCipher decoder while the Company would receive any revenues generated from
the digital learning unit. At present, the Company and GI's concerted research
and technical work toward the development of the new digital system is in its
initial stage and will take most of 1996 to complete. There can be no assurance
that the new digital system will be developed, or if developed, that it will
generate significant revenues for the Company.
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<PAGE>
The Company executed a non-exclusive agreement in June 1992 with KDI Precision
Products, Inc. ("KDI") to manufacture ACTV's classroom and distance learning
systems, with compatible ACTV Programming functionality. KDI sells the systems
to ACTV at prices and in accordance with a delivery schedule agreed upon from
time to time. KDI also is a distributor of components such as television
monitors, VCRs, remote controls, printers and cabinets used in conjunction with
the systems. The agreement is subject to automatic renewal for additional
one-year terms unless terminated by either party on six-months' written notice.
KDI is currently the only manufacturer of the classroom and distance learning
systems. The Company believes that KDI can produce sufficient systems to meet
the anticipated needs of ACTV in the education marketplace. In the event that
KDI were unable to supply the systems, there can be no assurance that the
Company could produce sufficient systems or obtain sufficient systems from
another manufacturer at an acceptable price. The inability of ACTV to obtain
systems would have a material adverse affect on the business of the Company.
Consolidation of Educational Partnership into ACTV
On July 14, 1992, ACTV Interactive, Inc. entered into a partnership agreement
with Post-Newsweek Education, Inc., a wholly-owned subsidiary of the Post
Company, pursuant to which ACTV Interactive was formed as a Delaware general
partnership, for the purpose of selling products and services incorporating the
ACTV Programming Technology to the education market. The Post Company received a
51% interest in ACTV Interactive; ACTV Interactive, Inc., a wholly-owned
subsidiary of the Company, received a 49% interest in ACTV Interactive.
In connection with the formation of the partnership, the Company entered into a
license agreement (the "License Agreement") with ACTV Interactive. Pursuant to
the License Agreement, ACTV Interactive was given licenses to exploit certain of
the Company's patents and related technology (collectively the "Patents") in the
creation and distribution of educational programming. The License Agreement
provided that the Company receive five percent (5%) of all revenues generated by
ACTV Interactive.
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 promissory note. This note was paid in full
in October 1995. The consideration paid by the Company for the Post Company's
full 51% interest in ACTV Interactive was determined after arms-length
negotiations between the parties. The Company and the Post Company agreed to the
amount of such consideration without receiving a valuation from a disinterested
third party.
Reorganization of ACTV Entertainment and the LGV Agreements
In March 1988, the Company formed ACTV Entertainment as equal stockholders with
a subsidiary of LGV, Videotron Technologies Ltd. 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.
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On June 8, 1993, LGV withdrew from its ownership in ACTV Entertainment, and the
Company became the sole shareholder in ACTV Entertainment under the terms of an
agreement with the subsidiary of LGV, thereby settling all outstanding legal
disputes between the companies.
While ACTV gained full ownership and control of ACTV Entertainment in the
settlement, it did agree to give up the royalty income it was receiving from its
Videoway terminal license with LGV for Canada and Europe ($3.00 per user per
year). Simultaneously with the June 8, 1993 change in ownership of ACTV
Entertainment, the 1987 LGV exclusive foreign license for Canada, Europe and the
Soviet Union was renegotiated. The new license provides LGV with a 20-year,
non-exclusive, royalty-free license to manufacture its Videoway terminal with
compatible ACTV Programming functionality. Videoway is a cable converter box
capable of providing a variety of advanced services, including standard cable
tuning and decoding capabilities, access to videotext, closed-captioning, data
banks, video games, software downloading and electronic mail. LGV has informed
the Company that it has installed Videoway converter boxes in approximately
240,000 homes in Canada.
In addition, the new modified license agreement allows LGV to produce ACTV
Programming for a certain number of potential Videoway subscribers in the United
States, Canada and in selected European countries. The license is limited to the
condition that neither LGV nor its sublicensees receive any royalty or other
fees with respect to ACTV Programming, except for promotion and direct
production expenses paid by LGV. Any royalties or profits from third party
programmers will be paid exclusively to ACTV.
Patents, Applications, and Proprietary Technology
The Company has sought to protect the proprietary features of the Programming
Technology it employs through patents, copyrights, confidentiality agreements,
and trade secrets both in the United States and overseas. As of the present
time, the United States Patent and Trademark Office has issued nine patents,
with five additional patents pending, three of which name Dr. Michael Freeman,
the Company's Advanced Product Development Liaison, as an inventor thereof, and
two of which name Dr. Freeman and Gregory Harper, former President -- Technology
Consulting Group, and one of which names Richard Bennett, who is not affiliated
with the Company, as inventors thereof. The patents, which deal with different
aspects of the ACTV Programming Technology, expire at various dates from 1998 to
2009.
Corresponding patents for some of the above U.S. patents have been granted or
are pending in Canada, Japan, Australia and the European Patent Office. When a
patent is granted by the European Patent Office, and upon the filing of
appropriate translations, protection will be available in the designated
European countries. The Company believes such patents will strengthen its
competitive position in the aforementioned countries.
Dr. Freeman, Mr. Harper and Mr. Bennett have assigned to the Company all right,
title, and interest in and to the above US patents and any corresponding foreign
patents or applications based thereon. In addition, Dr. Freeman has agreed to
assign to the Company the rights and title in and to all future patents and
applications, and any corresponding foreign patents or application relating to
the ACTV Programming Technology.
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There can be no assurance that the patents held by the Company are enforceable,
particularly in view of the high cost of patent litigation, nor can there be any
assurance that the Company will derive any competitive advantages therefrom. To
the extent that patents are not issued for any other products developed by the
Company, the Company would be subject to more competition. The issuance of
patents may be insufficient to prevent competitors from essentially duplicating
the Company's products by designing around the patented aspects. In addition,
there can be no assurance that the Company's products will not infringe on
patents owned by others, licenses to which may not be available to the Company,
nor that competitors will not develop functionally similar products outside the
protection of any patents the Company has or may obtain.
The Company requires each of its employees, consultants and advisors to execute
a confidentiality and assignment of proprietary rights agreement upon the
commencement of employment or a consulting relationship with the Company. These
arrangements generally provide that all inventions, ideas, and improvements made
or conceived by the individual arising out of the employment or consulting
relationship shall be the exclusive property of the Company. This information
shall be kept confidential and not disclosed to third parties, except by consent
of the Company or in other specified circumstances. There can be no assurance,
however, that these agreements will provide effective protection for the
Company's proprietary information in the event of unauthorized use or disclosure
of such information.
Competition
The development of interactive television applications is highly competitive.
The Company competes within the television industry with many other applications
which may be considered interactive. Moreover, the Company also competes with
other forms of entertainment and educational programming, many of which are much
more established, including standard television programming and the rapidly
growing CD-ROM market. Among the Company's competitors in both the area of
interactive television and in other media are companies that have greater
financial, technical and marketing resources than the Company.
At the present time, there are a number of different interactive television
applications that have been developed or are under development by others which
might be considered to be competitive with the Company's Programming Technology.
These other interactive applications in general are delivered via cable
television, or through play-along devices that are attached to the television.
To the best of the Company's knowledge, none of the point to multi-point systems
based on these technologies allow the viewer to affect what is seen on the
television in the same manner or to the extent of the ACTV Programming
Technology.
The new interactive television applications principally fit in six primary
categories: (1) information and channel guide services, (2) transactional
services, (3) quantity/video-on-demand, (4) separate device play-along, (5)
video games and (6) individualized TV.
ACTV fits in the individualized TV category. Only individualized television
allows every television viewer to interact personally with and change the TV
program itself. Within the limits of the programmed choices, each sports fan can
watch the action the way he or she chooses, and each child receives individual
instructions based on his or her own response to the on-screen
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teacher. Individualized television technology is the only technology that uses
traditional filmed entertainment where the program itself is interactive.
ACTV's process of creating individualized television programming involves viewer
selection from a multiple number of frame-synchronized video, graphics, and/or
audio signals delivered at one time. The viewer sees and/or hears only one of
the signals at a given moment; the other signals are transparent. Using a remote
control, the viewer interacts with the television by making selections or
decisions called for by the specially-prepared programming. Based on a viewer's
inputs, the ACTV Programming Technology, which uses a microprocessor,
automatically switches at pre-determined intervals between various segments of
the multiple signals. The viewer cannot detect when such a switch takes place
because it occurs instantly and with frame accuracy.
The results appear seamless and uninterrupted -- for the viewer the programming
is completely individualized. Although an individualized program and its
associated branches are taped in a normal linear fashion, the program, when
shown, has thousands of possible segment combinations available for each viewer
to experience. The particular version one sees is based on individually selected
preferences and inputs. An unlimited number of independent viewers can interact
with an ACTV Program simultaneously. See "ACTV Programming Technology."
A summary of each of the other interactive application follows:
1) Information and Channel Guide Services--This form of interactivity enables
the television to serve as a tool for information accessibility and retrieval.
The most immediate application is for channel guide services, which allow
viewers to easily determine the locations of programs in an expanded channel
universe. Information services include access to large external text and
graphic information databases, such as those provided by America On-Line and
Prodigy.
2) Transactional Services--This application allows the television viewer to
purchase merchandise displayed on-screen by pressing a button on his or her
remote control. Transactional services could be in the form of a home shopping
program or an addendum to a commercial. Through their television sets, viewers
may receive video, still pictures, text or audio about the selected products.
3) Quantity/Video on Demand--Cable, DBS and MMDS systems that incorporate
digital television delivery will be able to offer substantially more channels
than their analog predecessors. Programs transmitted digitally can be randomly
accessed through menu selection items. Extensive pay-per-view movies could
be made available, popular shows might be aired at many different starting
times, and the viewer could purchase, on an a la carte basis, television shows
following their initial air date on broadcast or cable TV.
4) Separate Device Play-Along--This application allows viewers to play along
with television programs such as game shows or sporting events. The viewer has a
separate controller that receives information about the show in progress, and
either displays it on the controller itself, or overlays television pictures
with text and/or graphics. Players can compete with the on-screen contestants
for prizes. Although the TV programming itself is unchanged, game players at
home see their results displayed on the play-along device's screen.
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5) Video Games--Interactive television services will allow a user to call up
video games, like those now marketed by Nintendo and Sega, through the cable TV
box. Historically, video games have been delivered on cartridges inserted into
special-purpose terminals attached to a television set.
Since the Company's business strategy depends in large part on its ability to
attract joint venture partners and/or licensees, the Programming Technology must
be more appealing to potential joint venture partners or licensees than other
technologies which currently exist or are now under development or may be
developed in the future.
Employees
At December 31, 1995, the Company, employed 24 full-time employees; the
Company believes that its relationships with its employees are generally
satisfactory.
Property
The Company and its subsidiaries maintain their principal and executive offices
at Rockefeller Center, 1270 Avenue of the Americas, New York, New York, where
they lease approximately 4,000 square feet at a rent of approximately $11,000
per month pursuant to a lease that expires in April 1996. The Company is
planning to extend its lease for five years, and to include an additional 1,500
square feet to its current space, for a monthly rent of approximately $17,400.
The Company maintains an engineering staff and an editing studio at 1600
Broadway, New York, New York where it leases approximately 2,500 square feet at
a rent of $3,450 per month, pursuant to a lease that expires in December 1999.
The lease agreement provides for cancellation by either party with no penalty at
the end of 1996. In addition, the Company maintains offices at 9454 Wilshire
Boulevard, Beverly Hills, California, for The Los Angeles Individualized
Television Network, Inc. which it leases on a month-to-month basis for
approximately $1,350 per month. The Company believes its current facilities are
suitable and adequate, and provide the productive capacity necessary for the
performance of the operations of the Company. None of the Company's properties
are leased from affiliated persons.
Legal Proceedings
In March 1988, LGV and the Company formed ACTV Entertainment, in which they were
to be equal stockholders, each owning 50 shares of Common Stock. The parties
also entered into a license agreement regarding the use of the Programming
Technology by LGV in Canada, Europe and the Soviet Union. LGV had pledged 28.5
of its shares to secure two $4,000,000 payments it was to have made upon the
occurrence of certain conditions. The parties had a dispute as to whether such
conditions had been met, the payments were not made, and ACTV foreclosed on the
28.5 shares. An arbitration was commenced and subsequently stayed, pending
settlement discussions between the parties. On June 8, 1993, the parties reached
a settlement pursuant to which ACTV became the sole stockholder of ACTV
Entertainment and the license agreement between the parties was modified. See
"-- Reorganization of ACTV Entertainment and the LGV Agreements."
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In August, 1993, a lawsuit was commenced against the Company by Nolan Bushnell
in the United States District Court for the Southern District of New York,
seeking damages in the amount of $290,872, plus interest on such amount from
April 1986, arising out of an alleged payment by plaintiff of a guaranty of an
equipment lease of the Company. On April 25, 1994 the Company entered into a
Settlement Agreement with Nolan Bushnell and Catalyst Technologies, a sole
proprietorship owned by Mr. Bushnell, pursuant to which (a) the lawsuit
commenced by Mr. Bushnell in connection with his guaranty of an equipment lease
($290,872) was withdrawn, and (b) Mr. Bushnell and Catalyst Technologies
relinquished any and all right to receive payments from the Company out of a
repayment pool established pursuant to the terms of a 1985 agreement. The
obligation to Mr. Bushnell and Catalyst under the 1985 agreement were reflected
on the Company's books, as of December 31, 1993 at $121,333, plus accrued
interest thereon.
Pursuant to the terms of the Settlement Agreement, the Company paid $100,000 to
Mr. Bushnell and issued a promissory note in the principal amount of $190,000,
payable $100,000 on June 30, 1995 and $90,000 on June 30, 1996. Of the aggregate
settlement amount, $255,000 was paid by the Company in settlement of Mr.
Bushnell's claims in the lawsuit relating to his guaranty of the Company's
equipment lease, and the balance of $35,000 is in full and final settlement of
the claims of Mr. Bushnell and Catalyst Technologies for payments from the
repayment pool. In January 1995, the Company prepaid the $190,000 Note in full
for a discounted amount of $100,000 in full satisfaction of this obligation.
There are no other pending material legal proceedings to which the Company is a
party.
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MANAGEMENT
Executive Officers and Directors
The Executive Officers and Directors of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position with the Company
- ---- --- -------------------------
<S> <C> <C>
William C. Samuels 53 Chairman, Chief Executive
Officer, President and Director
David Reese 38 Executive Vice-President, President -- ACTV
Entertainment, Inc. and Director
Bruce Crowley 38 Executive Vice-President, President -- ACTV
Interactive, Inc. and Director
Christopher C. Cline 45 Vice President, Chief Financial Officer and
Secretary
Jay M. Kaplowitz 49 Director
Richard Hyman 43 Director
Howard M. Squadron 68 Director
</TABLE>
WILLIAM C. SAMUELS has served as President and a Director of the Company
since August 1, 1989, and became the Chief Executive Officer in 1993 and
Chairman of the Board in November 1994. He also served as Chairman of ACTV
Interactive, a partnership with the Post Company, from July 1992 through March
1994, when the Company acquired the Post Company's interest in ACTV Interactive.
Mr. Samuels is a trustee of the Howard J. Samuels Institute at City College. Mr.
Samuels has a JD from Harvard Law School (1968) and a BS in Economics and
Engineering from the Massachusetts Institute of Technology (1965).
DAVID REESE has been Executive Vice President of the Company since November 1992
and has been President of ACTV Entertainment, Inc., a subsidiary of the Company
("ACTV Entertainment"), since November 1994. He has been employed by the Company
since December 1988, and served as the Company's Vice President of Finance from
September 1989 through November 1992. He has been a Director since 1992. Mr.
Reese has a BS from Pennsylvania State University (1978).
BRUCE CROWLEY joined the Company as President - Distance Learning in October
1994, became Executive Vice President in October, 1995, and became President of
ACTV Interactive, Inc. and a Director of the Company in December, 1995. Prior
thereto, he had been employed
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by KDI Corporation since 1988, and was most recently responsible for KDI
Corporation's education division. Mr. Crowley has a B.A. from Colgate University
and an M.B.A. from Columbia University.
CHRISTOPHER C. CLINE has been Vice President - Finance, and Chief Financial
Officer of the Company since November 1993. From 1991 to 1993 he was employed by
Showcase Communications Network, Ltd., a multi-media computer software and
publishing company, first as Vice President -- Finance and later as President
and Chief Executive Officer. From 1988 to 1990, Mr. Cline was Vice President of
Intercontinental Trade and Finance Corp., a cross-border financial trading and
consulting company. Mr. Cline received a BA from Haverford College (1973) and an
MBA from Stanford University (1976).
JAY M. KAPLOWITZ has been a Director of the Company since December 1988. Mr.
Kaplowitz has for more than the past 20 years engaged in the practice of law in
New York, New York. For the last 17 years, he has been a member of the law firm
of Gersten, Savage, Kaplowitz & Curtin, LLP, general counsel to the Company.
RICHARD HYMAN has been a Director since December 1994. For more than the past
five years, he has been the President of Triquest Financial Services, Inc. Mr.
Hyman received a BA from the University of Wisconsin (1974).
HOWARD M. SQUADRON has been a Director since January 1995. He has been engaged
in the practice of law for more than 40 years, since 1954, with the firm of
Squadron, Ellenoff, Plesent, Sheinfeld & Sorkin. Mr. Squadron received his BA
from City College (1946) and his JD from Columbia University (1947).
Executive officers are appointed by the Board of Directors and serve at the
pleasure of the Board of Directors. All Directors hold office until the next
annual meeting of stockholders or until their successors are elected and
qualified.
KEY EMPLOYEE
MICHAEL J. FREEMAN, Ph.D. has been Advanced Product Development Liaison since
November 1994. Prior thereto, he had been a Director and Chairman of the Board
of Directors since June 1985. He is the inventor of the Programming Technology
and the founder of the Company. Dr. Freeman devotes a substantial amount of his
business time to the Company. Prior to his association with the Company, Dr.
Freeman was involved in developing interactive products, principally in the toy
and telecommunications industries. Dr. Freeman has a Ph.D. from City University
of New York (1977) and an M.B.A. from Bernard Baruch College (1970).
EMPLOYMENT AND CONSULTING AGREEMENTS
The Company and Mr. Samuels entered into an employment agreement in August 1995.
Mr. Samuels serves as Chairman of the Board, President and Chief Executive
Officer of the Company. For the five-year term of the agreement, Mr. Samuels
will be paid a minimum annual
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salary of $190,000 and a bonus paid in cash and/or in unregistered securities
equal to 2% of the increase over a twelve month period in the total market
capitalization of the Company over fifty million dollars. Mr. Samuels'
employment agreement contains non-competition provisions pursuant to which he
agreed not to engage in a business that is competitive with the Company during
the term of his employment agreement and for one year thereafter.
Mr. Samuels currently holds fully vested options to purchase an aggregate of
533,035 shares of Common Stock at an exercise price of $2.50 per share,
exercisable through various dates from August 1997 through June 2001. Upon the
issuance of any stock dividends, stock splits or combinations, the number of
shares issuable upon the exercise of options for 533,035 of such shares may be
adjusted to avoid dilution. Options for 120,000 of such 533,035 shares may also
be adjusted to avoid dilution from the issuance from August 1989 through July
1993 by the Company of any Common Stock (including Common Stock issued after
July 1993 based on options granted during the August 1989 to July 1993 period)
as a result of any financing, joint venture or other business transaction. In
addition, Mr. Samuels has unvested options to purchase an aggregate of 525,000
shares of Common Stock at an exercise price of $3.25 per share, a third of which
vest on January 1, 1997, 1998 and 1999, respectively, which options are
exercisable through 2004. The Company has also issued to Mr. Samuels' 215,000
outstanding SARs.
The Company and Mr. Reese entered into an employment agreement on August 1995.
For the five year term of the agreement, Mr. Reese will be paid a minimum annual
base salary of $150,000. Mr. Reese's employment agreement contains
non-competition provisions pursuant to which he agreed not to engage in a
business that is competitive with the Company during the term of his employment
agreement and for one year thereafter.
The Company has granted Mr. Reese fully vested options to purchase 49,683 shares
of Common Stock at an exercise price of $2.50 per share, which options are
exercisable through March 1997. The Company has also granted Mr. Reese fully
vested options to purchase 55,317 shares of Common Stock at an exercise price of
$3.50 per share, which options are exercisable through January 2002. In
addition, Mr. Reese has unvested options to purchase an aggregate of 330,000
shares of Common Stock at an exercise price of $3.25 per share, a third of which
vest on January 1, 1997, 1998 and 1999, respectively, which options are
exercisable through 2004. The Company has also issued to Mr. Reese 94,000
outstanding SARs.
