UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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ACTV, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 94-2907258
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1270 Avenue of the Americas
New York, New York 10020
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(Address of principal executive offices) (Zip Code)
(212) 262-2570 (Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12 (g) of the Act:
Title of each class Name of exchange on which registered
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Common Stock, Par Value $0.10 Boston Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, par value $0.10 per share
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No
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As of August 13, 1997, there were 12,203,056 shares of the registrant's common
stock outstanding.
<PAGE>
ACTV, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, June 30,
1996 1997
(unaudited)
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Current Assets:
Cash and cash equivalents .................. $6,520,756 $1,690,834
Accounts receivable ........................ 410,193 861,138
Education equipment inventory .............. 337,504 312,269
Other ...................................... 316,962 255,948
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Total current assets ................... 7,585,415 3,120,189
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Property and equipment-net ................. 724,089 860,953
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Other Assets:
Video program inventory-net ................ -- --
Patents and patents pending-net ............ 253,779 241,694
Goodwill-net ............................... 3,067,560 2,854,374
Other ...................................... 61,781 669,158
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Total other assets ..................... 3,383,120 3,765,226
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Total ............................. $11,692,624 $7,746,368
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LIABILITIES AND
SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses ...... $1,594,655 $1,554,462
Deferred stock appreciation rights ......... 701,517 29,651
Preferred dividends payable ................ 195,384 423,369
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Total current liabilities .............. 2,491,556 2,007,482
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Total liabilities ...................... 2,491,556 2,007,482
Shareholders' equity:
Preferred stock, $.10 par value, 1,000,000
shares authorized, none issued ........... -- --
Convertible preferred stock, no par value,
436,000 shares authorized: issued and
outstanding 400,000 at December 31, 1996,
375,356 at June 30, 1997 ................. 9,115,664 8,489,875
Common stock, $.10 par value, 35,000,000
shares authorized: issued and outstanding
11,787,106 at December 31, 1996,
12,203,054 at June 30, 1997 .............. 1,178,711 1,220,307
Additional paid-in capital ................. 38,272,205 38,883,241
Notes receivable from stock sales .......... (200,000) (200,000)
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Accumulated deficit ........................ (39,165,512) (42,654,537)
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Total shareholders' equity ............. 9,201,068 5,738,886
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Total ........................... $11,692,624 $7,746,368
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See Notes to Consolidated Financial Statements
<PAGE>
ACTV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six Month Periods Three Month Periods
Ended June 30, Ended June 30,
1996 1997 1996 1997
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Sales revenues ................. $763,515 $1,342,855 $419,993 $434,911
License fees from related party 10,081 -- 2,929 --
------------ ------------ ------------ ------------
Total revenues .............. 773,596 1,342,855 422,922 434,911
Cost of Sales .................. 314,610 355,440 106,600 75,949
------------ ------------ ------------ ------------
Gross profit ................ 458,986 987,415 316,322 358,962
Expenses:
Operating expenses ............. 1,005,988 711,440 487,886 365,150
Selling and administrative ..... 2,968,882 3,613,256 1,438,263 1,628,411
Depreciation and amortization .. 325,236 98,488 137,357 50,508
Amortization of goodwill ....... 213,186 213,186 106,593 106,593
Stock appreciation rights ...... 54,583 (317,241) (339,008) (40,204)
------------ ------------ ------------ ------------
Total expense ............... 4,567,875 4,319,129 1,831,091 2,110,458
Interest (income) ................. (55,870) (92,083) (22,633) (33,946)
------------ ------------ ------------ ------------
Net loss 4,053,019 3,239,631 1,492,136 1,717,550
Preferred stock dividend .......... -- 249,394 -- 125,173
------------ ------------ ------------ ------------
Net loss applicable to common stock
shareholders .................... $4,053,019 $3,489,025 $1,492,136 $1,842,723
============ ============ ============ ============
Loss per common share ............. $.35 $.29 $.13 $.15
Weighted average number of common
shares outstanding ................ 11,684,987 11,916,823 11,891,160 12,003,573
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