The Company and Bruce Crowley entered into an employment agreement in December
1995. Mr. Crowley has agreed to serve at an annual base salary of $150,000. Mr.
Crowley's employment agreement contains non-competition provisions pursuant to
which he agreed not to engage in a business that is competitive with the Company
during the term of his employment agreement and for one year thereafter. The
Company has granted to Mr. Crowley options to purchase 100,000 shares of common
stock at an exercise prices of $3.50, as well as 100,000 SARs. In addition, Mr.
Crowley has unvested options to purchase an aggregate of 201,000 shares of
Common Stock at an exercise price of $3.25 per share, a third of which vest on
January 1, 1997, 1998 and 1999, respectively, which options are exercisable
through 2004.
Mr. Samuels', Mr. Reese's and Mr. Crowley's employment contracts contain a
change of control provision whereby, in certain circumstances, including the
possibility that a person other than the Washington Post Company becomes the
owner of 30% or more of the outstanding
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securities of the employer and they are not retained, they receive a bonus not
to exceed 2.7 times the then current base salary and the exercise price on all
options is reduced to $.10 per option.
The Company and Michael J. Freeman entered into an employment agreement in
November 1994, whereby Dr. Freeman agreed to serve as Advanced Product
Development Liaison for a term of five years from the original date of the
agreement. Dr. Freeman is paid at the rate of $167,500 per year. Dr. Freeman is
required to devote as much time as he, in his discretion, deems necessary to
discharge his duties. The employment agreement of Dr. Freeman contains
non-competition provisions pursuant to which he agreed not to engage in a
business that is competitive with the Company during the term of his employment
agreement and for one year thereafter.
At the time of issuance, all options to ACTV employees were granted at an
exercise price equal to or greater than the prevailing market price for the
Company's Common Stock.
AGREEMENTS WITH MANAGEMENT
In June 1985, a group of investors, including Dr. Freeman, engaged in a
restructuring of the Company and the purchase of the shares of certain previous
investors. In connection with such restructuring, the Company obligated itself
to repay certain creditors, out of a repayment pool ("Repayment Pool") to be
funded with 10% of the Company's available cash flow in excess of $1,000,000 in
any calendar year. Available cash flow is the excess of gross revenues. As of
December 31, 1993, the aggregate amount of principal and interest due such
creditors was approximately $709,794. During 1994, the Company extinguished all
outstanding obligations under the Repayment Pool by paying cash, and in three
cases issuing promissory notes, in separately negotiated settlement agreements
with the holders of the obligations. The three notes, issued to Nolan Bushnell,
Prudential Bache Securities, Inc., and Dr. Freeman, in the original principal
amounts of $190,000, $25,000 and $8,770, respectively, were also repaid during
1994, at either their original principal amount, or at a discounted amount. The
settlement price in all these agreements was approximately 18% of the
obligations' face value.
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SUMMARY COMPENSATION TABLE
The following table sets forth all cash compensation for services rendered in
all capacities to the Company, its subsidiaries and ACTV Interactive for the
fiscal years ended December 31, 1994, December 31, 1993, and December 31, 1992
paid to the Company's Chief Executive Officer, the four other most highly
compensated executive officers (the "Named Executive Officers") at the end of
the above fiscal years whose compensation exceeded $100,000 per annum, and up to
two persons whose compensation exceeded $100,000 during the above fiscal years,
although they were not executive officers at the end of such years.
<TABLE>
<CAPTION>
Restricted All Others
Name and Principal Stock Compen-
Position Year Salary Bonus Awards Options/SARs sation
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
William C. Samuels 1994 $150,000 $25,000 80,000/100,000 $4,320
President, Chief 1993 $150,000 152,948/0
Executive Officer(1) 1992 $140,469 $21,037 120,000/160,000
Michael J. Freeman 1994 $162,500 $2,610
Ph.D, Chairman of the 1993 $162,500
Board(2) 1992 $156,250 $18,620 0/160,000
David Reese 1994 $123,078 $15,000 40,000/30,000 $990
President, ACTV 1993 $100,000 15,317/0
Entertainment(3) 1992 $103,923 24,000/80,000
Gregory Harper 1994 $126,923 $32,211
President, Technology(4) 1993
1992
Bruce Crowley 1994 $69,231 100,000/100,000 $55,000
President, Distance 1993
Learning(5) 1992
John Lack 1994
President(6) 1993
1992 $103,365 100,000/0
</TABLE>
(1) Mr. Samuels has been Chief Executive Officer of the Company since 1993
and Chairman of the Board since November 1994; he has served as a
President of the Company since 1989.
(2) Dr. Freeman was Chairman of the Board of Directors until November 1994,
and was Chief Executive Officer of the Company from 1985 to 1993.
(3) Mr. Reese has been the Company's Executive Vice President since
November 1992 and the President of ACTV Entertainment since November
1994. Prior thereto he was the Company's Vice President of Finance from
September 1989 through November 1992.
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(4) Mr. Harper served as the President of Technology for the Company from
November 1993 to November 3, 1994.
(5) Mr. Crowley has been the President, Distance Learning since October
1994. Prior thereto during 1994, Mr. Crowley performed consulting
services for the Company for which he was paid $55,000.
(6) Mr. Lack ceased service as a director and officer of the Company
effective September 11, 1992. His compensation included $31,250 in
consulting fees paid after the cessation of his employment. Mr. Lack
was awarded 400,000 options in 1991 that did not vest. He received
100,000 options in 1992, all of which were exercised in 1993.
OPTIONS AND STOCK APPRECIATION RIGHTS TO OFFICERS AND DIRECTORS
The following tables set forth certain information with respect to all
outstanding stock options and SARs granted or issued during 1994 to the
Company's Named Executive Officers and Directors.
SAR GRANTS
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
% of Total Stock Price
Number SARs Granted Exercise Appreciation for
of SARs to Employees Price Expiration Option Term
Name of Holders Granted in Fiscal Year ($/Share) Date 5% ($) 10% ($)
- --------------- ------- -------------- ---------- ---- -------------------
<S> <C> <C> <C> <C> <C> <C>
William C. Samuels (1) 100,000 43.48% $5.50 8/31/04 $223,905 $521,794
David Reese (2) 30,000 13.04% $5.50 8/31/04 $67,172 $156,538
Bruce Crowley 100,000 43.48% $5.50 6/30/04 $223,905 $521,794
</TABLE>
OPTION GRANTS
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
% of Total Stock Price
Number Options Granted Exercise Appreciation for
of Options to Employees Price Expiration Option Term
Name of Holders Granted in Fiscal Year ($/Share) Date 5% ($) 10% ($)
- --------------- ------- -------------- ---------- ---- -------------------
<S> <C> <C> <C> <C> <C> <C>
William C. Samuels 80,000 33.33% $5.50 1/1/02 $162,840 $379,487
David Reese 40,000 16.67% $5.50 1/1/02 $81,420 $189,743
Bruce Crowley 100,000 41.67% $5.50 7/1/99 $203,550 $474,359
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<PAGE>
AGGREGATE OPTION/SAR EXERCISES IN
LAST YEAR AND FISCAL YEAR-END OPTION/SAR VALUES(1)
</TABLE>
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
Shares at FY-End at FY-End
Acquired on Value Exercisable/ Exercisable/
Name Exercise(#) Realized Unexercisable Unexercisable
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Michael Freeman, Ph.D. 64,000/96,000 SARs $136,000/$204,000
0/0 Options $0/$0
William C. Samuels(2) 20,000 $50,000 32,000/196,000 SARs $68,000/$204,000
532,948/80,000 Options $599,567/$0
David Reese 32,000/78,000 SARs $68,000/$102,000
49,683/15,317 Options $73,125/$0
Bruce Crowley 0/100,000 SARs $0/$0
0/100,000 Options $0/$0
Gregory Harper 26,000/0 SARs $25,500/$0
94,000/0 Options $38,250/$0
</TABLE>
(1) The closing bid price of a share of the Company's Common Stock at
December 31, 1994, was $3 5/8. The base price of all in-the-money SARs
was $1.50 and the exercise price of all in-the-money options was $2.50
(2) Mr. Samuels currently owns 20,000 shares issued to him upon the
exercise of such options and exercised 32,000 SARs for cash proceeds of
$112,000 during the fiscal year ended December 31, 1994.
BOARD COMPENSATION REPORT
Executive Compensation Policy
The Company's executive compensation policy is designed to attract, motivate,
reward and retain the key executive talent necessary to achieve the Company's
business objectives and contribute to the long-term success of the Company. In
order to meet these goals, the Company's compensation policy for its executive
officers focuses primarily on determining appropriate salary levels and
providing long-term stock-based incentives. To a lesser extent, the Company's
compensation policy also contemplated performance-based cash bonuses. The
Company's compensation principles for the Chief Executive Officer are identical
to those of the Company's other executive officers.
Cash Compensation. In determining its recommendations for adjustments to
officers' base salaries for fiscal 1995, the Company focused primarily on the
scope of each officer's
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responsibilities, each officer's contributions to the Company's success in
moving toward its long-term goals during the fiscal year, the accomplishment of
goals set by the officer and approved by the Board for that year, the Company's
assessment of the quality of services rendered by the officer, comparison with
compensation for officers of comparable companies and an appraisal of the
Company's financial position. In certain situations, relating primarily to the
completion of important transactions or developments, the Company may also pay
cash bonuses, the amount of which will be determined based on the contribution
of the officer and the benefit to the Company of the transaction or development.
Equity Compensation. The grant of stock options and stock appreciation rights to
executive officers constitutes an important element of long-term compensation
for the executive officers. The grant of stock options and stock appreciation
rights increases management's equity ownership in the Company with the goal of
ensuring that the interests of management remain closely aligned with those of
the Company's stockholders. The Board believes that stock options and stock
appreciation rights in the Company provide a direct link between executive
compensation and stockholder value. By attaching vesting requirements, stock
options and stock appreciation rights also create an incentive for executive
officers to remain with the Company for the long term. See "Stock Option Plan"
and "Stock Appreciation Rights Plan."
Chief Executive Officer Compensation
As indicated above, the factors and criteria upon which the compensation of
William C. Samuels, the Chief Executive Officer, is based are identical to the
criteria used in evaluating the compensation packages of the other executive
officers of the Company. The Chief Executive Officer's individual contributions
to the Company included his leadership role in establishing and retaining a
strong management team, developing and implementing the Company's business plans
and attracting investment capital to the Company. In addition, the Company
reviewed compensation levels of chief executive officers at comparable companies
within the Company's industry.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company did not have a compensation committee during the past fiscal year
and all determinations concerning executive compensation for such period for the
Company's executive officers were made by the Board of Directors. The Directors
abstained from participation in compensation determinations concerning their own
compensation. None of the executive officers of the Company has served on the
Board of Directors or on the compensation committee of any other entity, any of
whose officers served on the Board of Directors of the Company.
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<PAGE>
<PAGE>
CORPORATE PERFORMANCE GRAPH
[The graph shows a comparison of cumulative total stockholder
returns from the effective date of the initial public offering
of the Company's Common Stock on May 4, 1990 through December
31, 1994 for the Company, the NASDAQ Stock Market-U.S. and the
Hambrecht & Quist Technology Index. The graph assumes that the
value of the investment in the Company's Common Stock, the
NASDAQ Stock Market ("NASDAQ") and Hambrecht & Quist
Technology Index ("H&Q") was $100 on May 4, 1990 and that all
dividends were reinvested. No dividends have been declared or
paid on the Company's Common Stock. In December 1990, the
cumulative total stockholder returns for such investment in
the Company, NASDAQ and H&Q were approximately $40, $90 and
$90, respectively; in December 1991: $20, $140 and $130,
respectively; in December 1992: $40, $165 and $150,
respectively; in December 1993: $125, $190 and $160,
respectively; and In December 1994: $60, $190 and $190,
respectively.]
OTHER COMPENSATION
Outside Directors may be paid an honorarium for attending meetings of the Board
of Directors of the Company, in an amount that management anticipates will not
exceed $500 per meeting.
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<PAGE>
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
STOCK OPTION PLAN
In December 1986, the Board of Directors approved a stock option plan (the "1986
Plan") that provided for the granting of 24,435 stock options to employees,
consultants, officers and directors, as selected by the Board of Directors. As
of December 31, 1991, options for 11,413 shares had been granted to eight
employees with exercise prices from $0.01 to $8.185 under the 1986 Plan. No
further shares are to be granted under the 1986 Plan, since the 1986 Plan has
been canceled. By December 31, 1994, all options granted under this plan had
been exercised or had expired.
On August 9, 1989, the Board of Directors approved a 1989 Employee Incentive
Stock Option Plan and a 1989 Non-Qualified Stock Option Plan (collectively, the
"Plans") and on October 20, 1989, the stockholders authorized and approved the
adoption of the Plans. Michael J. Freeman is not eligible to participate in
either Plan. The 1989 Employee Incentive Stock Option Plan, which is
administered by the Board of Directors, provides for the issuance of up to an
aggregate of 100,000 shares of Common Stock upon exercise of options granted to
key employees. This Plan stipulates that the option price may not be less than
fair market value on the date of the grant and, from May 4, 1990, through May 4,
1992, could not be less than $5.50 per share. Options granted under this Plan
shall not be exercisable for a period longer than ten (10) years from the date
of the grant. The Plan generally provides that at the time of exercise of any
option the purchase price must be delivered in cash, or at the option of the
Board of Directors, or a committee designated by the Board to administer the
Plan (the "Committee"), through delivery of the Company's Common Stock equal in
value to the option exercise price, or by a combination thereof. Options under
this Plan may be issued as "Incentive Stock Options" under Federal tax laws. As
of December 31, 1994, 100,000 options had been granted under this Plan at
exercise prices of $2.50 to $5.50 per share, which options expire between the
years 2000 and 2002. During 1994, 9,500 options under the Plan were exercised.
The 1989 Non-qualified Stock Option Plan, which is administered by the Board of
Directors, provides for the issuance of up to an aggregate of 100,000 shares of
Common Stock upon exercise of options granted to employees, officers, directors,
consultants and independent contractors. This Plan provides that the Board has
the discretion to establish the option exercise price, and that the option
exercise price may be less than fair market value at the time of the grant of
the option. However, a further provision is that from May 4, 1990 through May 4,
1992, no options could be granted having an exercise price that was less than
the higher of the then current market price of the Company's Common Stock or
$5.50 per share. Options granted under this Plan shall expire on a date
determined by the Board or the Committee, but in no event later than three
months after the termination of employment or retainer. This Plan generally
provides that the purchase price must be delivered in cash, or if permitted by
the Board or the Committee, services rendered or by a combination thereof. As of
December 31, 1994, 100,000 options had been granted under this plan at exercise
prices of $2.50 to $5.50 per share, which options expire between the years 2000
and 2002. During 1994, 23,000 options under the Plan were exercised.
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<PAGE>
<PAGE>
As of December 31, 1994, the Company had issued options to purchase shares of
Common Stock at varying prices, which options expire beginning in 1997 and are
not part of the Plans. These include options to Mr. Samuels for 552,948 shares
at $2.50 per share and 80,000 at $3.50 per share, to Mr. Reese for 49,683 shares
at $2.50 per share and 40,000 at $3.50 per share, and to Mr. Crowley for 100,000
shares at $3.50 per share. As of December 31, 1994, Mr. Samuels has exercised
options for 20,000 shares at $2.50 per share.
STOCK APPRECIATION RIGHTS PLAN
The Company's 1992 Stock Appreciation Rights Plan ("SAR Plan") was approved by
the Company's stockholders in December 1992. The SAR Plan provides a means
whereby employees, officers, directors, consultants and independent contractors
may acquire the right to participate in the appreciation of the Common Stock of
the Company pursuant to SARs. The SAR Plan is designed to promote the long-term
interest of the Company and its stockholders by providing the recipients with an
additional incentive to promote the financial success of the Company and its
subsidiaries. Subject to adjustment as set forth in the SAR Plan, the aggregate
number of SARs that may be granted shall not exceed 900,000. The SAR Plan is
administered by the Stock Appreciation Rights Committee (the "SAR Committee").
SARs may not be exercised until the expiration of six months from the date of
grant, and could in no event be exercised earlier than May 1, 1994. One-fifth of
the SARs awarded to a recipient vest at the end of each 12-month period
following the date of grant. If a holder of a SAR ceases to be an employee,
director or consultant of the Company, or one of its subsidiaries or an
affiliate, other than by reason of the holder's death or disability, any SARs
that have not vested shall become void. Exercise of SARs also will be subject to
such further restrictions (including limits on the time of exercise) as may be
required to satisfy the requirements of Rule 16b-3 promulgated by the Securities
and Exchange Commission and any other applicable law or regulation (including,
without limitation, federal and state securities laws and regulations). SARs are
not transferable, except by will or under the laws of descent and distribution.
Upon exercise of a SAR, the holder will receive for each share for which a SAR
is exercised, as determined by the SAR Committee in its discretion, (a) shares
of the Company's Common Stock, (b) cash, or (c) cash and shares of Common Stock,
equal to the difference between (i) the fair market value per share of the
Common Stock on the date of exercise of the SAR and (ii) the value of a SAR,
which amount shall be no less than the fair market value per share of Common
Stock on the date of grant of the SAR.
A grant of SARs has no Federal income tax consequences at the time of such
grant. Upon the exercise of SARs, the amount of any cash and, generally, the
fair market value of any shares of Common Stock received, is taxable to the
holder as ordinary income; the Company will have a corresponding deduction. Upon
the sale of any Common Stock acquired by the exercise of SARs, holders will
realize long-term or short-term capital gains or losses, depending upon their
holding period for such Common Stock.
Under the Company's SAR Plan, as of December 31, 1994, the Company had granted a
total of 726,000 SARs, including 260,000 to William Samuels, 110,000 to David
Reese and 100,000 to Bruce Crowley. The initial price of 482,000 of the 716,000
SARs issued (including 160,000
61
<PAGE>
<PAGE>
to Mr. Samuels and 80,000 to Mr. Reese) was $1.50 per share and the
price of the remaining 244,000 SARs issued (including 100,000 to Mr. Samuels,
30,000 to Mr. Reese and 100,000 to Mr. Crowley) was $3.50 per share. The initial
prices of all the SARs granted were equal to the fair market value of a share of
Common Stock on the respective dates of grants. During 1994, Mr. Samuels
exercised 32,000 SARs and received cash proceeds of $112,000. The SARs expire
between 1998 and 2004; one-fifth of the total SARs granted to each recipient
vest at the end of each 12 month period following the date of grant.
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<PAGE>
<PAGE>
CERTAIN TRANSACTIONS
On March 17, 1992, the Post Company acquired an 8% Convertible Promissory Note
of the Company in the principal amount of $1,500,000 (the "Convertible Note")
and, in connection therewith, acquired 720,000 unregistered shares of Common
Stock. The principal amount of the Convertible Note was payable in four
installments of $375,000, together with accrued interest thereon, on March 15,
1994, September 15, 1994, March 15, 1995, and September 15, 1995. The purpose of
this transaction was to provide working capital to the Company. On March 15,
1994, the unpaid principal and accrued and unpaid interest on the Convertible
Note were converted into 871,334 shares of Common Stock of the Company at $2.00
per share.
On March 11, 1994, the Post Company entered into a voting agreement with the
Company and William C. Samuels, Chief Executive Officer of the Company as voting
trustee ("Voting Trustee"), pursuant to which the Post Company has assigned to
Mr. Samuels its voting rights with respect to the Company's Common Stock that it
holds. This voting trust remains in effect for 10 years, or as long as the Post
Company's shareholdings in the Company are greater than 20% or less than 51% of
outstanding Common Stock. The Post Company also regains the right to vote its
shares of Common Stock under certain circumstances, including the proposal of
any amendment to the Company's certificate of incorporation requiring
stockholder approval; in case of any reclassification or change of the
outstanding Common Stock of the Company, any consolidation of the Company with,
or merger of the Company into, another corporation, or in the case of a sale or
conveyance to another corporation or other entity of all or substantially all of
the property, assets or business of the Company; upon the commencement of a
proxy contest regarding the Company's Board of Directors; if a person or entity
acquires 20% or more of the outstanding Common Stock of the Company; or if a
conflict of interest (as determined by the Post Company in its sole discretion)
involving the Voting Trustee or any successor Voting Trustee should arise.
On March 17, 1992, effective with the formation of ACTV Interactive, the Post
Company acquired an option (the "Option") pursuant to an option agreement (the
"Option Agreement") to purchase an additional 750,000 shares of the Company's
Common Stock at $2.00 per share, or $2.50 per share if exercised after March 15,
1994. On March 15, 1994, the Post Company exercised this Option, receiving
750,000 shares at $2.00 per share. On such date, the average of the high bid and
ask prices of the Company's Common Stock was $5 7/8. The Post Company also
obtained pursuant to the Option Agreement certain "piggyback" and demand
registration rights with respect to the 720,000 shares of Common Stock that it
purchased in 1992 and the shares of Common Stock that it received upon exercise
of the Option and conversion of the Convertible Note. In connection with the
Option Agreement, the Post Company also received the right to purchase, from the
Company, at a fair market exercise price to be determined, an amount of shares
of Common Stock necessary to increase the Post Company's percentage ownership of
the total then outstanding shares of Common Stock to 51%.
Such right is exercisable through March 17, 1997, subject to extension in
certain circumstances. Until March 17, 1995, the Post Company agreed not to
acquire more than 40% of the Company unless certain events occurred, such as a
tender offer, a proxy contest, or the acquisition by a
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<PAGE>
third party of in excess of 15% of the Company's Common Stock, as set forth in a
standstill agreement between the Company and the Post Company (the "Standstill
Agreement").
On July 14, 1992, the Post Company and the Company formed ACTV Interactive to
market the Company's Programming Technology for educational applications
world-wide. The Post Company invested $2.5 million and owned 51% of ACTV
Interactive. ACTV Interactive, Inc., a wholly owned subsidiary of the Company,
owned a 49% interest in ACTV Interactive. In connection with the formation of
ACTV Interactive, the Company entered into a license agreement (the "License
Agreement") with the partnership, pursuant to which ACTV Interactive was given a
license to exploit the Programming Technology in the creation and distribution
of educational programming. The License Agreement provided for the Company to
receive a five percent (5%) royalty on certain revenues generated by ACTV
Interactive, subject to certain adjustments.
On March 11, 1994, the Company purchased the Post Company's entire 51% interest
in ACTV Interactive for consideration of $4.5 million, consisting of $2.5
million in cash at closing and a $2 million note due December 31, 1996 (the "New
Note"). The New Note accrued interest at 8%. The principal of the New Note was
secured pursuant to a security agreement through which the Post Company acquired
a security interest in and lien with respect to all of the Company's existing
United States patents and pending applications. The New Note was paid in full by
October 1995.
The consideration for the acquisition by ACTV of the Post Company's interest in
ACTV Interactive was based on the value of the ACTV Programming it had developed
for education, its marketing and sales of such programming, and the Company's
assessment of the future value of the use of the Programming Technology in the
education and distance learning markets.
Jay M. Kaplowitz is a Director of the Company and a partner of Gersten, Savage,
Kaplowitz & Curtin, LLP, general counsel to the Company. Mr. Kaplowitz owns
2,000 shares and his wife owns 22,500 shares of Common Stock of the Company. In
addition, Mr. Kaplowitz owns options to purchase 25,000 shares at an exercise
price of $3.50 per share. The options were issued to Mr. Kaplowitz pursuant to
an option agreement dated January 1, 1989 that granted Mr. Kaplowitz
registration rights with respect to such options. The 22,500 shares of Common
Stock owned by Sheila Kaplowitz, his spouse, were issued in connection with the
Company's March 17, 1992 loan financing with the Post Company. The Company
agreed to pay a portion of outstanding legal fees due to Gersten, Savage,
Kaplowitz & Curtin, LLP, counsel to the Company, which were accrued for legal
services rendered in connection with the loan financing, by issuing shares of
the Company's Common Stock. Upon verbal agreement between the Company and Mrs.
Kaplowitz, the Company issued 22,500 shares to Mrs. Kaplowitz and granted Mrs.
Kaplowitz registration rights with respect to such shares. Edward Curtin, a
member of the firm Gersten, Savage, Kaplowitz & Curtin, LLP, owns 2,000 shares
of Common Stock of the Company, and Jill Curtin, his spouse, also owns 2,000
shares of the Common Stock of the Company.
All current transactions between the Company, and its officers, directors and
principal stockholders or any affiliates thereof are, and in the future such
transactions will be, on terms no less favorable to the Company than could be
obtained from unaffiliated third parties.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of December 31, 1995 with
respect to each beneficial owner of five percent (5%) or more of the outstanding
shares of Common Stock of the Company, each director of the Company and all
officers and directors as a group.
The following table assumes the issuance of all shares of Common Stock being
offered hereby and the exercise of all options and warrants for which the
underlying shares of Common Stock are being registered pursuant to the
Concurrent Prospectus and that the selling security holder under the Concurrent
Prospectus does not subsequently sell any of such shares.
The table does not include stock appreciation rights ("SARs"), nor does it
include options that have not yet vested or are not exercisable within 60 days
of the date hereof.
<TABLE>
<CAPTION>
Percent of
Name and Address Number of Percent of Class Class After
of Beneficial Owner Shares Before Offering Offering
- ------------------- ------ --------------- --------
<S> <C> <C> <C>
William C. Samuels (1) 3,321,917 27.80% 1.82%
ACTV, Inc.
1270 Avenue of the Americas
New York, NY 10020
David Reese (2) 105,000 * *
ACTV, Inc.
1270 Avenue of the Americas
New York, NY 10020
Bruce Crowley (3) 66,000 * *
ACTV, Inc.
1270 Avenue of the Americas
New York, NY 10020
Jay M. Kaplowitz, Esq. (4) 27,000 * *
Gersten, Savage, Kaplowitz
& Curtin
575 Lexington Avenue
New York, NY 10022
Richard Hyman 25,000 * *
Triquest Financial Services
505 Park Avenue
New York, NY 10022
Howard M. Squadron (5) 65,267 * *
Squadron, Ellenoff, Plesent,
Sheinfeld & Sorkin
551 Fifth Avenue
New York, NY 10176
</TABLE>
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<TABLE>
<CAPTION>
Percent of
Name and Address Number of Percent of Class Class After
of Beneficial Owner Shares Before Offering Offering
- ------------------- ------ --------------- --------
<S> <C> <C> <C>
The Washington Post Company (6) 2,341,334 20.51% *
1150 15th Street, N.W.
Washington, D.C. 20071
All Directors and Officers 3,672,163 29.98% 1.84%
as a Group (7 persons)
(1)(2)(3)(4)(5)(6)(7)
</TABLE>
* Indicates Less than 1% of common shares outstanding
(1) Includes (a) 240,950 shares of Common Stock owned by Mr. Samuels, (b)
533,035 shares of Common Stock issuable to Mr. Samuels upon the
exercise of stock options, and (c) 2,341,334 shares of Common Stock
owned by The Washington Post Company (the "Post Company") and 276,598
shares owned by Dr. Freeman, respectively, which are subject to voting
agreements with Mr. Samuels.
(2) Consists of 105,000 shares of Common Stock issuable to Mr. Reese upon
the exercise of stock options.
(3) Consists of 66,000 shares of Common Stock issuable to Mr. Crowley upon
the exercise of stock options.
(4) Includes 25,000 shares issuable upon the exercise of the options and
does not include 22,500 shares owned by Mr. Kaplowitz's wife, of which
he disclaims beneficial ownership.
(5) Includes 50,000 shares issuable upon the exercise of stock options.
(6) All of the Post Company's shares are subject to a voting agreement with
Mr. Samuels. Does not include shares issuable upon the exercise of the
right of the Post Company to purchase from the Company, at a fair
market exercise price to be determined, the number of shares of Common
Stock necessary (Currently 7,083,345 shares) to bring the Post
Company's percentage ownership of the total then outstanding shares to
51%. See "CERTAIN TRANSACTIONS." At present, the Company does not have
enough shares authorized to accommodate the Post Company should it
choose to exercise such right. If the Post Company decides to exercise
its right, the Company will seek to take the necessary action to
fulfill its obligation.
(7) Does not include shares that may be issued by the Company upon the
exercise of SARs.
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DESCRIPTION OF CAPITAL STOCK
The total authorized capital stock of the Company consists of 17,000,000 shares
of Common Stock, par value $0.10 per share, and 1,000,000 shares of Preferred
Stock, par value $0.10 per share. The following descriptions of capital stock
are qualified in all respects by reference to the Restated Certificate of
Incorporation and By-Laws of the Company, copies of which are filed as exhibits
to the Registration Statement of which this Prospectus is a part.
Common Stock
The holders of Common Stock will elect all directors and are entitled to one
vote for each share held of record. As of the date of this Prospectus,
11,414,211 shares of Common Stock were issued and outstanding. All shares of
Common Stock will participate equally in dividends, when and as declared by the
Board of Directors and in net assets on liquidation. The shares of Common Stock
will have no preference, conversion, exchange, preemptive or cumulative voting
rights.
Preferred Stock
The Company is authorized by the Restated Certificate of Incorporation to issue
up to 1,000,000 shares of Preferred Stock, par value $0.10 per share, designated
as Series A Convertible Preferred Stock and Series B Convertible Preferred
Stock. The Company is authorized to issue up to 666,667 shares of Series A
Convertible Preferred Stock and 333,333 Series B Convertible Preferred Stock.
None of the shares of Preferred Stock are issued and outstanding. Holders of
Preferred Stock will be entitled to voting rights equal to the number of shares
of Common Stock into which their shares are convertible. The holders of
Preferred Stock will be entitled to receive dividends, when and as declared by
the Board of Directors, and will have priority over holders of Common Stock as
to any declaration or payment of any dividend on the Common Stock. In the event
of liquidation, dissolution or winding up of the Company, the holders of
Preferred Stock will be entitled to receive a sum equal to the initial purchase
price of the Preferred Stock prior to any distribution to the holders of Common
Stock.
The shares of Preferred Stock are convertible into the number of whole shares of
Common Stock calculated by dividing (i) the number of shares of Preferred Stock
multiplied by the initial conversion price of the shares of Preferred Stock
being converted by (ii) the conversion price in effect at the time of
conversion. Shares of Preferred Stock issued by the Board of Directors could be
utilized, under certain circumstances, to make an attempt to gain control of the
Company more difficult or time consuming. For example, shares of Preferred Stock
could be issued with certain rights which might have the effect of diluting the
percentage of shares of Common Stock owned by a significant stockholder or may
result in the entrenchment of management. In addition, shares of Preferred Stock
could be issued to purchasers who might side with management in opposing a
takeover bid which the Board determines is not in the best interest of the
Company and its stockholders. This provision, therefore, may be viewed as having
possible anti-takeover effects. A takeover transaction frequently affords
stockholders the opportunity to sell their shares at a premium over current
market prices. Although the Board of Directors does not contemplate that the
issuance of shares of Preferred Stock will have the
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effect of discouraging takeover proposals or similar transactions, and the Board
of Directors does not contemplate issuing Preferred Stock for such purpose, the
actual voting and conversion rights of such Preferred Stock could have such an
effect.
Warrants and Options
On May 4, 1990, in connection with its initial public offering, the Company
issued Redeemable Warrants in registered form pursuant to an agreement, dated
May 4, 1990 (the "Warrant Agreement"), between the Company and Continental Stock
Transfer & Trust Company. As a result of certain adjustments pursuant to the
Warrant Agreement after May 4, 1990, as of May 7, 1993 one Redeemable Warrant
represented the right of the registered holder to purchase one and three-tenths
(1.3) shares of Common Stock at an exercise price of $4.48 per warrant until May
3, 1994, subject to adjustment.
On April 7, 1993, the Company notified the holders of the Redeemable Warrants of
its intention to redeem the Redeemable Warrants on May 7, 1993. The Redeemable
Warrants were then required to be exercised prior to the close of business on or
before May 6, 1993, and thereafter, the right to purchase the applicable shares
of Common Stock was forfeited. A total of 1,507,236 shares were issued upon the
exercise of Redeemable Warrants, and the Company received net proceeds of
approximately $4,500,000 therefrom.
Pursuant to an agreement between the Company and Josephthal, Lyon & Ross
Incorporated (the "Underwriter") in April 1993, (a) all of the holders of the
85,000 warrants issued to the Underwriter in connection with the Company's
initial public offering in May 1990 (the "Underwriter's Warrants") relinquished
such securities and (b) the Underwriter relinquished its right to receive the
warrant solicitation fee of up to an aggregate of approximately $224,500
otherwise payable pursuant to the Warrant Agreement in exchange for warrants
(the "1993 Warrants"), including (a) warrants to purchase 85,000 Redeemable
Warrants at $.12 per Warrant exercisable at any time through April 30, 1995 (the
"New A Warrants") and (b) warrants to purchase 110,500 shares of Common Stock at
$.45 per share (the "New B Warrants"), exercisable during the period commencing
after the earlier of (i) the sale of a holder's Redeemable Warrants, which were
issuable pursuant to such holder's New A Warrants, to the public in the
over-the-counter market or (ii) the exercise of such holder's Redeemable
Warrants, which were issuable pursuant to such holder's New A Warrants, and
terminating at 5:30 p.m. April 30, 1995. Each of the 85,000 Redeemable Warrants
were identical to the Redeemable Warrants described above. The 85,000 Redeemable
Warrants and the shares of Common Stock issuable upon exercise of the New B
Warrants and such Redeemable Warrants were previously offered and sold pursuant
to the Registration Statement of which the Concurrent Prospectus forms a part.
In addition, the Company and the Underwriter executed a financial advisory and
investment banking agreement in April 1993 pursuant to which the Underwriter
agreed to provide financial advisory and investment banking services to the
Company for two years, and the Company issued the Underwriter warrants to
purchase 100,000 shares of Common Stock at $5.50 per share, all of which expired
on December 31, 1995.
The Company has currently outstanding options issued under the Plans for 115,500
shares, options for 2,576,582 shares issued other than under the Plans. Of
such shares, 100,000 are being offered or have been sold pursuant to the Current
Prospectus. Of such shares, 1,038,718 are being offered pursuant to this
Prospectus.
68
<PAGE>
<PAGE>
See "MANAGEMENT -- Stock Options and Stock Appreciation Rights" and "CONCURRENT
OFFERING."
Transfer Agent
The Company's transfer agent is Continental Stock Transfer & Trust Company, New
York, New York 10007.
Shares Eligible for Future Sale
Upon completion of this Offering, there will be 15,075,784 shares of Common
Stock outstanding. Of these shares, the 100,000 shares offered pursuant to the
Concurrent Prospectus and the 3,727,145 offered hereby will be freely tradeable
without restriction under the Securities Act, for so long as the Current
Prospectus and this Prospectus are kept current by the Company. An aggregate of
approximately 750,000 shares of Common Stock held by existing stockholders will
be "restricted" shares as defined in Rule 144.
In general, under Rule 144 a person (or group of persons whose shares are
aggregated) who has beneficially owned restricted shares of the Company for at
least two years, including any person why may be deemed to be an "affiliate" of
the Company (as the term "affiliate" is defined under the Securities Act), is
entitled to sell in normal brokerage transactions during the periods when
certain information regarding the Company is publicly available, within any
three-month period, an amount of shares that does not exceed the greater of (i)
the average weekly trading volume in the Company's shares during the four
calendar weeks preceding such sale or (ii) 1% of the shares then outstanding. A
person who has not been an "affiliate" of the Company for the three months prior
to such sale and who has held restricted shares for at least three years would
be entitled to sell such shares without restriction. Most of such restricted
shares have been held by non-affiliates of the Company for more than three years
by affiliates of the Company for more than two years. Actual sales, or the
prospect of sales by the present stockholders of the company, or by future
holders of restricted securities under Rule 144, or otherwise, may, in the
future, have a depressive effect upon the price of the Company's shares of
Common Stock in any market that may develop therefore, and also could render
difficult sales of the Company's securities purchased by investors herein.
69
<PAGE>
<PAGE>
SELLING SECURITY HOLDERS
Up to 3,727,145 of the 3,850,000 Security Holders' Shares to which this
Prospectus relates may be sold by Selling Security Holders who have acquired or
acquire such shares from the Company (i) upon the exercise of currently
exercisable options and warrants, and pursuant to SARs, (ii) upon issuance to
consultants pursuant to existing agreements or (iii) upon issuance in connection
with certain financings. The Company will not receive any of the proceeds from
sales of such shares by Selling Security Holders, but will receive the exercise
price upon the exercise of options or warrants by Selling Security Holders.
The Selling Security Holders received registration rights with respect to the
shares offered hereunder pursuant to verbal or written agreements with the
Company. All costs, expenses and fees in connection with the registration of the
Security Holders' Shares will be borne by the Company. All brokerage
commissions, if any, attributable to the sale of Security Holders' Shares by
Selling Security Holders will be borne by such Selling Security Holders.
The Selling Security Holders are offering hereby a total of 3,727,145 shares of
Common Stock. The following table sets forth the name of each person who is a
Selling Security Holder, the number of securities owned by each such person at
the time of this offering and the number of shares of Common Stock such person
will own after the completion of this offering. The following table assumes the
exercise of all options and warrants beneficially owned by each such security
holder.
<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership
Prior to Offering(1) After Offering(1)
-------------------- --------------
Name of Selling Shares Included
Security Holder Shares % In This Offering Shares %
- --------------- ------ - ---------------- ------ -
<S> <C> <C> <C> <C> <C>
Washington Post (A) 2,341,334 (2) 20.54% 2,341,334 - *
William C. Samuels (B)(C) 3,321,917 (3) 27.8% 633,035 276,592 1.82%
David Reese (B)(C) 105,000 (4) * 105,000 - *
Michael J. Freeman (B) 206,598 1.81% 70,956 135,642 *
Howard Squadron (C) 65,267 (5) * 65,267 - *
James Crook (B) 48,294 (6) * 48,294 - *
Bruce Crowley (B)(C) 33,000 (7) * 33,000 - *
Gerard Klauer (G) 30,000 (8) * 30,000 - *
Marketing Group Establishment, Inc. (E) 3,000 * 3,000 - *
Christopher Cline (B) 27,685 * 27,285 400 *
Comstar Computer (F) 25,000 * 25,000 - *
Craig Ullman (B) 25,000(10) * 25,000 - *
Ed Downe (E) 25,000 (7) * 25,000 - *
Richmont Consulting (D) 25,000(11) * 25,000 - *
Jay Kaplowitz (C) 27,000 (9) * 25,000 2,000 *
Sheila Kaplowitz (H) 22,500 * 22,500 - *
Nick Rhodes (E) 25,000(12) * 25,000 - *
Richard Hyman (C) 25,000 (7) * 25,000 - *
Wall St. Consultants Inc. (D) 25,000 (7) * 25,000 - *
Wall St. Group (D) 25,000 * 2,500 - *
Barry Berman (B) 10,833 * 10,833 - *
</TABLE>
70
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership
Prior to Offering(1) After Offering(1)
----------------- --------------
Name of Selling Shares Included
Security Holder Shares % In This Offering Shares %
- ---------------- ------ - ---------------- ------ -
<S> <C> <C> <C> <C> <C>
Cynthia Baker (B) 10,000 (7) * 10,000 - *
CDV Telecommunications (F) 32,000 * 32,000 - *
Mabel Phifer (E) 5,000 (8) * 5,000 - *
Walter Barwick (E) 5,000 (8) * 5,000 - *
Richard Aurelio (B) 4,183 (13) * 4,183 - *
Eric Martinez (B) 4,000 (10) * 4,000 - *
James Kearney (B) 3,000 (10) * 3,000 - *
Linda Baldomir (B) 3,000 (10) * 3,000 - *
ETR & Associates (G) 2,000 (8) * 2,000 - *
John Posteraro (G) 500 (8) * 500 - *
Pierre Rovira (B) 458 * 458 - *
John Clarke (D) 30,000 (11) * 30,000 - *
Paul Mannion (D) 30,000 (11) * 30,000 - *
Marty Klein (E) 5,000 (11) * 5,000 - *
TOTAL 3,727,145
=========
</TABLE>
- --------------
* Indicates less than 1% of common shares outstanding.
A. The Selling Security Holder acquired such shares in connection with the
March 17, 1992 loan financing. (See "Certain Transactions.")
B. The Selling Security Holder either is currently an employee of
the Company, or was previously employed by the Company. The
Selling Security Holder has acquired, or will acquire, the shares being
registered hereunder, as compensation for services rendered to the
Company, pursuant to the Company's 1989 Incentive Stock Option Plan,
the Company's 1989 Non-Qualified Plan, the Company's Stock
Appreciation Rights Plan, option agreements or employment agreements.
C. The Selling Security Holder currently serves on the Company's
Board of Directors. The Selling Security Holder has acquired, or will
acquire, the shares being registered hereunder, as compensation for
services rendered to the Company, pursuant to option agreements or
employment agreements. (See "Management.")
D. The Selling Security Holder has provided, or will provide,
financial public relations consulting services to the Company, and has
acquired, or will acquire, the shares being registered hereunder as
consideration for such services.
E. The Selling Security Holder has provided, or will provide, either
marketing, general business or programming consulting services to the
Company, and has acquired, or will acquire, the shares being registered
hereunder as consideration for such services.
F. The Selling Security Holder has provided, or will provide,
services to the Company related to research and development, and has
acquired, or will acquire, the shares being registered hereunder as
consideration for such services.
G. The Selling Security Holder provided financial services to the
Company which included assisting the Company in obtaining
financing. As consideration for such services, the Company granted
such Selling Security Holder options to purchase shares of the
Company's Common Stock.
H. The Selling Security Holder acquired the shares being registered
hereunder pursuant to arrangements made in connection with the March
1992 loan financing. (See "Certain Transactions" and "Legal Matters.")
(1) Gives effect to exercise of all of the options and warrants for which
the underlying shares of Common Stock are being offered hereby and the
sale of all of the shares of Common Stock being offered by the Selling
Security Holders.