ACTV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Month Periods Three Month Periods
Ended June 30, Ended June 30,
1996 1997 1996 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss ............................... $4,053,019 $3,489,025 $1,492,136 $1,842,723
----------- ----------- ----------- -----------
Adjustments to reconcile net loss to net
cash used in operations:
Depreciation and amortization .......... 538,422 311,674 243,950 157,101
Stock appreciation rights .............. 54,583 (671,866) (339,008) (40,204)
Common stock issued for preferred
dividends ............................ -- 21,408 -- 18,729
Common stock issued for services ....... 114,047 15,000 14,281 15,000
Changes in operating assets and liabilities:
Accounts receivable .................... (118,634) (450,945) (163,517) 72,206
Other assets ........................... (211,163) (146,903) (132,288) (159,420)
Accounts payable and accrued expenses .. 105,976 (40,193) (121,332) (254,700)
Education equipment inventory .......... (108,775) 25,235 (78,258) 16,142
Convertible preferred stock dividends
payable .............................. -- 227,985 -- 106,443
----------- ----------- ----------- -----------
Net cash (used) in operating
activities .................. (4,197,630) (4,197,630) (2,068,308) (1,911,426)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from sale of common stock ..... 1,903,485 -- -- --
Expense related to convertible preferred
stock issuance ....................... -- (9,565) -- --
----------- ----------- ----------- -----------
Net cash provided by (used in) financing
activities ................................ 11,903,485 (9,565) -- --
Cash flows from investing activities:
Investment in computer software
production .......................... -- 399,460 -- 399,460
Investment in property and equipment ... 567,197 223,267 398,164
132,480
----------- ----------- ----------- -----------
Net cash used in investing activities .. 567,197 622,727 398,164 531,940
----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents ............................... (2,342,275) (4,829,922) (2,466,472) (2,443,366)
Cash and cash equivalents,
beginning of period .................. 3,531,782 6,520,756 3,655,979 4,134,200
----------- ----------- ----------- -----------
Cash and cash equivalents,
end of period ........................ 1,189,507 1,690,834 1,189,507 1,690,834
=========== =========== =========== ===========
</TABLE>
<PAGE>
ACTV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED JUNE 30, 1997
1. The consolidated financial statements are unaudited, except as indicated. In
the opinion of management, these consolidated financial statements reflect all
normal, recurring adjustments necessary for a fair presentation of the results
for all periods. The financial results for the interim periods presented are not
necessarily indicative of the results to be expected for either succeeding
quarters or the full fiscal year.
2. For a summary of significant accounting policies and additional financial
information, see the Company's Annual Report on Form 10-K for the year ended
December 31, 1996. The Company's policy is to capitalize the cost of computer
software production once technological feasibility is established upon
completion of a detail program design or upon completion of a working model. The
Company's balance sheets at June 30, 1997 and December 31, 1996 reflect
capitalized software production costs of $399,460 and $0, respectively,
classified as a component of "Other" non-current assets.
3. During 1996, the Company raised approximately $9.1 million in net proceeds
from a private placement of 5% convertible preferred stock (the "Convertible
Preferred Stock") issued by a wholly-owned subsidiary. The Convertible Preferred
Stock is convertible into Common Stock of ACTV, Inc. at varying discounts to the
market price of the Common Stock. After September 1, 1997, holders of the
Convertible Preferred Stock will be able to use the lesser of (i) the then
current market price of the Company's Common Stock, or (ii) an average market
price during the month of August 1997 as the price to which the discount is
applied for conversions. The Company believes that it is highly likely that the
holders of the Convertible Preferred Stock will elect to convert their stock
into Common Stock of the Company and, accordingly, has included the Convertible
Preferred Stock in its consolidated statement of shareholders' equity.
The Company's continued marketing of all its products and services on
planned levels and timetables is dependent upon the Company's obtaining the
additional capital necessary to support the Company's future operations at these
levels. Management is continuing its efforts to obtain such additional
financing. If the Company is not successful in obtaining such additional
financing, management believes that the Company can fund its operations at least
through the end of June 1998. To fund its operations at least through the end of
June 1998, without additional financing, the Company will be required to reduce
or forego entirely, certain planned expenditures, including all expenditures
related to the launch of its regional entertainment networks and to the
entertainment area of its business in general. If management's assumptions
regarding future events prove incorrect, the Company may be unable to fund its
operations, even at a reduced level, through the end of June 1998.