(2) The Shares owned by the Post Company are subject to a voting trust
agreement among the Company, the Post Company and William C. Samuels as
Voting Trustee, but does not prohibit the Post Company from selling the
shares. See "CERTAIN TRANSACTIONS" and "PRINCIPAL STOCKHOLDERS."
(3) Mr. Samuels is President, Chief Executive Officer and a Director of the
Company. Includes 240,950 shares owned by Mr. Samuels, up to 533,035
shares of Common Stock issuable to Mr. Samuels upon the exercise of
stock options at $2.50 per share, 2,341,334 shares owned of record by
the Post Company as to which Mr. Samuels is the Voting Trustee pursuant
to an agreement among the Company, the Post Company and Mr. Samuels, as
well as 206,598 shares owned of record by Michael J. Freeman as to
which Mr. Samuels is the Voting Trustee pursuant to an agreement
between Mr. Samuels and Mr. Freeman. See "CERTAIN TRANSACTIONS" and
"PRINCIPAL STOCKHOLDERS."
(4) Mr. Reese is Executive Vice President and a Director of the Company.
Consists of immediately exercisable options to purchase 55,317 shares
of the Company's Common Stock at an exercise price of $3.50 per share
and 49,683 shares at an exercise price of $2.50 per share.
(5) Includes immediately exercisable options to purchase 25,000 shares of
the Company's Common Stock at an exercise price of $3.50 per share and
25,000 shares at an exercise
71
<PAGE>
<PAGE>
price of $2.50 per share.
(6) Includes immediately exercisable options to purchase 21,000 shares of
the Company's Common Stock at an exercise price of $2.50 per share,
immediately exercisable options to purchase 10,000 shares at an
exercise price of $3.50 per share, and 14,000 shares reserved for
issuance pursuant to vested SARs.
(7) Consists of immediately exercisable options to purchase shares of the
Company's Common Stock at $3.50 per share.
(8) Consists of immediately exercisable options to purchase shares of the
Company's Common Stock at $5.50 per share.
(9) Includes immediately exercisable options to purchase 25,000 shares of
the Company's Common Stock at $3.50 per share.
(10) Includes immediately exercisable options to purchase 12,500 shares of
the Company's Common Stock at $2.50 per share, and immediately
exercisable options to purchase 12,500 shares at an exercise price of
$3.50 per share.
(11) Consists of immediately exercisable options to purchase shares of the
Company's Common Stock at $4.00 per share.
(12) Consists of immediately exercisable options to purchase shares of the
Company's Common Stock at $5.00 per share.
(13) Includes immediately exercisable options to purchase 2,683 shares of
the Company's Common Stock at an exercise price of $3.50 per share and
1,500 shares at an exercise price of $2.50 per share.
72
<PAGE>
<PAGE>
PLAN OF DISTRIBUTION
The Securities offered hereby are the 2,500,000 Company Shares and 3,850,000
Security Holders' Shares. The Company will not engage in any "at the market
offering" of securities through this Prospectus.
Company Shares
The Company commenced the offering of the Company Shares promptly after the
initial date of the Prospectus and intends to continue the offering until all of
the Company Shares have been sold or, prior thereto, until the Company
determines, in its sole discretion, to terminate the offering. During the
offering period, the Company intends to immediately offer to sell all or any
portion of the Company Shares at $4.50 per share to institutional investors and
to certain accredited investors and organizations as such term is defined in
Rule 501 of Regulation D promulgated under the Securities Act of 1933, as
amended. In connection with such sales, the Company may, from time to time,
employ the services of a finder or broker, as permitted by applicable federal
and state securities laws, and pay such finder or broker such commissions as
management deems to be consistent with practices in the securities industry.
The NASD member firms that currently make a market in the Company's Common
Stock, as most recently reported to the Company by the NASD, are Gruntal & Co.
Incorporated, Josephthal Lyon & Ross, Dominick & Dominick, Inc., Troster Singer
Corp., Sherwood Securities Corp., A.G. Edwards & Sons, Inc., Herzog, Heine,
Geduld, Inc., Nash Weiss/Div. of Shatkin Inv., Mayer & Schweitzer Inc., Wagner
Stott & Co., Gerald Klauer Mattison & Co., Donald & Co. Securities Inc.,
Fahnestock & Co., Inc., Wm. V. Frankel & Co., Inc., and Maidstone Financial,
Inc. Under the Securities Exchange Act of 1934 (the "Exchange Act") and the
regulations thereunder, any person engaged in a distribution of the securities
offered by this Prospectus may not simultaneously engage in market-making
activities with respect to shares of the Common Stock during the applicable
"cooling off" period (two or nine days) prior to the commencement of such
distribution.
Security Holders' Shares
Up to 122,855 of the Security Holders' Shares may be issued by the Company upon
the exercise of options, warrants or pursuant to SARs, that are currently
outstanding and are not exercisable for a period of six months.
Up to 3,727,145 of the Security Holders' Shares may be sold by the Selling
Security Holders who have acquired or acquire such shares from the Company (i)
upon the exercise of currently exercisable options and warrants, and pursuant to
SARs, and (ii) upon the issuance to consultants pursuant to existing agreements,
and (iii) upon issuance in connection with certain financings. The Company will
not receive any of the proceeds from any sales by Selling Security Holders of
Security Holder Shares, but will receive the exercise price upon the exercise of
options or
73
<PAGE>
<PAGE>
warrants by the Security Holders. See "SELLING SECURITY HOLDERS."
The Selling Security Holders' sales of shares of Common Stock may be effected
from time to time in transactions (which may include block transactions) in the
over-the-counter market or the Boston Stock Exchange, in negotiated
transactions, through the writing of options on the Common Stock, or a
combination of such methods of sale, at fixed prices which may be changed, at
market prices prevailing at the time of sale, or at negotiated prices. The
Selling Security Holders may effect such transactions by selling Common Stock
directly to purchasers or to or through broker-dealers which may act as agents
or principals. Such broker-dealers may receive compensation in the form of
discounts, concessions, or commissions from the Selling Security Holders and/or
the purchasers of Common Stock for whom such broker-dealers may act as agents or
to whom they sell as principal, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions). The Selling Security
Holders and any broker-dealers that act in connection with the sale of the
Common Stock or Redeemable Warrants might be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act. The Selling Security Holders
may agree to indemnify any agent, dealer or broker-dealer that participates in
transactions involving sales of the shares against certain liabilities,
including liabilities arising under the Securities Act.
Because the Selling Security Holders may each be deemed to be an "underwriter"
within the meaning of Section 2(11) of the Securities Act, the Selling Security
Holders will be subject to prospectus delivery requirements under the Securities
Act. Furthermore, in the event of a "distribution" of its shares, the Selling
Security Holder, any selling broker or dealer and any "affiliated purchasers"
may be subject to Rule 10b-6 under the Exchange Act until its participation in
that distribution is completed.
At the time a particular offer of Security Holders' Shares, made by or on behalf
of any of the Selling Security Holders, to the extent such offer constitutes as
distribution under the Securities Act, a supplement to this Prospectus will be
distributed which will set forth the type and number of securities being offered
by such Selling Security Holders and the terms of such offering, including the
name or names and addresses of any underwriters, dealers or agents, the purchase
price paid by any underwriter for securities purchased from the Selling Security
Holder and any discounts, commissions or concessions allowed or reallowed or
paid to dealers, and the proposed selling price to the public.
The Company will bear all costs and expenses of the registration under the
Securities Act and certain state securities laws of the Security Holders'
Shares. However, all brokerage commissions, if any, attributable to the sale of
such shares by holders thereof will be borne by such holders.
CONCURRENT OFFERING
Pursuant to the Concurrent Prospectus, there are being offered for sale by a
selling security holder 100,000 shares of Common Stock, consisting of 20,000
outstanding shares and 80,000 shares issued or issuable by the Company upon the
exercise of currently exercisable options. The Company will not receive any of
the proceeds from the sales of the Common Stock by the
74
<PAGE>
<PAGE>
selling security holder, but will receive the exercise price upon the exercise
of options by the selling security holder.
LEGAL MATTERS
Certain legal matters, including the legality of the issuance of the shares of
Common Stock offered by the Company, are being passed upon for the Company by
Gersten, Savage, Kaplowitz & Curtin, LLP, 575 Lexington Avenue, New York, New
York 10022. Jay M. Kaplowitz, a member of Gersten, Savage, Kaplowitz & Curtin,
LLP has been a director of the Company since 1989. Mr. Kaplowitz owns 2,000
shares of the Company's Common Stock and other options to purchase 25,000
shares, and Sheila Kaplowitz, his wife, owns 22,500 shares of Common Stock. Mr.
Kaplowitz and Mrs. Kaplowitz are named as Selling Security Holders and are
offering certain securities pursuant to this Prospectus. (See "Selling Security
Holders" and "Certain Transactions.") Edward Curtin, a member of the firm of
Gersten, Savage, Kaplowitz & Curtin, LLP, owns 2,000 shares of Common Stock of
the Company and Jill Curtin, his wife, also owns 2,000 shares of Common Stock of
the Company.
EXPERTS
The consolidated financial statements of ACTV, Inc. as of December 31, 1994 and
December 31, 1993 and for the three years ended December 31, 1994 and the
financial statements of ACTV Interactive as of December 31, 1993 and December
31, 1992 and for the periods then ended included in this Prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports appearing herein and are included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form S-1
with respect to the securities offered by this Prospectus. This Prospectus omits
certain information contained in the Registration Statement, as permitted by the
Rules and Regulations of the Commission. For further information, reference is
made to the Registration Statement, which may be obtained from the Commission's
principal facility at 450 Fifth Street, N.W., Washington, D.C., 20549 upon
payment of the Commission's charge for copying. Statements contained in this
Prospectus as to the contents of any contract or other document referred to are
not complete. Where such contract or other document is an exhibit to the
Registration Statement, each such statement is deemed to be qualified and
amplified in all respects by the provision of the exhibit.
75
<PAGE>
<PAGE>
INDEX TO FINANCIAL STATEMENTS
ACTV, Inc. and Subsidiaries - Fiscal Years Ended December 31, 1993 and 1994
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report.........................................................................F-2
Consolidated Balance Sheets..........................................................................F-3
Consolidated Statements of Operations................................................................F-4
Consolidated Statements of Shareholders' Equity......................................................F-5
Consolidated Statements of Cash Flows................................................................F-6
Notes to Consolidated Financial Statements...........................................................F-7 to F-16
</TABLE>
ACTV Interactive (a general partnership) - Fiscal Period Ended December 31,
1992, and Fiscal Year Ended December 31, 1993
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report.........................................................................F-17
Balance Sheets.......................................................................................F-18
Statements of Operations.............................................................................F-19
Statements of Partners' Capital......................................................................F-20
Statements of Cash Flows.............................................................................F-21
Notes to Financial Statements........................................................................F-22 to F-23
</TABLE>
ACTV, Inc. and Subsidiaries - Nine Months Ended September 30, 1994 and 1995
(Unaudited)
<TABLE>
<CAPTION>
<S> <C>
Consolidated Balance Sheets..........................................................................F-24
Consolidated Statements of Operations................................................................F-25
Consolidated Statements of Shareholders' Equity......................................................F-26
Consolidated Statements of Cash Flows................................................................F-27
Notes to Consolidated Financial Statements...........................................................F-28
</TABLE>
ACTV Interactive (a general partnership) - Fiscal Period From January 1, 1994 to
March 11, 1994 (Unaudited)
<TABLE>
<CAPTION>
<S> <C>
Balance Sheet........................................................................................F-29
Statements of Operations.............................................................................F-30
Statements of Cash Flows.............................................................................F-31
Notes to Financial Statements........................................................................F-32
</TABLE>
F-1
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of ACTV, Inc.:
We have audited the accompanying consolidated balance sheets of ACTV, Inc. and
subsidiaries (the "Company") as of December 31, 1994 and 1993 and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the Company at
December 31, 1994 and 1993 and the results of its operations and its cash flows
in the three year period ended December 31, 1994 in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
New York, New York
March 15, 1995
F-2
<PAGE>
<PAGE>
ACTV, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
December 31, December 31,
1993 1994
---- ----
<S> <C> <C>
Current Assets:
Cash and cash equivalents................. $3,858,863 $2,479,840
Accounts receivable....................... 186,684 198,353
Education equipment inventory............. -- 146,283
Other..................................... 7,001 114,937
---------------- ----------------
Total current assets.................. 4,052,548 2,939,413
---------------- ----------------
Property and equipment-net................ 6,207 5,712
---------------- ----------------
Other Assets:
Video program inventory................... 1,074,120 644,472
Patents and patents pending............... 42,295 174,181
Investment in partnership................. 697,916 --
Goodwill.................................. -- 3,920,304
Other..................................... 47,634 49,232
---------------- ----------------
Total other assets.................... 1,861,965 4,788,189
---------------- ----------------
Total............................ $5,920,720 $7,733,314
================ ================
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses..... $199,191 $660,268
Equipment lease payable (related party) 290,872 --
Deferred stock appreciation rights........ 1,299,260 750,192
Short-term note payable................... -- 25,250
------------------ ------------------
Total current liabilities............. 1,789,323 1,435,710
Long-term liabilities repayable from repayment
pool (including amounts payable to related
parties).................................. 709,794 --
Convertible note payable (related party)....... 1,511,000 --
Notes payable (related parties)................ -- 2,325,061
------------------ ------------------
Total liabilities..................... 4,010,117 3,760,771
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 6,507,799 at December 31, 1993,
9,019,550 at December 31, 1994........ 650,780 901,955
Additional paid-in capital................ 20,332,825 26,608,830
------------------ ------------------
Total................................. 20,983,605 27,510,785
Accumulated deficit....................... (19,073,002) (23,538,242)
------------------ ------------------
Total shareholders' equity............ 1,910,603 3,972,543
------------------ ------------------
Total............................ $5,920,720 $7,733,314
================== ==================
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE>
<PAGE>
ACTV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Unaudited
Pro-Forma
(Note 14)
Year Ended December 31, 1992 1993 1994 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Sales revenues............................ $186,598 $ -- $928,640 $1,128,472
License fees from related party........... 338,275 127,746 -- --
Royalties from related party.............. 7,723 36,856 9,776 --
---------------- ---------------- ---------------- ----------------
Total revenues......................... 532,596 164,602 938,416 1,128,472
Cost of Sales............................. -- -- 296,839 364,119
--
---------------- ---------------- ---------------- ----------------
Gross profit........................... 532,596 164,602 641,577 764,353
Expenses:
Operating expenses........................ 348,147 145,344 890,871 983,971
Selling and administrative................ 1,815,425 1,463,962 4,193,931 4,519,997
Depreciation and amortization............. 635,275 534,947 446,092 446,092
Amortization of goodwill.................. -- -- 343,467 343,467
Stock appreciation rights................. -- 1,299,260 (437,068) (437,068)
---------------- ---------------- ---------------- ----------------
Total expenses......................... 2,798,847 3,443,513 5,437,293 5,856,459
Interest (income)............................ (18,955) (56,480) (43,877) (47,409)
Interest expense-- related parties........... 343,008 428,221 226,671 226,671
---------------- ---------------- ---------------- ----------------
Interest expense (income) - net........... 324,053 371,741 182,794 179,262
Loss before minority interest in equity
of investee and extraordinary gain 2,590,304 3,650,652 4,978,510 5,271,368
Interest in ACTV Interactive................. (187,781) (506,303) (143,500) --
---------------- ---------------- ---------------- ----------------
Net loss before extraordinary
gain......................................... 2,778,085 4,156,955 5,122,010 5,271,368
Gain on extinguishment of debt and equipment
lease obligations............................ -- -- 656,770 656,770
---------------- ---------------- ---------------- ----------------
Net loss..................................... $2,778,085 $4,156,955 $4,465,240 $4,614,598
================ ================ ================ ================
Loss per common share before
extraordinary gain........................... $.59 $.72 $ .65 $.67
Loss per common share after
extraordinary gain........................... $.59 $.72 $ .57 $.58
Weighted average number of common shares
outstanding.................................. 4,665,686 5,800,134 7,897,278 7,897,278
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE>
<PAGE>
ACTV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
From January 1, 1992 to December 31, 1994
<TABLE>
<CAPTION>
Common Stock Additional
Paid-In
Shares Amount Capital Deficit
------ ------ ------- -------
<S> <C> <C> <C> <C>
Balances January 1, 1992 4,043,867 $404,387 $13,508,613 $(12,137,962)
Formation of ACTV Interactive --- --- 1,225,000 ---
Shares issued to Washington Post
pursuant to Note 720,000 72,000 648,000 ---
Shares issued for services rendered 64,361 6,436 57,925 ---
Net Loss --- --- --- (2,778,085)
-------------- ------------- ---------------- -------------
Balances December 31, 1992 4,828,228 $482,823 $15,439,538 $(14,916,047)
Issuance of shares in connection with
exercise of warrant 1,507,236 150,723 4,466,996 ---
Issuance of shares in connection with
exercise of stock options 172,335 17,234 426,291 ---
Net loss --- --- --- (4,156,955)
-------------- ------------- ---------------- -------------
Balances December 31, 1993 6,507,799 $650,780 $20,332,825 $(19,073,002)
Issuance of shares in connection with
financing 757,100 75,710 2,892,628 ---
Issuance of shares in connection with
exercise of stock options 818,317 81,832 1,564,326 ---
Issuance of shares in connection with
conversion of convertible note 871,334 87,133 1,508,051 ---
Issuance of shares for services 65,000 6,500 311,000
Net loss --- --- --- (4,465,240)
-------------- ------------- ---------------- -------------
Balances December 31, 1994 9,019,550 $901,955 26,608,830 $(23,538,242)
========= ======== ========== =============
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
<PAGE>
ACTV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31, 1992 1993 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................. $2,778,085 $4,156,955 $4,465,240
----------------- ------------------ ------------------
Adjustments to reconcile net loss to net
cash used in operations:
Depreciation and amortization............. 635,275 534,947 789,558
Stock appreciation rights................. -- 1,299,260 (549,068)
Gain on extinguishment of debt and
equipment lease obligations.............. -- -- (656,770)
Stock issued in lieu of cash
compensation.............................. 64,361 -- 250,000
Reclassification of equipment............. -- -- 1,151
Changes in assets and liabilities:
Loss from interest in ACTV Interactive 187,781 506,303 143,500
Accounts receivable....................... 27,309 (102,945) (48,917)
Other assets.............................. 20,832 (3,551) 31,765
Accounts payable and accrued expenses....... (35,890) 142,668 404,733
Education equipment inventory............. -- -- (13,183)
Other liabilities......................... (2,000) -- --
Interest payable.......................... 342,998 428,000 226,619
----------------- ------------------ ------------------
Net cash used in operating
activities............................ (1,537,419) (1,352,273) (3,885,852)
----------------- ------------------ ------------------
Cash flows from financing activities:
Contribution to partnership............... (167,000) -- --
Proceeds from exercise of warrants
and options............................... -- 5,061,244 1,646,159
Proceeds from equity financing............ 1,500,000 -- 2,968,338
Equipment lease repayment................. -- -- (65,000)
Repayment pool principal repayment........ -- -- (71,020)
----------------- ------------------ ------------------
Net cash provided by financing activities 1,333,000 5,061,244 4,478,477
Cash flows from investing activities:
Cash acquired in acquisition of
remaining interest in affiliate -- -- 672,160
Cash paid for interest in affiliate -- -- (2,500,000)
Investment in patents pending............. -- -- (142,122)
Investment in property and equipment (16,050) (5,828) (1,686)
----------------- ------------------ ------------------
Net cash used in investing activities (16,050) (5,828) (1,971,648)
----------------- ------------------ ------------------
Net (decrease) increase in cash and cash
equivalents.................................... (220,469) 3,703,143 (1,379,023)
Cash and cash equivalents,
beginning of period....................... 376,189 155,720 3,858,863
----------------- ------------------ ------------------
Cash and cash equivalents,
end of period............................. 155,720 3,858,863 2,479,840
================= ================== ==================
</TABLE>
See Notes to Consolidated Financial Statements.
Supplemental disclosure of cash flow information: See Note 15
F-6
<PAGE>
<PAGE>
ACTV, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization ACTV, Inc., incorporated July 8, 1983, and its subsidiaries (the
'Company' or 'ACTV'), were organized to develop and market a proprietary
interactive television programming technology (the 'Programming Technology'),
that permits a viewer to experience instantly responsive television. Since its
inception, the Company has been engaged in the development of the Programming
Technology, as well as the production of interactive programs ('ACTV
Programming') and the marketing and sales of the various products and services
incorporating the Programming Technology.
In March 1988, the Company formed ACTV Entertainment, Inc. ('ACTV
Entertainment'), formerly ACTV Domestic Corporation, and granted it a license to
develop, promote, distribute and market interactive television incorporating the
Programming Technology in the United States cable, DBS, and broadcast television
markets. On June 8, 1993, the Company became the sole shareholder in ACTV
Entertainment under the terms of an agreement with a subsidiary of Le Groupe
Videotron, Ltee. ('LGV'). The agreement also provides LGV with a 20-year,
non-exclusive, royalty-free license to produce ACTV Programming for a limited
number of potential Videoway subscribers in the United States, Canada and
certain European countries. The license is limited to the condition that neither
LGV nor its sublicensees receive any royalty or other fees with respect to ACTV
Programming, except for promotion and direct production expenses paid by LGV.
Any royalties from third party programmers will be paid exclusively to ACTV
Entertainment. The financial statements consolidate the financial results of
ACTV Entertainment with those of the Company. ACTV Entertainment is currently
dependent on advances and/or loans from the Company.
On July 14, 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 Company's Programming Technology to the education marketplace.
The Company contributed its applicable Programming Technology and the subsidiary
of the Post Company contributed $2,500,000 in cash. As a result thereof, the
Company recognized an increase of $1,225,000 in its additional paid-in capital
representing its pro rata share in the equity of the joint venture. The Company
owned, during 1993, through its wholly owned subsidiary ACTV Interactive, Inc.
('Interactive'), formerly ACTV Education, Inc., a 49% interest in ACTV
Interactive, and accounted for its investment under the equity method of
accounting. Furthermore, under the terms of a worldwide license, the Company
received a 5% royalty on sales made by ACTV Interactive. Interactive is
currently dependent on advances and/or loans from the Company.
On March 11, 1994, the Company purchased the Post Company's full 51% interest in
ACTV Interactive for $2.5 million in cash and a $2 million 8% note due December
31, 1996. (See Note 12.)
Principles of Consolidation The Company's consolidated financial statements
include the balances of its two wholly-owned subsidiaries, ACTV Entertainment
and Interactive. In consolidation, all intercompany account balances are
eliminated.
F-7
<PAGE>
<PAGE>
Property and Equipment - Property and equipment are recorded at cost and
depreciated on the straight-line method over their estimated useful lives
(generally five years). Depreciation expense for the years ended December 31,
1992, 1993 and 1994 aggregated $135,353, $61,662, and $6,207 respectively.
Video Program Inventory - Video program inventory of the Company, which is
stated at the lower of cost or net realizable value, consists of capitalized
production costs related to programs completed. All video program inventory
for items not currently in use has been fully amortized as of December 31, 1994.
The Company is amortizing those programs that are still in use over a period of
five years, which approximates their estimated useful life. The balances at
December 31, 1993, and 1994, are net of accumulated amortization of
$1,626,495 and $2,056,143, respectively. No entertainment programs were in
production at either December 31, 1993, or 1994.
Education Equipment - Education equipment consists of ACTV System 500
interactive terminals, ACTV videocassette recorders, television monitors and
computer printers that the Company holds in inventory. This inventory is carried
on the Company's books at the lower of cost or market.
Patents and Patents Pending - The cost of patents, which for patents issued
represents the consideration paid for the assignment of patent rights to the
Company by an employee and for patents pending represents legal costs related
directly to such patents pending, is being amortized on a straight-line basis
over the estimated economic lives of the respective patents (averaging 10
years), which is less than the statutory life of each patent. The balances at
December 31, 1993, and 1994, are net of accumulated amortization of $75,086 and
$85,969, respectively. The patents and patents pending have been assigned as
collateral for obligations to the Post Company under the March 11, 1994,
agreement.
Cash Equivalents - The Company considers all highly liquid debt instruments
purchased with an original maturity of three months or less to be cash
equivalents.
Revenue Recognition - Sales are primarily recorded as products are shipped and
services are rendered, using the completed contract method of accounting.
Research and Development - Research and development costs, which represent
primarily refinements to the Programming Technology, was de minimus for the year
ended December 31, 1992, totaled $171,802 for the year ended December 31, 1993
and $465,740 for the year ended December 31, 1994.
Loss per Common Share - Loss per common share equals net loss divided by the
weighted average number of shares of Common Stock outstanding during the period.
Reclassifications - Certain reclassifications have been made in the December 31,
1992, and 1993, financial statements to conform to the December 31, 1994,
presentation.
Intangibles - The excess of the purchase price over the fair value of assets
acquired (goodwill), which arose in 1994 upon the Company's purchase from the
Post Company of its 51% interest in ACTV Interactive (Note 12), is being
amortized on a straight-line basis over a period of 10 years. On a quarterly
basis, the Company evaluates the realizability of goodwill based upon the
expected undiscounted cash flows of the acquired business. Impairments, if any,
will be recognized through a charge to operations in the period in which the
impairment is deemed to exist. Based on such analysis, the Company does not
believe that goodwill has been impaired.
F-8
<PAGE>
<PAGE>
2. PROPERTY AND EQUIPMENT - NET
Property and equipment - net at December 31, 1993, and 1994, consisted of the
following (at cost):
<TABLE>
<CAPTION>
1993 1994
---- ----
<S> <C> <C>
Machinery and equipment $815,436 $815,949
Office furniture and fixtures 184,318 189,515
Vehicles 19,105 0
----------- --------------
1,018,859 1,005,464
Less accumulated depreciation
1,012,652 999,752
--------- ----------
Total $6,207 $5,712
=========== ===========
</TABLE>
3. RESTRUCTURING AND REFINANCING
On June 11, 1985, the Company entered into a Refinancing and Restructuring
Agreement (the 'Plan') providing for the termination of prior agreements
relating to the formation of ACTV, Inc. The Plan also stated that any amounts
owing by the Company to related parties and other creditors at the date of the
agreement were the responsibility of the Company. Such amounts were to be
repayable solely from the 'Repayment Pool', which was defined as ten percent ,of
'available cash flow' in excess of $1,000,000 generated by the Company in any
given calendar year. Available cash flow was defined as the excess of gross
revenues (excluding financing proceeds) over certain cash expenditures.
At December 31, 1993 total obligations repayable solely from the Repayment Pool
aggregated $709,794.
During 1994, the Company, in separate transactions concluded with all holders of
Repayment Pool obligations, settled all outstanding liabilities related to the
Repayment Pool. Average consideration paid by the Company in such settlement
transactions was approximately 17% of face value. For the year ended December
31, 1994, the Company recoginzed an extraordinary gain of $620,898 related to
the Repayment Pool settlement transactions.
4. RELATED PARTY TRANSACTIONS
Equipment Lease Payable - On January 12, 1984, the Company entered into an
equipment lease agreement with a related party. Under the terms of this
operating lease, the Company was required to make base rental payments of $8,814
per month for five years. In April of 1986, rental payments were discontinued.
All unpaid rentals from April 1986 through December 31, 1988, were accrued as
current liabilities in the financial statements for the year ended December 31,
1993, due to the fact that the rental payments may have been paid by a third
party, a former officer of the Company, who instituted litigation against the
Company to seek reimbursement.
During 1994, the Company settled this dispute by paying $65,000 in cash and by
issuing a promissory note in the amount of $190,000 to the complainant. For the
year ended December 31, 1994, the Company recognized an extraordinary gain of
$35,872 related to this settlement.
F-9
<PAGE>
<PAGE>
Other - Interest expense on amounts due to related parties for the years ended
December 31, 1992, 1993 and 1994 aggregated $19,998, $20,000, and $0,
respectively.
5. FINANCING ACTIVITIES
During the fourth quarter of 1994, the Company raised approximately $2,970,000
from a series of private sales of shares of the Company's common stock totaling
757,100 shares.
In March 1992, the Company issued to the Post Company $1,500,000 aggregate
principal amount of units represented by an 8% convertible note (the
'Convertible Note') and 720,000 shares of the Company's common stock (the
'Common Stock'). Also in March 1992, the Post Company acquired pursuant to an
option agreement (the 'Option Agreement') an option to purchase up to 750,000
shares of Common Stock at either $2.00 or $2.50 per share, depending on the date
of exercise. Both the conversion of the Convertible Note and the exercise of the
option were dependent upon the occurrence of certain events. The Convertible
Note required that 25% of the outstanding balance be retired by March 17, 1994,
and the remaining outstanding balance be retired in three semi-annual
installments. The Company recorded the fair market value of the common shares
issued ($720,000) as original issue discount, and had been amortizing this
amount over the life of the Notes. The Convertible Note was secured by a
security interest as described in Note 12.
In connection with the Option Agreement, the Post Company also received the
right to purchase from the Company at a fair market exercise price to be
determined an amount of shares of Common Stock necessary to increase the Post
Company's percentage ownership of the total then outstanding shares of Common
Stock to 51%. Such right is exercisable through March 17, 1997, subject to
extension in certain circumstances. Until March 17, 1995, the Post Company
agreed not to acquire more than 40% of the Company unless certain events
occurred, such as a tender offer, a proxy contest, or the acquisition by a third
party of in excess of 15% of the Company's common stock, as set forth in a
standstill agreement between the Company and the Post Company.
In March 1994, the Post Company exercised its option to purchase 750,000 shares
at $2.00 per share, and converted the Convertible Note's principal, plus accrued
interest of $241,000, into 871,334 shares of the Common Stock. (See Note 13.)
In May 1993, the Company completed the redemption of its outstanding Redeemable
Warrants. The Company received approximately $4.5 million from the warrant
exercise to purchase approximately 1.5 million shares of Common Stock.
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 and has
retained the services of an investment banking firm toward this end. If the
Company is not successful in obtaining such additional financing, management
believes that the Company can fund its operations for the next twelve months by
reducing 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 next twelve month period.
F-10
<PAGE>
<PAGE>
6. SHAREHOLDERS' EQUITY
Common Stock At December 31, 1994, the Company was authorized to issue
17,000,000 shares of Common Stock, of which 9,019,550 were issued and
outstanding. During 1992, the Company issued 64,361 shares of Common Stock to
three employees in lieu of scheduled compensation and to a consultant and a
director in lieu of established fees. The fair market value of these shares at
the date of issuance was recorded as an expense in the financial statements.
At December 31, 1994, the Company had reserved shares of Common Stock for
issuance as follows:
<TABLE>
<S> <C>
1989 Qualified Stock Option Plan 83,000
1989 Non-Qualified Stock Option Plan 69,500
Underwriter's Warrant exercise 100,000
Options granted outside of formal plans 1,401,604
--------------------
Total 1,654,104
====================
</TABLE>
Preferred Stock At December 31, 1994, the Company was authorized to issue
1,000,000 shares of Preferred Stock, par value $0.10 per share, designated as
Series A Convertible Preferred Stock (666,667 shares) and Series B Convertible
Preferred Stock (333,333 shares). No shares of Preferred Stock are issued and
outstanding.
Underwriter Warrants In April 1993, the Company and the underwriter of the
Company's initial public offering of May 1990 (the 'Underwriter') executed an
agreement pursuant to which the Underwriter will provide financial advisory and
investment banking services to the Company for two years, and the Company issued
to the Underwriter warrants to purchase 100,000 shares of Common Stock at $5.50
per share, exercisable at any time through December 31, 1995. On the date of
issuance of these warrants, the market price of the Company's common shares was
greater than the warrant exercise price.
F-11
<PAGE>
<PAGE>
7. STOCK OPTIONS
During 1989, the Board of Directors approved an Employee Incentive Stock Option
Plan (the 'Employee Plan'). The Employee Plan provides for the granting of up to
100,000 options to purchase Common Stock to key employees. The Employee Plan
stipulates that the option price be not less than fair market value on the date
of grant. Options granted will have an expiration date not to exceed ten years
from the date of grant. At December 31, 1994, 100,000 options had been granted
under this plan, of which 17,000 had been exercised.
In addition, in August 1989, the Board of Directors approved a Non-Qualified
Stock Option Plan (the 'Non-Qualified Plan'), to be administered by the Board or
a committee appointed by the Board. The Non-Qualified Plan provides for the
granting of up to 100,000 options to purchase shares of Common Stock to
employees, officers, directors, consultants and independent contractors. The
Non-Qualified Plan stipulates that the option price be not less than fair market
value at the date of grant, or such other price as the Board may determine.
Options granted under this Plan shall expire on a date determined by the
committee but in no event later than three months after the termination of
employment or retainer. At December 31, 1994, 100,000 options had been granted
under this plan, of which 30,500 had been exercised.
At December 31, 1994, the Company had options outstanding that were issued to a
Director, certain employees and consultants for the purchase 1,401,604 shares of
Common Stock . The prices of these options range from $2.50 to $8.19 per share;
they have expiration dates in the years 1993 through 2002. The options granted
are not part of the Employee Incentive Stock Option Plan or the Non-Qualified
Stock Option Plan discussed above.
A summary of stock option transactions is as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1993 1994
---- ----
<S> <C> <C>
Options outstanding, beginning
of period 884,554 1,442,934
Options granted to employee
pursuant to 1989 Agreement 152,948 0
Warrants granted to joint venture
partner 172,000 0
Warrants granted to underwriter 100,000 0
Options granted outside of formal
plans 251,000 376,500
Options granted under 1989 Plans 83,000 0
Options exercised (172,793) (68,316)
Options canceled (27,775) (97,014)
------------------- --------------------
Options outstanding, end of period 1,442,934 1,654,104
=================== ====================
Options exercisable, end of period 1,139,434 1,064,254
Price range of outstanding options, $.82 to $2.50 to
end of period $16.38 $8.19
</TABLE>
F-12
<PAGE>
<PAGE>
8. STOCK APPRECIATION RIGHTS PLAN
The Company's 1992 Stock Appreciation Rights Plan ('SAR Plan') was approved by
the Company's stockholders in December 1992. Subject to adjustment as set forth
in the SAR Plan, the aggregate number of Stock Appreciation Rights ('SARs') that
may be granted shall not exceed 900,000. The SAR Plan is administered by the
Stock Appreciation Rights Committee (the 'SAR Committee').
SARs may not be exercised until the expiration of six months from the date of
grant, but in no event were exercisable earlier than May 1, 1994. If a holder of
a SAR ceases to be an employee, director or consultant of the Company or one of
its subsidiaries or an affiliate, other than by reason of the holder's death or
disability, any SARs that have not vested shall become void. SARs are not
transferable except by will or under the laws of descent and distribution.
Upon exercise of a SAR, the holder will receive for each share for which a SAR
is exercised, as determined by the SAR Committee in its discretion, (a) shares
of the Company's Common Stock, (b) cash, or (c) cash and shares of the Company's
Common Stock, equal to the difference between (i) the fair market value per
share of the Common Stock on the date of exercise of the SAR and (ii) the value
of a SAR, which amount shall be no less than the fair market value per share of
Common Stock on the date of grant of the SAR.
Under the Company's SAR Plan, as of December 31, 1994, the Company has granted
260,000 SARs to William Samuels, 160,000 SARs to Dr. Michael Freeman, 110,000 to
David Reese, 100,000 to Bruce Crowley, 26,000 to Gregory Harper, and 70,000 to
James Crook. The initial price of all the SARs granted to Dr. Freeman and Mr.
Crook, 160,000 of the SARs granted to Mr. Samuels, 80,000 of the SARs granted to
Mr. Reese, and 12,000 of the SARs granted to Mr. Harper was $1.50 per share, an
amount equal to the fair market value of a share of Common Stock on the date of
grant in 1992. All of the SARs granted to Mr. Crowley, 100,000 of the SARs
granted to Mr. Samuels and 30,000 of the SARs granted to Mr. Reese and 12,000 of
the SARs granted to Mr. Harper are at the price of $5.50 per share, an amount
equal to the fair market value of a share of Common Stock on the respective
dates of grant. The SARs expire between 1998 and 2004. One-fifth of the total
SARs granted to each recipient vest at the end of each 12-month period following
the date of grant.
9. INCOME TAXES
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 109,
'Accounting for Income Taxes', effective January 1, 1993. There was no
cumulative effect of adopting SFAS No. 109 on the Company's financial
statements. The Company previously reported taxes under the guidance of APB
Opinion No. 11, 'Accounting for Income Taxes.'
Deferred income taxes reflect the net tax effects at an effective tax rate of
35.33% of (a) temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes, and (b) operating loss and tax credit carryforwards. The tax effects
of significant items comprising the Company's net deferred tax asset as of
December 31, 1994, and December 31, 1993, are as follows:
F-13
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Deferred tax assets:
Operating loss carryforwards $8,225,157 $6,417,000
Differences between book and tax basis of property 246,539 552,000
----------- -----------
8,471,696 6,969,000
Deferred tax liabilities:
Differences between book and tax basis of property (170,010) (155,000)
----------- -----------
8,301,686 6,814,000
Valuation Allowance (8,301,686) (6,814,000)
----------- -----------
Net deferred tax asset $ 0 $ 0
=========== ===========
</TABLE>
The increase in the valuation allowance for the year ended December 31, 1993,
was approximately $1,490,000. There was no provision or benefit for Federal
income taxes as a result of the net operating loss in the current year.
At December 31, 1994, the Company has federal net operating loss carryovers of
approximately $23,000,000. These carryovers may be subject to certain
limitations and will expire between the years 1998 and 2008.
10. COMMITMENTS
At December 31, 1994, future aggregate minimum lease commitments under
non-cancelable operating leases, which expire in 1995 and 1999, were
approximately $258,000. The leases contain customary escalation clauses, based
principally on real estate taxes. Rent expense related to these leases for the
years ended December 31, 1992, 1993 and 1994 aggregated $172,260, $97,584, and
$169,457 respectively. The Company has employment agreements with certain key
employees. These agreements extend for a period of a maximum of five years and
contain non-competition provisions which extend two years after termination of
employment with the Company. At December 31, 1994, the Company is committed to
expend a total of $1,871,250 under these agreements.
11. CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of temporary cash investments and receivables.
The Company attempts to mitigate cash investment risks by placing such
investments in insured depository accounts and with financial institutions that
have high credit ratings. Concentrations of risk with respect to trade
receivables exist because of the relatively few companies or other organizations
(primarily educational or government bodies) with which the Company currently
does business. The Company attempts to limit these risks by closely monitoring
the credit of those to whom it is contemplating providing its products, and
continuing such credit monitoring activities and other collection activities
throughout the payment period. In certain instances, the Company further
minimizes concentrations of credit risks by requiring partial advance payments
for the products provided.
F-14
<PAGE>
<PAGE>
12. PURCHASE OF REMAINING INTEREST IN SUBSIDIARY
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 note due December 31, 1996, (the 'New
Note'). The New Note accrues interest at 8%, and must be pre-paid from net
proceeds in excess of an aggregate $5 million received by the Company in the
event it completes future debt or equity financing. The principal of the New
Note is secured by certain collateral pursuant to a security agreement, through
which the Post Company acquired (a) a security interest in and lien, second in
priority, with respect to the collateral as to which the Company has granted a
first priority security interest pursuant to the Termination Agreement and (b) a
security interest in and lien, first in priority, with respect to any existing
United States patents and pending applications.
13. CONVERSION OF OPTIONS AND CONVERTIBLE NOTE
On March 15, 1994, the unpaid principal and accrued and unpaid interest on the
$1,500,000 Convertible Note were converted into 871,334 shares of Common Stock
of the Company at $2.00 per share.
On March 15, 1994, the Post Company exercised its option to purchase an
additional 750,000 shares of the Company's Common Stock at $2.00 per share,
receiving 750,000 shares at $2.00 per share.
14. UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS FOR THE YEARS
ENDED DECEMBER 31, 1993, AND DECEMBER 31, 1994
The unaudited pro forma consolidated statement of operations for the year ended
December 31, 1994, has been prepared to reflect the financial effects of the
event described in Note 12, as if it had occurred on January 1, 1994. This
statement consolidates the results of the Company and ACTV Interactive, for the
year ended December 31, 1994, with the following adjustments: inclusion of
revenues and expenses of ACTV Interactive from January 1, 1994, to March 11,
1994; elimination of intercompany sales and royalty expense; and elimination of
the Company's loss for its interest in ACTV Interactive under the equity method
of accounting.
The Company's pro forma statement of operations for the year ended December 31,
1993, prepared as indicated above but assuming that the events described in Note
12 and Note 13 occurred January 1, 1993, is as follows:
<TABLE>
<CAPTION>
<S> <C>
Revenues $970,498
Cost of sales 237,683
Operating expenses 639,781
General and administrative expenses 2,603,736
Depreciation and amortization 893,692
Stock appreciation rights 1,299,260
Net interest expense 91,014
------
Net loss $4,794,668
==========
Net loss per share $.65
==========
</TABLE>
F-15
<PAGE>
<PAGE>
15. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The consolidated balance sheet at December 31, 1994, reflects non-cash activity
during the year ended December 31, 1994, that relates to the Company's purchase
on March 11, 1994 of the Washington Post Company's 51% interest in ACTV
Interactive: issuance of note payable of $2,000,000, and the acquisition of net
assets other than cash of $118,485. This net asset amount is comprised of
current assets of $238,560, fixed assets of $5,176, inventory of $133,101 and
current liabilities of $258,352. In addition, in a separate non-cash
transaction, the Post Company's convertible note payable was converted to common
stock and additional paid in capital (net of original issue discount of
$147,484) of $1,595,183. The consolidated balance sheet at December 31, 1994,
also reflects non-cash activity during the year ended December 31, 1994, that
relates: (i) to the extinguishment of the Company's equipment lease obligation
to a related party: issuance of note payable of $190,000; (ii) to the
extinguishment of a portion of the Company's contingent Repayment Pool
obligation: issuance of note payable of $25,000; and (iii) to the issuance of
common stock in exchange for services to be rendered: increase in common stock
and additional paid in capital of $67,500 and increase in prepaid expense of
$67,500.