4. The Company's balance sheets at June 30, 1997 and December 31, 1996 reflect
credits to shareholders' equity of $27,500 related to options issued but not yet
vested at a price below the prevailing market price on the date of issuance. The
options were issued to acquire a patent in September 1995. The Company's balance
sheets at June 30, 1997 and December 31, 1996 also reflect a debit to
shareholders' equity of $200,000 related to a non-recourse loan made by the
Company to an employee in August 1995 to purchase the Company's common stock by
exercising options. The due date of the non-recourse loan corresponds with the
respective expiration date of the option exercised.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE COMPANY
To the extent that the information presented in this Form 10-Q
discusses financial projections, information or expectations about the Company's
products or markets, or otherwise makes statements about future events, such
statements are forward-looking and are subject to a number of risks and
uncertainties that could cause actual results to differ materially from the
statements made. These include, among others, the successful and timely
development and acceptance of new products and markets and the availability of
sufficient funding to effect such product and/or market development.
ACTV, Inc. (the "Company") was organized to develop and market ACTV's
Individualized Programming, which permits each television viewer to control what
he or she is watching by making seamless changes within the live or pre-recorded
programming. Individualized Programming appears to be a standard TV program, but
in fact is a multi-path telecast of several elements of programming material,
such as instant replay, isolation cameras, statistical data, or alternative
story lines. Since its inception, the Company has incurred operating losses
approximating $43 million related directly to the development and marketing of
ACTV's Individualized Programming.
ACTV's Individualized Programming is designed to work with both single
and multiple channels of 6 MHz band-width and with different modes of
transmission: cable, direct broadcast satellite ("DBS"), wireless cable,
broadcast systems and distance learning networks. While it is compatible with
one-way analog systems, the Company's emphasis is on the newer digital systems
that have recently begun to be deployed.
The chief markets presently targeted by the Company for ACTV's
Individualized Programming are in-home entertainment and education (with an
emphasis on distance learning and Internet applications). The Company seeks to
exploit these markets, principally in the U.S., through licensing its
Individualized Programming, by creating joint venture relationships, and by
direct sales.
In August 1997, NextLevel Systems, Inc. invested $1 million in Common
Stock of the Company and agreed to market, jointly with ACTV, Individualized
Programming applications. NextLevel (formerly part of General Instrument
Corporation) is the leading supplier of digital television headend systems and
digital set-top terminals. The Company and NextLevel had previously announced
that ACTV's Individualized Programming would be incorporated into Nextlevel's
new MPEG-2 digital set-top cable and wireless terminals.
In December 1996 the Company and FOX Sports Net entered into a master
programming agreement that extends through June 30, 2003 and covers all FOX
Sports Net programming. Under terms of the agreement, the Company has the right
to offer enhanced FOX Sports Net programming to any distributor that carries the
corresponding regional FOX Sports Net channel. The Company intends to enhance
FOX Sports Net's professional and college sports programs as the basis for new
individualized regional programming networks. FOX Sports Net will receive a
share of subscriber fee and advertising revenue generated by future ACTV
television networks located within FOX Sports Net regions.
FOX Sports Net is the domestic telecasting arm of the worldwide sports
alliance recently formed between News Corporation, Liberty Media and
TeleCommunications Inc. FOX Sports Net consists of
<PAGE>
eight owned and operated regional sports networks and six affiliated networks
serving 40 million subscribers nationwide.
The FOX Sports Net national agreement followed the completion of the
Company's eighteen-month Individualized Programming trial within the TCI of
Ventura County cable system in greater Los Angeles. Sports programming for the
trial was supplied to ACTV by FOX Sports West. Viewers participating in the
trial received individualized FOX Sports West telecasts of Lakers and Clippers
basketball, Kings and Ducks hockey, and California Angels baseball, among other
offerings.