The Company made no cash payments of interest or income taxes during the years
ended December 31, 1993 and 1994.
F-16
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of ACTV Interactive:
We have audited the accompanying balance sheets of ACTV Interactive (the
"Partnership") as of December 31, 1993 and 1992 and the related statements of
operations, partners' capital and cash flows for the year ended December 31,
1993 and the period from July 14, 1992 (date of formation) through December 31,
1992. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of ACTV Interactive at December 31, 1993 and
1992 and the results of its operations and its cash flows for the year ended
December 31, 1993 and the period July 14, 1992 (date of formation) through
December 31, 1992 in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche, LLP
New York, New York
March 15, 1994
F-17
<PAGE>
<PAGE>
ACTV INTERACTIVE
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1992 1993
---- ----
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents......................... $2,041,987 $969,973
Accounts receivable............................... 104,169 188,174
Inventory......................................... 15,883 148,068
Other............................................. 895 82,720
------------------ --------------------
Total current assets.......................... 2,162,934 1,388,935
------------------ --------------------
Total................................ $2,162,934 $1,388,935
================== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses (including
$10,343 payable to related party at December 31,
1992 and $178,728 payable to related party at
December 31, 1993)................................ $38,517 $297,476
Royalty payable -- related party.................. 7,645 7,955
------------------ -------------------
Total current liabilities..................... 46,162 305,431
------------------ -------------------
Commitments and Contingencies.......................... -- --
Partners' Capital...................................... 2,116,772 1,083,504
------------------ -------------------
Total................................ $2,162,934 $1,388,935
================== ===================
</TABLE>
See Notes to Financial Statements.
F-18
<PAGE>
<PAGE>
ACTV INTERACTIVE
STATEMENTS OF OPERATIONS FOR THE PERIOD FROM JULY 14, 1992
(DATE OF FORMATION) TO DECEMBER 31, 1992 AND THE YEAR ENDED
DECEMBER 31, 1993
<TABLE>
<CAPTION>
Period Ended Year Ended
December 31, December 31,
1992 1993
---- ----
<S> <C> <C>
Revenues.................................................. $348,473 $839,165
Cost of Goods Sold........................................ 172,394 238,020
------------------ ------------------
Gross Profit.............................................. 176,079 601,145
Expenses:
General and administrative, including royalty
expense to related party of $33,269 in 1993 .......
and $11,309 in 1992....................................... 581,960 1,667,142
------------------ ------------------
Loss from operations................................. 405,881 1,065,997
Interest income........................................... 22,653 32,727
------------------ ------------------
Net Loss.................................................. 383,228 1,033,270
================== ==================
</TABLE>
See Notes to Financial Statements.
F-19
<PAGE>
<PAGE>
ACTV INTERACTIVE
STATEMENT OF PARTNERS' CAPITAL
FROM JULY 14, 1992 (DATE OF FORMATION) TO DECEMBER 31, 1993
<TABLE>
<CAPTION>
Partners'
Contributions/ Accumulated Partners'
Distributions Deficit Capital
--------------- ------- -------
<S> <C> <C> <C>
Initial Capital Contribution by Post
Company (July 14, 1992) $2,500,000 $ -- $2,500,000
Net Loss 383,228
-------------------- -------------------- ---------------------
Balances December 31, 1992 $2,500,000 $383,228 $2,116,772
Net Loss 1,033,270
-------------------- -------------------- ---------------------
Balance December 31, 1993 $2,500,000 $1,416,498 $1,083,502
==================== ==================== =====================
</TABLE>
See Notes to Financial Statements.
F-20
<PAGE>
<PAGE>
ACTV INTERACTIVE
STATEMENTS OF CASH FLOWS FOR THE PERIOD FROM JULY 14, 1992
(DATE OF FORMATION) TO DECEMBER 31, 1992 AND THE YEAR ENDED
DECEMBER 31, 1993
<TABLE>
<CAPTION>
Period Ended Year Ended
December 31, December 31,
1992 1993
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................. $383,228 $1,033,270
------------------- --------------------
Changes in assets and liabilities:
Accounts receivable...................................... (104,169) (84,005)
Inventory................................................ (15,883) (132,185)
Other assets............................................. (895) (81,825)
Accounts payable and accrued
expenses............................................. 46,162 259,271
------------------- --------------------
Net cash (used) in operating
activities........................................... (458,013) (1,072,014)
Cash flows from financing activities:
Proceeds from formation of partnership................... 2,500,000 --
------------------- -------------------
Net cash provided by financing activities................ 2,500,000 --
------------------- -------------------
Net increase (decrease) in cash and cash equivalents.......... 2,041,987 (1,072,014)
Cash and cash equivalents beginning of period................. -- 2,041,987
------------------- -------------------
Cash and cash equivalents end of period....................... 2,041,987 969,973
=================== ===================
</TABLE>
See Notes to Financial Statements.
F-21
<PAGE>
<PAGE>
ACTV INTERACTIVE
Notes To Financial Statements For The Periods Ended December 31, 1992 and
December 31, 1993
1. ORGANIZATION
On July 14, 1992, a subsidiary of the Company entered into a partnership
agreement (the "Partnership Agreement") with a subsidiary of The
Washington Post Company (the "Post Company") to form ACTV Interactive
("Interactive"), a partnership organized pursuant to the provisions of the
partnership law of the State of Delaware for the purpose of marketing
products and services incorporating the Programming Technology to the
education marketplace. Upon the formation of Interactive, the Company
contributed its Programming Technology and the Post Company contributed
$2,500,000. The Post Company at December 31, 1993 owned a 51% interest in
Interactive and the Company owned a 49% interest. Furthermore, the Company
received a 5% royalty on certain sales made by Interactive. The
Programming Technology contributed by the Company to the partnership is
recorded at the Company's historical cost, which is zero, because the
Company expensed the research and development costs related to the
Programming Technology.
2. SIGNIFICANT ACCOUNTING POLICIES
Partnership Income/Loss Allocation- Since its formation Interactive has
not generated revenues sufficient to fund its operations and has
experienced operating losses. Profits and losses have been allocated to
the partners based upon the allocation percentages outlined in the
Partnership Agreement.
Revenue Recognition- Sales are primarily recorded as products are shipped
and services are rendered, using the completed contract method of
accounting.
Cash Equivalents- Interactive considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash equivalents.
Operating Losses- Since inception, Interactive's revenues have been
insufficient to fund operations. Management believes, however, that its
current funds will be sufficient to fund ongoing operations for the next
twelve months.
Inventory- Inventory, which consists principally of interactive terminals
with ACTV Programming functionality and VCRs that are modified for use
with the terminals, is valued at the lower of cost or market.
3. ALLOCATED EXPENSES
Certain expenses reported by Interactive are expenses that were incurred
by the Company and allocated to Interactive. These allocations, depending
on the expense, are based either on actual usage by each entity of the
good or service consumed, or on pre-set formulas, which are reviewed from
time to time by management for their appropriateness. In 1992 and 1993,
the approximate aggregate values of allocated expenses were $330,000 and
$480,000, respectively.
4. CONCENTRATIONS OF CREDIT RISK
F-22
<PAGE>
<PAGE>
Financial instruments that potentially subject Interactive to
concentrations of credit risk consist principally of temporary cash
investments and trade receivables. Interactive attempts to mitigate such
risks by placing its temporary cash investments in insured depository
accounts or with high credit-rated financial institutions. Concentrations
of risk with respect to trade receivables exist because of the relatively
few companies or other organizations (primarily educational or government
bodies), with which Interactive currently does business. Interactive
attempts to limit these risks by closely monitoring the credit of those to
whom it is contemplating providing its products, and continuing such
credit monitoring activities and other collection activities throughout
the payment period. In certain instances, Interactive further minimizes
concentrations of credit risks by requiring partial advance payments for
the products provided.
F-23
<PAGE>
<PAGE>
ACTV, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30,
1995
----
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents................. $5,090,642
Accounts receivable....................... 337,211
Education equipment inventory............. 169,610
Other..................................... 84,571
-----------------
Total current assets.................. 5,682,034
-----------------
Property and equipment-net................ 422,202
-----------------
Other Assets:
Video program inventory................... 322,236
Patents and patents pending............... 272,780
Goodwill.................................. 3,600,525
Other..................................... 155,157
-----------------
Total other assets.................... 4,350,698
-----------------
Total............................ $10,454,934
=================
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..... 929,355
Deferred stock appreciation rights........ 1,294,148
Short-term note payable................... --
-----------------
Total current liabilities............. 2,223,503
Notes payable (related parties)................ 222,219
-----------------
Shareholders' equity:
Preferred stock, $.10 par value, 1,000,000
shares authorized, none issued....... --
Common stock, $.10 par value, 17,000,000
shares authorized: issued and outstand-
ing 11,375,150 at September 30, 1995.. 1,137,515
Additional paid-in capital................ 36,634,659
Notes receivable from stock sales......... (567,500)
-----------------
Accumulated deficit....................... (29,195,462)
-----------------
Total shareholders' equity............ 8,009,212
=================
Total............................ $10,454,934
=================
</TABLE>
See Notes to Consolidated Financial Statements
F-24
<PAGE>
<PAGE>
ACTV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Month Periods
Ended September 30,
1994 1995
---- ----
<S> <C> <C>
Revenues:
Sales revenues.................... $758,963 $1,075,925
Royalties from related party...... 9,776 --
--------------- ---------------
Total revenues................. 768,739 1,075,925
Cost of Sales..................... 233,661 318,665
--------------- ---------------
Gross profit................... 535,078 757,260
Expenses:
Operating expenses................ 751,581 829,781
Selling and administrative........ 2,870,441 3,600,124
Depreciation and amortization..... 334,259 499,261
Amortization of goodwill.......... 236,874 319,779
Stock appreciation rights......... (11,095) 1,249,206
--------------- ---------------
Total expense.................. 4,182,060 6,498,151
Interest (income).................... (37,995) (83,150)
Interest expense - related parties... 184,186 93,596
--------------- ---------------
Interest expense (income) - net... 146,191 10,446
Other (income)....................... (7,316) --
Loss before minority interest in
equity of investee................ 3,785,857 5,751,337
Interest in ACTV Interactive......... 143,500 --
--------------- ---------------
Net loss before extraordinary
gain................................. 3,929,357 5,751,337
Extraordinary gain on retirement of
debt................................. 521,803 94,117
--------------- ---------------
Net loss............................. $3,407,554 $5,657,220
=============== ===============
Loss per share before extraordinary
gain................................. $.51 $.59
Loss per share after extraordinary
gain................................. $.44 $.58
================ ================
Weighted average number of
common shares outstanding............ 7,699,790 9,748,209
</TABLE>
See Notes to Consolidated Financial Statements
F-25
<PAGE>
<PAGE>
ACTV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
From December 31, 1994 to September 30, 1995
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional
------------ Paid-In
Shares Amount Capital Deficit
------ ------ ------- -------
<S> <C> <C> <C> <C>
Balances December 31, 1994 9,019,550 $901,955 $26,608,830 $(23,538,242)
Shares issued for services rendered 68,329 6,833 273,362
Issuance of shares in connection with
financings 1,990,293 199,029 8,730,626
Issuance of shares in connection with
exercise of stock options 296,956 29,696 1,021,841
Net loss --- --- --- (5,657,220)
---------- ---------- ----------- -------------
Balances September 30, 1995 11,375,150 $1,137,515 $36,634,659 $(29,195,462)
========== ========== =========== =============
</TABLE>
See Notes to Consolidated Financial Statements.
F-26
<PAGE>
<PAGE>
ACTV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Month Periods
Ended September 30,
1994 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................. $3,407,554 $5,657,220
----------------- ------------------
Adjustments to reconcile net loss to net cash used in operations:
Depreciation and amortization............. 571,133 926,402
Stock appreciation rights................. (11,095) 543,956
Gain on extinguishment of repayment
pool and equipment lease obligations (521,804) --
Gain on extinguishment of debt
obligations........................... -- (94,717)
Reclassification of equipment 1,151 --
Common stock issued for services -- 563,430
Changes in assets and liabilities:
Loss from interest in ACTV Interactive 143,500 --
Accounts receivable....................... (179,195) (138,858)
Other assets.............................. (12,736) 56,992
Accounts payable and accrued expenses 160,420 3,986
Education equipment inventory............. 23,165 (23,327)
Receivable from affiliate................. (15,324) --
Interest payable.......................... 184,188 93,333
----------------- ------------------
----------------- ------------------
Net cash (used) in operating
activities....................... (3,064,151) (3,726,023)
----------------- ------------------
Cash flows from financing activities:
Proceeds from sale of common stock -- 8,951,859
Proceeds from exercise of warrants
and options............................... 1,608,660 68,600
Discounted prepayment of note............. -- (101,458) ,
Note repayments........................... -- (2,025,250)
Equipment lease repayment................. (65,000) --
Repayment pool principal repayment........ (45,000) --
----------------- ------------------
----------------- ------------------
Net cash provided by (used in) financing
activities..................................... 1,498,660 6,893,751
Cash flows from investing activities:
Cash acquired in acquisition of
remaining interest in affiliate 672,160 --
Cash paid for interest in affiliate (2,500,000) --
Investment in patents pending............. (111,691) --
Investment in property and equipment (1,150) (556,926)
----------------- ------------------
----------------- ------------------
Net cash used in investing activities (1,940,681) (556,926)
----------------- ------------------
----------------- ------------------
Net increase (decrease) in cash and cash
equivalents.................................... (3,506,172) 2,610,802
Cash and cash equivalents,
beginning of period....................... 3,858,863 2,479,840
----------------- ------------------
----------------- ------------------
Cash and cash equivalents,
end of period............................. 352,691 5,090,642
================= ==================
</TABLE>
Supplemental disclosure of noncash investing activity: see notes to
consolidated financial statements
F-27
<PAGE>
<PAGE>
ACTV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1994 AND SEPTEMBER 30, 1995
1. The consolidated financial statements for the periods ended September 30,
1994 and September 30, 1995 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 Company's consolidated financial statements for the years
ended December 31, 1993 and December 31, 1994.
3. The consolidated statements of operations for the nine month period ended
September 30, 1995, reflect an extraordinary gain of $94,117 on the
extinguishment of an obligation to Nolan Bushnell. On April 25, 1994, the
Company entered into a Settlement Agreement (the "Bushnell Settlement
Agreement") with Mr. Bushnell under which Mr. Bushnell released the Company from
certain obligations. Pursuant to the Bushnell Settlement Agreement, ACTV issued
to Mr. Bushnell, among other consideration, a promissory note in the principal
amount of $190,000, payable in two installments on June 30, 1995, and June 30,
1996. In January 1995, the Company and Mr. Bushnell agreed to a discounting of
the note for payment in full at that time. Separately, the consolidated
statements of operations for the three month and nine month periods ended
September 30, 1994, reflect an extraordinary gain of $231,845 on the
extinguishment of certain obligations to Nolan Bushnell and Catalyst
Technologies.
4. The Company's balance sheet at September 30, 1995 reflects a debit to
shareholders' equity of $567,500 related to non-recourse loans made by the
Company to certain employees in August 1995 to purchase the Company's Common
Stock by exercising options. The due dates of the non-recourse loans correspond
with the respective expiration dates of the options exercised.
5. The following pro forma consolidated statement of operations for the nine
months ended September 30, 1994 has been prepared to reflect the financial
effects of the Company's March 11, 1994, purchase of the Washington Post
Company's interest in ACTV Interactive as if it had occurred on January 1, 1994.
This statement consolidates the results of the Company and ACTV Interactive for
the nine months ended September 30, 1994, with the following adjustments:
elimination of intercompany sales and royalty expense, recognition of increased
amortization expense related to goodwill, recognition of increased interest
expense on the $2 million note payable to the Washington Post Company, and
elimination of the Company's loss related to its interest in ACTV Interactive
under the equity method of accounting.
<TABLE>
<S> <C>
Revenues $958,795
Cost of sales 300,941
Operating expenses 844,681
General and administrative expenses 3,196,507
Depreciation and amortization 571,133
Stock appreciation rights (11,095)
Net interest expense 142,659
Other income 7,316
Extraordinary gain 521,803
-------
Net loss $3,556,912
==========
Net loss per share $.46
====
</TABLE>
F-28
<PAGE>
<PAGE>
ACTV INTERACTIVE
BALANCE SHEETS
<TABLE>
<CAPTION>
March 11,
1994
(Unaudited)
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents......................... $672,160
Accounts receivable............................... 164,759
Inventory......................................... 133,101
Other............................................. 78,976
-------------------
Total current assets.......................... 1,048,996
-------------------
Total................................ $1,048,996
===================
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses
(including $201,484 payable
to related party at March 11, 1994)............... $258,100
Royalty payable-- related party................... 250
-------------------
Total current liabilities..................... 258,350
-------------------
Commitments and Contingencies.......................... --
Partners' Capital 790,646
-------------------
Total................................ $1,048,996
===================
</TABLE>
See Notes to Financial Statements.
F-29
<PAGE>
<PAGE>
ACTV INTERACTIVE
STATEMENTS OF OPERATIONS FOR THE 3 MONTHS ENDED MARCH 31, 1993 AND
FOR THE PERIOD FROM JANUARY 1, 1994 TO MARCH 11, 1994
(Unaudited)
<TABLE>
<CAPTION>
3 Months Ended Period Ended
March 31, March 11,
1993 1994
---- ----
<S> <C> <C>
Revenues.................................................. $157,641 $199,832
Cost of Goods Sold........................................ 70,839 67,280
------------------- -------------------
Gross Profit.............................................. 86,802 132,552
Expenses:
General and administrative, including royalty
expense to related party of $6,483 in 1993 and
$9,801 in 1994............................. 355,993 428,942
------------------- -------------------
Loss from operations................................. 269,191 296,390
Interest income........................................... 10,509 3,532
------------------- -------------------
Net Loss.................................................. 258,682 292,858
=================== ===================
See Notes to Financial Statements.
F-30
<PAGE>
<PAGE>
ACTV INTERACTIVE
STATEMENTS OF CASH FLOWS FOR THE 3 MONTHS ENDED MARCH 31,
1993 AND FOR THE PERIOD FROM JANUARY 1, 1994 TO MARCH 11, 1994
(Unaudited)
</TABLE>
<TABLE>
<CAPTION>
3 Months Ended Period Ended
March 31, March 11,
1993 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................. $258,682 $292,858
------------------- --------------------
Changes in assets and liabilities:
Accounts receivable...................................... (117,888) 23,415
Inventory................................................ 10,730 14,967
Other assets............................................. (2,226) 3,744
Accounts payable and accrued
expenses............................................. 77,002 (47,081)
------------------- --------------------
Net cash (used) in operating
activities........................................... (291,064) (297,813)
Cash flows from financing activities: -- --
------------------- --------------------
Net cash provided by financing activities................ -- --
------------------- --------------------
Net (decrease) in cash and cash equivalents................... (291,064) (297,813)
Cash and cash equivalents beginning of period................. 2,041,987 969,973
------------------- --------------------
Cash and cash equivalents end of period....................... 1,750,923 672,160
=================== ====================
</TABLE>
See Notes to Financial Statements.
F-31
<PAGE>
<PAGE>
ACTV INTERACTIVE
NOTES TO FINANCIAL STATEMENTS
1. The financial statements for the periods ended March 31, 1993 and March
11, 1994 are unaudited. In the opinion of management, these financial
statements reflect all 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. On March 11, 1994, ACTV, Inc. acquired the Washington Post Company's
entire 51% interest in ACTV Interactive for consideration of $4.5 million,
consisting of $2.5 million in cash at closing and a $2 million note due
December 31, 1996.
F-32
<PAGE>
<PAGE>
No underwriter, dealer, salesman or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representation must not
be relied upon as having been authorized by the Company. This Prospectus does
not constitute an offer or solicitation to any person in any jurisdiction where
such offer or solicitation would be unlawful. Neither delivery of this
Prospectus nor any Common Stock sale hereunder shall, under any circumstances,
create any implication that there has been no change in the affairs of the
Company since the date hereof.
TABLE OF CONTENTS
Page
Prospectus Summary................ 4
Risk Factors...................... 9
Dilution.......................... 17
Use of Proceeds................... 18
Certain Market Information........ 19
Capitalization.................... 20
Dividend Policy................... 21
Summary Financial Data............ 21
Management's Discussion and
Analysis of Financial
Condition and Results
of Operations................... 23
Business.......................... 34
Management........................ 51
Certain Transactions.............. 63
Principal Stockholders............ 65
Description of Capital Stock...... 67
Selling Security Holders.......... 70
Plan of Distribution.............. 73
Concurrent Offering............... 74
Legal Matters..................... 75
Experts........................... 75
Index to Financial Statements..... F-1
ACTV, INC.
2,500,000 shares of
Common Stock offered
by the Company
3,850,000 shares of Common Stock
(1) 122,855 Shares Issuable by
the Company Upon the Exercise
of Options, Warrants, Pursuant
to SARs, or to Others
(2) 3,727,145 Shares Offered by
Selling Security Holders
March 13, 1996
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Reference is made to paragraph "Twelfth" of the Restated Certificate of
Incorporation of the Company (Exhibit 4.1.1), which contains a
provision, as permitted by Section 145 of the Delaware General
Corporation Law, that eliminates the personal liability of directors to
the Company and its stockholders for monetary damages for unintentional
breach of a director's fiduciary duty to the Company. This provision
does not permit any limitation on, or elimination of the liability of a
director for disloyalty to the Company or its stockholders, for failing
to acting good faith, for engaging in intentional misconduct or a
knowing violation of law, for obtaining an improper personal benefit or
for paying a dividend or approving a stock repurchase that was illegal
under the Delaware General Corporation Law.
The Restated Certificate of Incorporation and By-Laws of the Company
require the Company to indemnify directors and officers against
expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement in connection with specified actions, suits or
proceedings, whether civil, criminal, administrative or investigative
other than an action by or in the right of the corporation (a
"derivative action") if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of
the Company, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe their conduct was unlawful. A
similar standard of care is applicable in the case of derivative
actions, except that indemnification only extends to expenses
(including attorneys' fees) incurred in connection with defense or
settlement of such an action. Moreover, the Delaware General
Corporation Law requires court approval before there can be any
indemnification where the person seeking indemnification has been found
liable to the Company.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Company of expenses incurred or paid by
a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) in connection
with the securities being registered, the Company will, unless in the
opinion of counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of
such issue.
15. RECENT SALES OF UNREGISTERED SECURITIES.
The following tables set forth certain information with respect to
sales by the Company of its Common Stock, and Stock Options during the
past three years. All such sales were exempt from registration pursuant
to Section 4(2) of the Securities Act of 1933, as there was no public
offering involved insofar as each investor had access to all material
information regarding the Company and each was adequately familiar with
the affairs of the Company.
II-1
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK
Date of Purchase
Purchaser Shares Options Purchase Price Per Share
- --------- ------ ------- -------- ---------------
<S> <C> <C> <C> <C> <C>
The Washington Post
Company(1) 750,000 3/94 $2.00
The Washington Post
Company(3) 871,334 3/93 $2.00
Malarky-Taylor(2) 1,155 4/94 $2.35
Eric Martinez 3,000 5/94 $2.50
David Brenner(2) 14,661 9/94 $0.82
William C. Samuels(2) 10,000 9/94 $2.50
William C. Samuels(2) 10,000 9/94 $2.50
Monarch Development
Corp.(5) 75,000 10/94 $3.00
Bola Business
Systems(5) 75,000 10/94 $2.98
Bola Business Ltd.(5) 75,000 10/94 $2.98
Monarch Development(5) 75,000 10/94 $3.00
Westfield Securities(4) 50,000 11/94 $5.00
Maidstone Financial,
Inc.(4) 15,000 12/94 $4.50
Monarch Development 50,000 12/94 $2.70
Bola Business Ltd. 50,000 12/94 $2.70
Cameron Associates(4) 5,715 1/95 $3.44
Christopher Cline(4) 2,285 1/95 $1.75
Shar Offenberg(4) 15,000 1/95 $4.69
James Crook(4) 1,200 1/95 $1.75
Maidstone Financial,
Inc.(4) 10,000 1/95 $4.63
Comstar Computer
Corp.(4) 25,000 2/95 $4.80
Richter & Co.(2) 6,000 3/95 $1.03
ETR & Associates(4) 6,000 4/95 $4.75
John Posteraro(4) 1,500 4/95 $4.75
William C. Samuels(2) 20,000 4/95 $2.50
Covergence Industry
Assoc.(4) 1,629 8/95 $4.97
William C. Samuels(2) 80,000 8/95 $2.50
William C. Samuels(2) 80,000 8/95 $3.50
</TABLE>
<TABLE>
<CAPTION>
Date of Purchase
Purchaser Shares Options Purchase Price Per Share
- --------- ------ ------- -------- ---------------
<S> <C> <C> <C>
Christopher Cline(2) 25,000 8/95 $3.50
Michael Freeman(2) 70,956 10/95 $5.75
Barry Berman(2) 10,833 10/95 $5.00
</TABLE>
(1) Issued in connection with the loan financing in March 1992.
(2) Includes options issued or shares issuable upon exercise of options.
II-2
<PAGE>
<PAGE>
(3) Issued upon conversion of the principal and unpaid accrued interest of an
8% Convertible Promissory Note.
(4) Issued in lieu of compensation.
(5) The shares were issued pursuant to Regulation S.
STOCK OPTIONS
1989 Incentive Stock Option Plan
<TABLE>
<CAPTION>
Date Exercise Exercised
Name Options Issued Price or Expired
- ---- ------- ------ -------- ----------
<S> <C> <C> <C> <C>
Gregory Harper 10,000 6/92 $2.50 10,000
Linda Baldomir 1,500 11/92 $2.50 0
Eric Martinez 5,000 11/92 $2.50 1,000
James Kearney 12,500 11/92 $2.50 9,500
Richard Aurelio 5,000 11/92 $2.50 3,500
Alex Feldman 5,000 11/92 $2.50 5,000
R. James Crook 12,500 11/92 $2.50 0
Gregory Harper 12,000 1/93 $2.50 12,000
Craig Ullman 6,250 1/93 $2.50 0
Richard Aurelio 2,433 11/93 $3.50 0
Craig Ullman 12,500 11/93 $3.50 0
David Reese 15,317 11/93 $3.50 0
</TABLE>
1989 Non-Qualified Plan
<TABLE>
<CAPTION>
Date Exercise Exercised
Name Options Issued Price or Expired
- ---- ------- ------ -------- ----------
<S> <C> <C> <C> <C>
Linda Baldomir 1,500 11/92 $2.50 0
Eric Martinez 5,000 11/92 $2.50 5,000
James Kearney 12,500 11/92 $2.50 12,500
Richard Aurelio 5,000 11/92 $2.50 5,000
Alex Feldman 5,000 11/92 $2.50 5,000
R. James Crook 12,500 11/92 $2.50 4,000
Gregory Harper 12,000 1/93 $2.50 12,000
Howard Squadron 25,000 1/93 $2.50 0
Steven Cody 5,000 1/93 $2.50 0
Craig Ullman 6,250 1/93 $2.50 0
Walter Barwick 5,000 7/93 $5.50 0
Mabel Phifer 5,000 7/93 $5.50 0
Richard Aurelio 250 11/93 $5.50 0
</TABLE>
II-3
<PAGE>
<PAGE>
Other Stock Options
<TABLE>
<CAPTION>
Date Exercise Exercised
Name Options Issued Price or Expired
- ---- ------- ------ -------- ----------
<S> <C> <C> <C> <C>
William C. Samuels 152,948 4/93 $2.50 80,000
Gregory Harper 60,500 10/93 $5.50 60,500
William Frank 100,000 10/93 $5.50 100,000
Cynthia Baker 25,000 11/93 $3.50 0
Barry Berman 25,000 11/93 $5.00 25,000
Christopher Cline 25,000 11/93 $3.50 25,000
William Morris 72,000 12/93 $5.50 72,000
William Morris 100,000 12/93 $5.50 100,000
Tri-Cap 10,000 12/93 $5.50 10,000
Bruce Crowley 100,000 7/94 $3.50 0
ETR & Associates 2,000 10/94 $5.50 0
John Posteraro 500 10/94 $5.50 0
David Reese 40,000 11/94 $3.50 0
William C. Samuels 80,000 11/94 $3.50 80,000
R. James Crook 20,000 11/94 $3.50 0
Jay M. Kaplowitz 25,000 11/94 $3.50 0
Gerard Klauer 30,000 11/94 $5.50 0
Gerard Klauer 5,000 12/94 $5.50 0
Wall St. Group 25,000 12/94 $3.50 0
Richard Hyman 25,000 1/95 $3.50 0
Howard Squadron 25,000 1/95 $3.50 0
Kaufman 25,000 1/95 $3.50 3,000
Downe 50,000 1/95 $3.50 0
Nick Rhodes 25,000 3/95 $5.00 0
Brent Imai 25,000 4/95 $4.00 0
R. Becker 25,000 4/95 $4.00 0
M. Klein 25,000 7/95 $4.50 0
B. Batson 25,000 8/95 $4.50 0
Christopher Cline 25,000 8/95 $4.00 0
R. Becker 25,000 8/95 $4.00 0
Richard Aurelio 10,000 8/95 $4.00 0
Craig Ullman 25,000 8/95 $4.00 0
Linda Baldomir 5,000 8/95 $4.00 0
R. Bennett 20,000 9/95 $0.00 10,000
Paul Mannion 30,000 12/95 $4.00 0
John Clarke 30,000 12/95 $4.00 0
William C. Samuels 100,087 12/95 $2.50 0
Marty Klein 5,000 12/95 $3.25 0
Bruce Crowley 201,000 12/95 $3.25 0
David Reese 330,000 12/95 $3.25 0
William C. Samuels 525,000 12/95 $3.25 0
Sarnoff 100,000 12/95 $3.75 0
</TABLE>
II-4
<PAGE>
<PAGE>
WARRANTS(1)
<TABLE>
<CAPTION>
Date Exercise Exercised
Name Warrants Issued Price or Expired
- ---- -------- ------ -------- ----------
<S> <C> <C> <C> <C>
Lawrence Rice 6,163 4/93 $ .12 all
Dan Purjes 44,491 4/93 $ .12 all
Paul Fitzgerald 101 4/93 $ .12 all
Michael Loew 142 4/93 $ .12 all
Charles Roden 4,039 4/93 $ .12 all
Peter Sheib 6,671 4/93 $ .12 all
Matthew Balk 571 4/93 $ .12 all
Joan Taylor 4,000 4/93 $ .12 all
Frank Garriton 1,000 4/93 $ .12 all
Frank Colen 600 4/93 $ .12 all
Continental Stock 212 4/93 $ .12 all
Transfer & Trust Co.
Averal Satloff 2,846 4/93 $ .12 all
Mark Schlefer 8,500 4/93 $ .12 all
Lester Rosenkrantz 3,504 4/93 $ .12 all
Robin Davis 2,160 4/93 $ .12 all
</TABLE>
II-5
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Date Exercise Exercised
Name Warrants Issued Price or Expired
- ---- -------- ------ -------- ----------
<S> <C> <C> <C> <C>
Josephthal Lyon 100,000 4/93 $5.50 all
& Ross, Inc.
Lawrence Rice 8,012 4/93 $ .45 all
Dan Purjes 57,838 4/93 $ .45 all
Paul Fitzgerald 131 4/93 $ .45 all
Michael Loew 185 4/93 $ .45 all
Charles Roden 5,251 4/93 $ .45 all
Peter Sheib 8,672 4/93 $ .45 all
Matthew Balk 742 4/93 $ .45 all
Joan Taylor 5,200 4/93 $ .45 all
Frank Garriton 1,300 4/93 $ .45 all
Frank Colen 780 4/93 $ .45 all
Continental Stock 726 4/93 $ .45 all
Transfer & Trust Co.
Averal Satloff 3,700 4/93 $ .45 all
Mark Schlefer 11,050 4/93 $ .45 all
Lester Rosenkrantz 4,555 4/93 $ .45 all
Robin Davis 2,808 4/93 $ .45 all
Lawrence Rice(5) 8,012 4/93 $3.45 all
Dan Purjes(5) 57,838 4/93 $3.45 all
Paul Fitzgerald(5) 131 4/93 $3.45 all
Michael Loew(5) 185 4/93 $3.45 all
Charles Roden(5) 5,251 4/93 $3.45 all
Peter Sheib(5) 8,672 4/93 $3.45 all
Matthew Balk(5) 742 4/93 $3.45 all
Joan Taylor(5) 5,200 4/93 $3.45 all
Frank Garriton(5) 1,300 4/93 $3.45 all
Frank Colen(5) 780 4/93 $3.45 all
Continental Stock(5) 276 4/93 $3.45 all
Transfer & Trust Co.
Averal Satloff(5) 3,700 4/93 $3.45 all
Mark Schlefer(5) 11,050 4/93 $3.45 all
Lester Rosenkrantz(5) 4,555 4/93 $3.45 all
Robin Davis(5) 2,808 4/93 $3.45 all
</TABLE>
- ---------------
(1) Warrants issued pursuant to an agreement between the Company and Josephthal,
Lyon & Ross.
II-6
<PAGE>
<PAGE>
16. FINANCIAL SCHEDULES AND EXHIBITS.
The following is a list of all the exhibits and financial statement
schedules filed as part of the Registration Statement:
(a) Exhibits (inapplicable items omitted):
<TABLE>
<S> <C> <C>
3. (i)(a) Restated Certificate of Incorporation.*
(b) Amendment to Certificate of Incorporation.******
(ii) By-Laws.*
(iii) Form of Warrant Agreement by and between the Registrant and Continental Stock
Transfer and Trust Company, as Warrant Agent.*
(iv) Form of Underwriter's Warrant Agreement by and between the Registrant and the
Underwriter.*
(v) Intentionally Omitted.*
5. (i) Opinion of Gersten, Savage, Kaplowitz & Curtin
9. Voting Trust Agreements
(i)-(xxi) Deleted.
(xxii) Voting Agreement dated November 11, 1994, by and between William C. Samuels and
Michael J. Freeman.
(xxiii) Voting Trust Agreement dated March 10, 1994 by and among William C. Samuels, The
Washington Post Company and ACTV, Inc. - formerly 10(lxix)******
10. Material Contracts.
(i) Deleted.*
(ii) Lease, dated December 5, 1986, by and between the Registrant, as the Tenant, and
Rockefeller Center Properties, as the Landlord.*
(iii) Deleted.
(iv) Deleted
(v) Deleted.
(vi) License Agreement, dated November 2, 1987, by and
between the Registrant and Le LGV, Ltee with respect
to Canada, Europe and the USSR.*
(vii) Deleted.
(viii) Stock Purchase Agreement, dated March 8, 1988, by and
among ACTV Entertainment Corp.(formerly ACTV
Entertainment Broadcast Corp.), the Registrant and Le
LGV Ltee, as Buyer.*
(ix) Shareholders Agreement, dated March 8, 1988, by and among ACTV Entertainment
Corp. (formerly ACTV Entertainment Broadcast Corp.), as the Corporation, and Le
LGV, Ltee and the Registrant, as the Shareholders.*
(x) License Agreement, dated August 20, 1994, by and between ACTV Entertainment Corp.
as Licensee and the Registrant as Licensor.
(xi) Pledge Agreement, dated March 8, 1988, by and between ACTV Entertainment Corp.
(formerly ACTV Entertainment Broadcast Corp.), as the Pledgee, and Le LGV, Ltee, as
the Pledgor.*
(xii) Option Agreement, dated as of November 2, 1987, between the Registrant, as the corpora-
tion, and Le LGV Ltee, as the Optionee.*
(xiii) Letter agreement, dated November 29, 1988, with LGV, Ltee.*
(xiv) Deleted.
(xv) United States Patent for Interactive Cable Television System, number 4,264,925, dated
</TABLE>
II-7
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
April 28, 1981.*
(xvi) United States Patent for Dedicated Channel Interactive Cable Television System, number
4,264,924, dated April 28, 1981.*
(xvii) United States Patent for Method for Expanding Interactive ACTV Displayable Choices for
a Given Channel Capacity, number 4,573,072, dated February 25, 1986.*
(xviii) United States Patent for Method for Providing A
Targeted Profile Interactive CATV Display, number
4,602,279, dated July 22, 1986.*
(xix) United States Patent for One Way Interactive multisubscriber Communication System
number, 4,507,680, dated March 26, 1985.*
(xx) United States Patent for Interactive Television System for Providing Full Motion Synched
Compatible Audio/Visual Displays, number 4,847,698, dated July 11, 1989.*
(xxi) United States Patent for Interactive Television System for Providing Full Motion Synched
Compatible Audio/Visual Television Signals, number 4,847,700, dated July 11, 1989.*
(xxii) United States Patent for Method for Providing an Interactive Full Motion Synched
Compatible Audio/Visual Television Display, number 4,847,699, dated July 11, 1989.*
(xxiii) Option Agreement, dated as January 1, 1989, by and between Jay M. Kaplowitz and the
Registrant.*
(xxiv) Revised Confirmatory Assignment dated October 31, 1989, by and between Michael J.
Freeman and the Registrant.*
(xxv) Confirmatory Assignment dated September 13, 1989, by and between Michael J. Freeman
and the Registrant.*
(xxvi) Termination and Settlement Agreement, dated June 11,
1985, by and among the Registrant, as the Company,
and Michael Freeman, Berte Hirschfield, as the New
Investors, and Catalyst I Partners, Nolan Bushnell
and Catalyst Technologies, as the Former Investors.*
(xxvii) Financing Agreement, dated June 11, 1985, by and
among the Registrant, and Michael Freeman, Ph.D.,
Berte Hirschfield and Leonard Schaier, as the
Investors.*
(xxviii) Deleted.
(xxix) Letter Agreement, dated June 11, 1985 by and among the Registrant, Berte Hirschfield,
Michael Freeman and Prudential-Bache Securities, Inc.*
(xxx) Deleted.
(xxxi) Articles of Incorporation of ACTV Entertainment Corp. (formerly ACTV Entertainment
Broadcast Corp.), filed in the State of New York on March 8, 1988.*
(xxxii) By-Laws of ACTV Entertainment Corp. (formerly ACTV Entertainment Broadcast
Corp.)*
(xxxiii) Form of 1989 Employee Incentive Stock Option Plan.*
(xxxiv) Form of Amendment No. 1 to 1989 Employee Incentive Stock Option Plan.*
(xxxv) Form of 1989 Employee Non-qualified Stock Option Plan.*
(xxxvi) Form of Amendment No. 1 to 1989 Employee Non-qualified Stock Option Plan.*
(xxxvii) 1986 Non-qualified Stock Option Plan.*
(xxxviii) Form of 1986 Non-qualified Stock Option Agreement.*
(xxxix) Stock Option Agreement, dated as of August 1, 1989, by and between the Registrant and
William C. Samuels.*
(xl) Deleted.
(xli) Option Agreement dated as of March 1, 1989 by and between David Reese and the
Registrant.*
(xlii) Deleted.
(xliii) Deleted.
(xliv) Deleted.
(xlv) Deleted
(xlvi) Deleted.
(xlvii) Deleted.
</TABLE>
II-8
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
(xlviii) Deleted.
(xlix) Deleted.
(l) Deleted.
(li) Deleted.
(lii) Option and Majority Rights Agreement, dated March 17, 1992, by and between the
Washington Post Company and the Registrant.***
(liii) Convertible Note Purchase Agreement, dated March 17, 1992, by and between the
Washington Post Company and the Registrant.***
(liii) Standstill Agreement, dated March 17, 1992, by and between the Washington Post
Company and the Registrant.***
(liv) Common Stock Purchase Agreement, dated March 17, 1992, by and between the
Washington Post Company and the Registrant.***
(lv) Security Agreement, dated March 17, 1992, by and between the Washington Post
Company and the Registrant.***
(lvi) 8% Convertible Promissory Note, dated March 17, 1992, by and between the Washington
Post Company and the Registrant.***
(lvii) Consulting and Option Agreement dated March 18, 1991, by and between the Registrant
and Peterson Consulting.**
(lviii) Partnership Agreement between ACTV Interactive, Inc. and Post Company-Newsweek
Education, Inc. dated July 14, 1992.***
(lix) New Warrant Agreement between the Registrant, Josephthal Lyon & Ross Incorporated
and certain persons dated April 1993.****
(lx) Agreement between the Registrant and Josephthal Lyon & Ross
Incorporated dated April 1993.****
(lxi) US License Agreement dated June 8, 1993 between Videotron Technologies Ltd. and
ACTV, Inc.*****
(lxii) Foreign License Agreement dated June 8, 1993 between Le Groupe Videotron and ACTV,
Inc.*****
(lxiii) Stipulation of Settlement dated June 8, 1993 between Le Groupe Videotron and ACTV,
Inc.*****
(lxiv) Amendment to the Option Agreement dated March 17,
1992 dated June 14, 1993 between the Washington Post
Company and ACTV, Inc.*****
(lxv) Deleted.