Based on the success of the Los Angeles trial, the Company plans a
commercial launch of two individualized networks over the next nine to twelve
months within FOX Sports regions in Texas and Southern California. FOX Sports
Southwest has 5.1 million homes in Texas, Louisiana, Arkansas, Oklahoma and nine
New Mexico counties, while FOX Sports West reaches 4.4 million subscribers in
the region from Los Angeles to San Diego and Phoenix. The planned regional
networks, like the recently completed trial, will feature individualized FOX
Sports regional programming. The Company will be responsible for the incremental
content, transmission, delivery and master control costs incurred in connection
with the production and distribution of the individualized programming to be
presented through its regional networks.
The Company has formed a wholly-owned holding company, Individualized
Regional Sports Network, Inc. (InSports), and two operating subsidiaries of the
holding company, Texas Individualized Television Network, Inc. and Los Angeles
Individualized Television Network, Inc., to launch and operate the regional
networks in the FOX Sports Southwest and West regions, respectively.
The Company anticipates that its InSports regional networks will offer
premium cable programming services that are advertiser-supported, with monthly
subscription prices comparable to other U.S. premium channels. Although the
Company's intention is to launch the InSports regional networks over the next
six to nine month period, there is no assurance that it will secure the funding
necessary to effect such launches, or that other factors might not delay or
prohibit the successful implementation of the plan.
The Company will direct initial marketing of the InSports regional
networks toward the cable operators in each respective FOX Sports Net regional
market who are buying digital set-top boxes. Expansion could follow in either
additional FOX Sports Net regions or in other regional sports markets. The
recently completed trial and the projected regional network expansion are 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 regional networks, even if launched, will generate
significant revenues for the Company.
The Company's objective in education is to create and deliver
individualized instruction to the classroom through distance learning networks.
ACTV's Individualized Programming enables students in remote classrooms to
respond to questions during a televised lesson from the program's instructor.
After choosing a response, each student receives individualized audio feedback
based on his or her input.
The instructor is able to create and include individualized segments in
a TV lesson by means of the Company's easy-to-use digital television authoring
software. This Windows-based application permits the instructor to enter
questions into a computer and then record, in his or her own voice,
individualized audio responses. The responses tell students more than whether
they are right or wrong -- they provide explanations and reinforcement.
<PAGE>
During a live lesson telecast, the instructor receives an instantaneous
graphical summary of the student responses on a monitor in the studio. This
two-way communication enables each student to receive the benefit of individual
attention, while the teacher gets real-time, empirical data on the effectiveness
of the televised lesson.
In March 1997, the Company released a new education service for the
Internet, eSchool Online. eSchool Online's software enables instructors to
stream web content to their students' desktop computers in sync with distance
learning video content that is presented simultaneously. eSchool Online's user
software provides each student with a PC interface that displays three separate
instructional elements together on-screen: a television lesson received directly
by the PC (or played on a TV adjacent to the computer); Internet web sites,
delivered to each student's computer at pre-determined times during the lesson
to support the televised content; and an interactive eSchool "chat" application,
which promotes student collaboration and student/teacher dialogue.
The Company's entertainment business is conducted through its
wholly-owned subsidiary, ACTV Entertainment, Inc. The Company's education
business, which accounts for all its current revenues, is conducted through its
wholly-owned subsidiary, ACTV, Net, Inc. (formerly ACTV Interactive, Inc.).
ACTV, Net, Inc. was formed in 1992, first as a partnership between the Company
and a subsidiary of the Washington Post Company (the "Post Company"), with the
subsidiary of the Post Company owning a 51% share. In 1994, the Company
purchased the Post Company's full 51% interest in ACTV Interactive.
For purposes of discussing the combined statements of the Company and
its subsidiaries, all intercompany items have been eliminated.
<PAGE>
RESULTS OF OPERATIONS
Comparison of Six Month Periods Ended June 30, 1997 and June 30, 1996
During the six month period ended June 30, 1997, the Company's revenues
increased 74% to $1,342,855 from $773,596 in the six month period ended June 30,
1996. All revenues in the six month period ended June 30, 1997 were derived from
the education market, while in the 1996 six-month period, the Company's revenues
derived from education sales as well as from license and executive producer
fees. The revenue increase in the more recent period was the result of
significantly higher sales of distance learning products and services.
Cost of sales in the six months ended June 30, 1997, was $355,440, an increase
of 13% over cost of sales of $314,610 in the six months ended June 30, 1996. The
Company's gross margin increased to 74% in the more recent period, from 59% in
the corresponding 1996 period. The increase was due to a greater proportion of
total revenues from higher margin products such as programs and software fees
during the more recent period. In addition, the Company recorded no executive
production fee revenues in the more recent period, unlike the 1996 period in
which these lower margin services were a component of total revenues.
Total expenses excluding cost of sales and interest expense in the six months
ended June 30, 1997, declined slightly, to $4,319,129, from $4,567,875 in the
comparable period in 1996. The decrease was due to lower amortization and stock
appreciation rights expenses, which more than offset moderately higher selling
and administrative costs during the 1997 period.
Depreciation and amortization expense for the six months ended June 30, 1997,
decreased 42% to $311,674, from $538,422 for the six months ended June 30, 1996.
This decrease was due to the recognition during the 1996 period of amortization
expense for certain programming assets that were fully amortized during 1996.
Interest income in the six months ended June 30, 1997, was $92,032, compared
with $55,870 in the six months ended June 30, 1996. The increase was due to
higher average cash balances during the more recent period. The Company incurred
no interest expense during either six-month period.
For the six months ended June 30, 1997, the Company's net loss applicable to
common shareholders was $3,489,025, or $.29 per share, a decrease of 14% over
the net loss of $4,053,019, or $.35 per share, incurred in the prior year's
comparable period. The decrease was the result principally of greater total
revenues and higher gross profit during the more recent six-month period.
Comparison of Six Month Periods Ended June 30, 1996 and June 30, 1995
During the six month period ended June 30, 1996, the Company's revenues
increased 3% to $773,596, from $753,889 in the six month period ended June 30,
1995. In the more recent period, the Company's revenues derived from education
sales, as well as from license and executive producer fees. All revenues in the
six month period ended June 30, 1995 were derived from the education market.
Cost of sales in the six months ended June 30, 1996, was $314,610, an increase
of 48% over cost of sales of $212,337 in the six months ended June 30, 1995. The
Company's gross margin declined to 59% in the more recent period, from 72% in
the corresponding 1995 period. The decline was due to the inclusion in the more
recent period of executive production fees, which carry a lower profit margin
than the
<PAGE>
Company's other revenue sources, and from proportionately lesser revenues from
education programs, when compared to the six months ended June 30, 1995.
Education programs have a higher gross margin than other education products sold
by the Company.
Total expenses excluding cost of sales and interest expense in the six months
ended June 30, 1996, increased 15%, to $4,567,875, from $3,967,243 in the
comparable period in 1995. The increase was due also to higher research and
development expenses, and to greater operating and selling and administrative
costs associated with the Company's interactive television network trial in
California. The trial was launched in May 1995.
Depreciation and amortization expense for the six months ended June 30, 1996,
increased 3% to $538,422, from $524,802 for the six months ended June 30, 1995.
This increase was related primarily to the equipment purchased for the
California trial referred to above.
The Company incurred no interest expense for the six months ended June 30, 1996,
compared to interest expense of $73,595 in the prior year's comparable period.
During 1995, the Company paid in full all of its short and long-term interest
bearing obligations. Interest income in the six months ended June 30, 1996, was
$55,870, compared with $56,470 in the six months ended June 30, 1995.
For the six months ended June 30, 1996, the Company's net loss was $4,053,019,
or $.35 per share, an increase of 18% over the net loss before extraordinary
gain of $3,442,816, or $.36 per share, incurred in the prior year's comparable
period. The Company recorded extraordinary gains of $94,117 in the six months
ended June 30, 1995, the result of the extinguishment of debt obligations for
value that was less than the amounts recorded on the Company's books for such
obligations. Net loss after extraordinary gain for the six months ended June 30,
1995, was $3,348,699, or $.35 per share.