(lxvi) Partnership Interest Purchase Agreement dated March 11, 1994 between The Washington
Post Company and ACTV, Inc.******
(lxvii) Security Agreement dated March 11, 1994 between The Washington Post Company and
ACTV, Inc.******
(lxiii) Amendment to Standstill Agreement dated March 11, 1994 between The Washington Post
Company and ACTV, Inc.******
(lxix) Deleted
(lxx) Employment Agreement dated November 10, 1994 between Dr. Michael J. Freeman and
ACTV, Inc.
(lxxi) Memorandum dated November 23, 1993 between the William Morris Agency and ACTV,
Inc.******
(lxxii) Settlement Agreement dated April 25, 1994 among Nolan Bushnell, Catalyst Technologies
and ACTV, Inc.****
(lxxiii) Deleted.
(lxxiv) Agreement dated as of February 14, 1994 between Turner Educational Services, Inc. and
ACTV, Inc.****
(lxxv) Agreement dated as of December 30, 1993 between Phoenix Learning Group and ACTV,
Inc.****
(lxxvi) Agreement dated as of July 1, 1993 between Bergwall Productions and ACTV, Inc.****
</TABLE>
II-9
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
(lxxvii) Agreement dated as of October 30, 1992 between The Hastey Pudding Puppet Co., and
ACTV, Inc.****
(lxxviii) Agreement dated as of November 30, 1992 between AIMS
Media and ACTV, Inc.**** (lxxix) Agreement dated as of January 15,
1992 between Agency for Instructional Technology and
ACTV, Inc.****
(lxxx) Agreement dated December 21, 1992 between Takeoff/Video Educational Excellence and
ACTV, Inc.****
(lxxxi) Agreement dated June 1, 1994 between Wescott Communications, Inc. and ACTV,
Inc.****
(lxxxii) Deleted.
(lxxxiii) Employment Agreement dated August 1, 1995 between the Company and William C.
Samuels. *******
(lxxxiv) Employment Agreement dated August 1, 1995 between the Company and David Reese.
*******
(lxxxv) Agreement dated August 16, 1995 between the Company and Cable News Network, Inc.
*******
(lxxxvi) Option Agreement dated September 29, 1995, between the Company and Richard H.
Bennett.+
(lxxxvii) Assignment dated September 29, 1995 between the Company and Richard H. Bennett.+
(lxxxviii) Employment Agreement dated as of December 15, 1995 between Bruce Crowley and
ACTV.+
(lxxxix) Joint Venture Agreement dated as of December 1, 1995
between Earth Web, LLC and ACTV.+
(xc) Option Agreement dated October 31, 1994 between David Reese and ACTV, Inc.+
(xci) Option Agreement dated December 31, 1994, amended August 1, 1995, between William C. Samuels and ACTV,
Inc.+
(xcii) Letter Agreement dated September 8, 1994 between Gerard Klauer Mattison & Co., Inc. and ACTV, Inc.+
(xciii) Option Agreement dated November 11, 1994, between Gerard Klauer Mattison & Co., Inc. and ACTV, Inc.+
(xciv) Option Agreement dated December 1, 1994, between Gerard Klauer Mattison & Co., Inc. and ACTV, Inc.+
(xcv) Private Placement Distribution Agreement dated November 11, 1994 between ETR & Associates, Inc. and
ACTV, Inc.+
(xcvi) Agreement dated March 30, 1995 between General Instrument and ACTV, Inc.+
(xcvii) Technical Services Agreement dated May 1995 between David Sarnoff Research Center, Inc. and ACTV, Inc.+
(xcviii) Agreement dated August 18, 1995 between David Sarnoff Research Center, Inc. and ACTV, Inc.+
23. Consents
(i) Consent of Deloitte & Touche LLP+
(ii) Consent of Gersten, Savage, Kaplowitz & Curtin (contained in
Exhibit 5)
24. Power of Attorney (Included on Company Signature Page)
* Incorporated by reference from Form S-1 Registration Statement (File No. 33-34618) which became
effective on May 4, 1990.
** Incorporated by reference from the Company's Form 10-K for the year ended December 31, 1991.
*** Incorporated by reference from the Company's Form 8-K dated July 24, 1991.
**** Incorporated by reference from Form S-1 Registration Statement (File No. 33-61320), Post Effective
Amendment No. 4 of which became effective on July 22, 1994.
***** Incorporated by reference from the Company's Form 8-K dated June 8, 1993.
****** Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1993.
******* Incorporated by reference from Form S-8 Registration Statement which
became effective on October 4, 1995.
</TABLE>
+ Previously Filed
II-10
<PAGE>
<PAGE>
(b) Financial Statements and Schedules.
The Financial Statements are included in the Prospectus, and Schedule 4
is included at the end of this Part II. All other Schedules are omitted
for the reason that they are not required or are not applicable or the
required information is shown in the financial statements or notes
thereto.
17. UNDERTAKINGS.
The Company hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration
Statement:
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or in the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the registration statement;
and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the Offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling
persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer, or controlling person of the
Company in the successful defense of any action, suit, or proceeding)
is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Company will,
unless in the opinion of counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed
by the final adjudication of such issue.
II-11
<PAGE>
<PAGE>
FINANCIAL STATEMENT SCHEDULES
INDEBTEDNESS OF AND TO RELATED PARTIES-NON CURRENT
<TABLE>
<CAPTION>
Balance Additions/ Balance Additions/ Balance Additions/ Balance
Name of Person 12/31/91 Deletions 12/31/92 Deletions 12/31/93 Deletions 12/31/94
- -------------- -------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Catalyst Ventures $65,650 $0 $65,650 $0 $65,650 $65,650 $0
Nolan Bushnell 55,683 0 55,683 0 55,683 55,683 0
Berte Hirschfield 33,000 0 33,000 0 33,000 33,000 0
Michael Freeman 10,000 0 10,000 0 10,000 10,000 0
Freeman-Hirschfield Associates 34,400 0 39,400 0 39,400 39,400 0
------ - ------ - ------ ------ -
Total $203,733 $0 $203,733 $0 $203,733 $203,733 $0
======== == ======== == ======== ======== ==
</TABLE>
Note: Indebtedness of and to related parties-non current is reflected in the
Company's balance sheet as follows:
<TABLE>
<CAPTION>
December 31
1993 1994
---- ----
<S> <C> <C>
Note Payable $150,000 $0
Due to related parties-above 203,733 0
Due to creditors 124,959 0
Interest Payable 231,102 0
------- --
Repayable from Repayment Pool $709,794 $0
</TABLE>
II-12
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned thereunto duly authorized in the City
of New York and State of New York on the 13th day of March, 1996.
ACTV, INC.
By: /s/ William C. Samuels
--------------------------------------
William C. Samuels
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed below by the
following persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ William C. Samuels
- --------------------------- Chairman of the Board, President, March 13, 1996
William C. Samuels Chief Executive Officer and Director
/s/ David Reese
- ---------------------------- Director and Executive Vice-President March 13, 1996
David Reese and President -- ACTV Entertainment, Inc.
*
- ------------------------------ Director, Executive Vice President -- March 13, 1996
Bruce Crowley Distance Learning and President - ACTV,
Interactive, Inc.
/s/ Christopher Cline
- ------------------------------ Vice President, Chief Financial Officer March 13, 1996
Christopher C. Cline and Secretary
*
- ------------------------------ Director March 13, 1996
Jay M. Kaplowitz
*
- ------------------------------ Director March 13, 1996
Richard Hyman
*
- ------------------------------ Director March 13, 1996
Howard Squadron
*By: /s/ William C. Samuels
-----------------------
William C. Samuels
Attorney-in-fact
</TABLE>
Statement of Differences
The registered trademark symbol shall be expressed as ........ 'r'
The trademark symbol shall be expressed as ................... 'tm'
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EXHIBIT INDEX
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<S> <C> <C>
3. (i)(a) Restated Certificate of Incorporation.*
(b) Amendment to Certificate of Incorporation.******
(ii) By-Laws.*
(iii) Form of Warrant Agreement by and between the Registrant and Continental Stock
Transfer and Trust Company, as Warrant Agent.*
(iv) Form of Underwriter's Warrant Agreement by and between the Registrant and the
Underwriter.*
(v) Intentionally Omitted.*
5. (i) Opinion of Gersten, Savage, Kaplowitz & Curtin
9. Voting Trust Agreements
(i)-(xxi) Deleted.
(xxii) Voting Agreement dated November 11, 1994, by and between William C. Samuels and
Michael J. Freeman.
(xxiii) Voting Trust Agreement dated March 10, 1994 by and among William C. Samuels, The
Washington Post Company and ACTV, Inc. - formerly 10(lxix)******
10. Material Contracts.
(i) Deleted.*
(ii) Lease, dated December 5, 1986, by and between the Registrant, as the Tenant, and
Rockefeller Center Properties, as the Landlord.*
(iii) Deleted.
(iv) Deleted
(v) Deleted.
(vi) License Agreement, dated November 2, 1987, by and
between the Registrant and Le LGV, Ltee with respect
to Canada, Europe and the USSR.*
(vii) Deleted.
(viii) Stock Purchase Agreement, dated March 8, 1988, by and
among ACTV Entertainment Corp.(formerly ACTV
Entertainment Broadcast Corp.), the Registrant and Le
LGV Ltee, as Buyer.*
(ix) Shareholders Agreement, dated March 8, 1988, by and among ACTV Entertainment Corp.
(formerly ACTV Entertainment Broadcast Corp.), as the Corporation, and Le LGV, Ltee
and the Registrant, as the Shareholders.*
(x) License Agreement, dated August 20, 1994, by and between ACTV Entertainment Corp.
as Licensee and the Registrant as Licensor.
(xi) Pledge Agreement, dated March 8, 1988, by and between ACTV Entertainment Corp.
(formerly ACTV Entertainment Broadcast Corp.), as the Pledgee, and Le LGV, Ltee, as
the Pledgor.*
(xii) Option Agreement, dated as of November 2, 1987, between the Registrant, as the corpora-
tion, and Le LGV Ltee, as the Optionee.*
(xiii) Letter agreement, dated November 29, 1988, with LGV, Ltee.*
(xiv) Deleted.
(xv) United States Patent for Interactive Cable Television System, number 4,264,925, dated
April 28, 1981.*
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(xvi) United States Patent for Dedicated Channel Interactive Cable Television System, number
4,264,924, dated April 28, 1981.*
(xvii) United States Patent for Method for Expanding Interactive ACTV Displayable Choices for
a Given Channel Capacity, number 4,573,072, dated February 25, 1986.*
(xviii) United States Patent for Method for Providing A
Targeted Profile Interactive CATV Display, number
4,602,279, dated July 22, 1986.*
(xix) United States Patent for One Way Interactive multisubscriber Communication System
number, 4,507,680, dated March 26, 1985.*
(xx) United States Patent for Interactive Television System for Providing Full Motion Synched
Compatible Audio/Visual Displays, number 4,847,698, dated July 11, 1989.*
(xxi) United States Patent for Interactive Television System for Providing Full Motion Synched
Compatible Audio/Visual Television Signals, number 4,847,700, dated July 11, 1989.*
(xxii) United States Patent for Method for Providing an Interactive Full Motion Synched
Compatible Audio/Visual Television Display, number 4,847,699, dated July 11, 1989.*
(xxiii) Option Agreement, dated as January 1, 1989, by and between Jay M. Kaplowitz and the
Registrant.*
(xxiv) Revised Confirmatory Assignment dated October 31, 1989, by and between Michael J.
Freeman and the Registrant.*
(xxv) Confirmatory Assignment dated September 13, 1989, by and between Michael J. Freeman
and the Registrant.*
(xxvi) Termination and Settlement Agreement, dated June 11,
1985, by and among the Registrant, as the Company,
and Michael Freeman, Berte Hirschfield, as the New
Investors, and Catalyst I Partners, Nolan Bushnell
and Catalyst Technologies, as the Former Investors.*
(xxvii) Financing Agreement, dated June 11, 1985, by and
among the Registrant, and Michael Freeman, Ph.D.,
Berte Hirschfield and Leonard Schaier, as the
Investors.*
(xxviii) Deleted.
(xxix) Letter Agreement, dated June 11, 1985 by and among the Registrant, Berte Hirschfield,
Michael Freeman and Prudential-Bache Securities, Inc.*
(xxx) Deleted.
(xxxi) Articles of Incorporation of ACTV Entertainment Corp. (formerly ACTV Entertainment
Broadcast Corp.), filed in the State of New York on March 8, 1988.*
(xxxii) By-Laws of ACTV Entertainment Corp. (formerly ACTV Entertainment Broadcast
Corp.)*
(xxxiii) Form of 1989 Employee Incentive Stock Option Plan.*
(xxxiv) Form of Amendment No. 1 to 1989 Employee Incentive Stock Option Plan.*
(xxxv) Form of 1989 Employee Non-qualified Stock Option Plan.*
(xxxvi) Form of Amendment No. 1 to 1989 Employee Non-qualified Stock Option Plan.*
(xxxvii) 1986 Non-qualified Stock Option Plan.*
(xxxviii) Form of 1986 Non-qualified Stock Option Agreement.*
(xxxix) Stock Option Agreement, dated as of August 1, 1989, by and between the Registrant and
William C. Samuels.*
(xl) Deleted.
(xli) Option Agreement dated as of March 1, 1989 by and between David Reese and the
Registrant.*
(xlii) Deleted.
(xliii) Deleted.
(xliv) Deleted.
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(xlv) Deleted
(xlvi) Deleted.
(xlvii) Deleted.
(xlviii) Deleted.
(xlix) Deleted.
(l) Deleted.
(li) Deleted.
(lii) Option and Majority Rights Agreement, dated March 17, 1992, by and between the
Washington Post Company and the Registrant.***
(liii) Convertible Note Purchase Agreement, dated March 17, 1992, by and between the
Washington Post Company and the Registrant.***
(liii) Standstill Agreement, dated March 17, 1992, by and between the Washington Post
Company and the Registrant.***
(liv) Common Stock Purchase Agreement, dated March 17, 1992, by and between the
Washington Post Company and the Registrant.***
(lv) Security Agreement, dated March 17, 1992, by and between the Washington Post
Company and the Registrant.***
(lvi) 8% Convertible Promissory Note, dated March 17, 1992, by and between the Washington
Post Company and the Registrant.***
(lvii) Consulting and Option Agreement dated March 18, 1991, by and between the Registrant
and Peterson Consulting.**
(lviii) Partnership Agreement between ACTV Interactive, Inc. and Post Company-Newsweek
Education, Inc. dated July 14, 1992.***
(lix) New Warrant Agreement between the Registrant, Josephthal Lyon & Ross Incorporated
and certain persons dated April 1993.****
(lx) Agreement between the Registrant and Josephthal Lyon & Ross
Incorporated dated April 1993.****
(lxi) US License Agreement dated June 8, 1993 between Videotron Technologies Ltd. and
ACTV, Inc.*****
(lxii) Foreign License Agreement dated June 8, 1993 between Le Groupe Videotron and ACTV,
Inc.*****
(lxiii) Stipulation of Settlement dated June 8, 1993 between Le Groupe Videotron and ACTV,
Inc.*****
(lxiv) Amendment to the Option Agreement dated March 17,
1992 dated June 14, 1993 between the Washington Post
Company and ACTV, Inc.*****
(lxv) Deleted.
(lxvi) Partnership Interest Purchase Agreement dated March 11, 1994 between The Washington
Post Company and ACTV, Inc.******
(lxvii) Security Agreement dated March 11, 1994 between The Washington Post Company and
ACTV, Inc.******
(lxiii) Amendment to Standstill Agreement dated March 11, 1994 between The Washington Post
Company and ACTV, Inc.******
(lxix) Deleted
(lxx) Employment Agreement dated November 10, 1994 between Dr. Michael J. Freeman and
ACTV, Inc.
(lxxi) Memorandum dated November 23, 1993 between the William Morris Agency and ACTV,
Inc.******
(lxxii) Settlement Agreement dated April 25, 1994 among Nolan Bushnell, Catalyst Technologies.
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and ACTV, Inc.****
(lxxiii) Deleted.
(lxxiv) Agreement dated as of February 14, 1994 between Turner Educational Services, Inc. and
ACTV, Inc.****
(lxxv) Agreement dated as of December 30, 1993 between Phoenix Learning Group and ACTV,
Inc.****
(lxxvi) Agreement dated as of July 1, 1993 between Bergwall Productions and ACTV, Inc.****
(lxxxii) Deleted.
(lxxxiii) Employment Agreement dated August 1, 1995 between the Company and William C.
Samuels. *******
(lxxxiv) Employment Agreement dated August 1, 1995 between the Company and David Reese.*******
(lxxxv) Agreement dated August 16, 1995 between the Company and Cable News Network, Inc.*******
(lxxxvi) Option Agreement dated September 29, 1995, between the Company and Richard H.
Bennett.+
(lxxxvii) Assignment dated September 29, 1995 between the Company and Richard H. Bennett.+
(lxxxviii) Employment Agreement dated as of December 15, 1995 between Bruce Crowley and
ACTV.+
(lxxxix) Joint Venture Agreement dated as of December 1, 1995
between Earth Web, LLC and ACTV.+
(xc) Option Agreement dated October 31, 1994 between David Reese and ACTV, Inc.+
(xci) Option Agreement dated December 31, 1994, amended August 1, 1995, between William C. Samuels and ACTV,
Inc.+
(xcii) Letter Agreement dated September 8, 1994 between Gerard Klauer Mattison & Co., Inc. and ACTV, Inc.+
(xciii) Option Agreement dated November 11, 1994, between Gerard Klauer Mattison & Co., Inc. and ACTV, Inc.+
(xciv) Option Agreement dated December 1, 1994, between Gerard Klauer Mattison & Co., Inc. and ACTV, Inc.+
(xcv) Private Placement Distribution Agreement dated November 11, 1994 between ETR & Associates, Inc. and
ACTV, Inc.+
(xcvi) Agreement dated March 30, 1995 between General Instrument and ACTV, Inc.+
(xcvii) Technical Services Agreement dated May 1995 between David Sarnoff Research Center, Inc. and ACTV, Inc.+
(xcviii) Agreement dated August 18, 1995 between David Sarnoff Research Center, Inc. and ACTV, Inc.+
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23. Consents
(i) Consent of Deloitte & Touche LLP+
(ii) Consent of Gersten, Savage, Kaplowitz & Curtin (contained in
Exhibit 5)
24. Power of Attorney (Included on Company Signature Page)
* Incorporated by reference from Form S-1 Registration Statement (File
No. 33-34618) which became effective on May 4, 1990.
** Incorporated by reference from the Company's Form 10-K for the year
ended December 31, 1991.
*** Incorporated by reference from the Company's Form 8-K dated July 24,
1991.
**** Incorporated by reference from Form S-1 Registration Statement
(File No. 33-61320), Post Effective Amendment No. 4 of which became
effective on July 22, 1994.
***** Incorporated by reference from the Company's Form 8-K dated June 8,
1993.
****** Incorporated by reference to the Company's Form 10-K for the year
ended December 31, 1993.
******* Incorporated by reference from Form S-8 Registration Statement which
became effective on October 4, 1995.
+ Previously Filed
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[LETTERHEAD OF GERSTEN, SAVAGE, KAPLOWITZ & CURTIN, LLP]
March 12, 1996
ACTV, Inc.
1270 Avenue of the Americas
New York, New York 10020
Gentlemen:
You have requested our opinion, as counsel for ACTV, Inc., a Delaware
corporation (the "Company"), in connection with Post-Effective Amendment No. 1
to the Registration Statement on Form S-1 (the "Registration Statement"), under
the Securities Act of 1933 (the "Act"), being filed by the Company with
the Securities and Exchange Commission.
The Registration Statement relates to (i) an offering by the Company (the
"Offering") of up to 2,500,000 shares (the "Company Shares") of common stock,
par value $.10 (the "Common Stock"), and (ii) 3,850,000 shares of Common Stock
(the "Security Holders' Shares"). Up to 122,855 of the Security Holders' Shares
may be issued by the Company upon the exercise of options, warrants or
pursuant to SARs that are currently outstanding and are not exercisable for a
period of six months. Up to 3,727,145 of the Security Holders' Shares may be
sold by security holders who have acquired or will acquire such shares from the
Company (i) upon exercise of currently exercisable options and warrants, and
pursuant to SARs, (ii) upon issuance to consultants pursuant to existing
agreements, and (iii) upon issuance in connection with certain financings.
We have examined such records and documents and made such examinations of law as
we have deemed relevant in connection with this opinion. It is our opinion that
when there has been compliance with the Act, the Company Shares and the Security
Holders Shares, when issued, delivered, and paid for, will be fully paid,
validly issued and nonassessable.
No opinion is expressed herein as to any laws other than the laws of the State
of New York, of the United States and the corporate laws of the State of
Delaware.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Registration Statement. In so doing, we do not admit that we are
in the category of persons whose consent is required under Section 7 of the Act
of the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
Very truly yours,
/s/ GERSTEN, SAVAGE, KAPLOWITZ & CURTIN, LLP
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GERSTEN, SAVAGE, KAPLOWITZ & CURTIN, LLP
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