Comparison of Three Month Periods Ended June 30, 1997 and June 30, 1996
During the three month period ended June 30, 1997 ("Second Quarter 1997"), the
Company's revenues increased approximately 3%, to $434,911, from $422,922 in the
three month period ended June 30, 1996 ("Second Quarter 1996"). In the more
recent quarter, all of the Company's revenues derived from education sales,
while in Second Quarter 1996 the Company recorded revenues from both education
sales and from license and executive producer fees.
Cost of sales in Second Quarter 1997 was $75,949, a 29% decrease compared to
Second Quarter 1996's cost of sales of $106,600. The Company's gross margin
increased to 82% in the more recent quarter, from 75% in the corresponding 1996
quarter. The gross margin increase was due principally to a greater percentage
of higher margin education software sales in the revenue mix for the more recent
quarter.
Total expenses excluding cost of sales and interest expense increased
approximately 15% in Second Quarter 1997, to $2,110,458, from $1,831,091 in
Second Quarter 1997. The increase was due principally to a difference in stock
appreciation rights expenses between the two periods.
Depreciation and amortization expense decreased in Second Quarter 1997 to
$157,101, from $243,950 in Second Quarter 1996. This decrease was due to the
recognition during the 1996 quarter of amortization expense for certain
programming assets that were fully amortized during 1996.
<PAGE>
Interest income in Second Quarter 1997, was $33,946, compared with $22,633 in
Second Quarter 1996. The increase was due to higher average cash balances during
the more recent period. The Company incurred no interest expense during either
quarter.
The Company's net loss applicable to common shareholders in Second Quarter 1997
increased approximately 24%, to $1,842,723, or $.15 per share, from $1,492,136,
or $.13 per share, in Second Quarter 1996, principally the result of the noted
difference in stock appreciation rights expense, along with the inclusion in the
more recent period of dividend expense related to the Company's issuance in
August 1996 of convertible preferred stock.
Comparison of Three Month Periods Ended June 30, 1996 and June 30, 1995
During the three month period ended June 30, 1996 ("Second Quarter 1996"), the
Company's revenues increased approximately 3%, to $422,922, from $412,255 in the
three month period ended June 30, 1995 ("Second Quarter 1995"). In the more
recent quarter, the Company's revenues derived from education sales, as well as
from license and executive producer fees. All revenues in Second Quarter 1995
were derived from the education market.
Cost of sales in Second Quarter 1996 was $106,600, a 15% decrease compared to
Second Quarter 1995's cost of sales of $125,236. The Company's gross margin
increased to 75% in the more recent quarter, from 70% in the corresponding 1995
quarter. The gross margin increase was due principally to a higher percentage of
education program sales in the revenue mix for the more recent quarter.
Education programs have a higher gross margin than other education products sold
by the Company.
Total expenses excluding cost of sales and interest expense increased
approximately 9% in Second Quarter 1996, to $1,831,091, from $1,676,240 in
Second Quarter 1995. The increase was due principally to higher operating and
selling and administrative expenses associated with the Company's operation of
its Los Angeles Regional Network.
Depreciation and amortization expense decreased in Second Quarter 1996 to
$243,950, from $309,530 in Second Quarter 1995. The decrease resulted from the
full depreciation prior to Second Quarter 1996 of certain equipment used in the
Los Angeles Regional Network. The depreciation expense in Second Quarter 1995
related to this equipment was $66,000.
The Company incurred no interest expense in Second Quarter 1996, compared to
interest expense of $33,333 in Second Quarter 1995. During 1995, the Company
paid in full all of its short and long-term interest bearing obligations.
Interest income in Second Quarter 1996 was $22,633, a decrease of 15% compared
with $26,691 in Second Quarter 1995. The decrease resulted from lower available
cash balances in the more recent period.
<PAGE>
The Company's net loss in Second Quarter 1996 increased approximately 7%, to
$1,492,136, or $.13 per share, from $1,395,863, or $.15 per share, in Second
Quarter 1995, principally the result of greater operating and selling and
administrative expenses related to the Los Angeles Regional Network.
Liquidity and Capital Resources
Since its inception, the Company (including its operating subsidiaries) has not
generated revenues sufficient to fund its operations, and has incurred operating
losses. Through June 30, 1997, the Company had an accumulated deficit of
approximately $43 million. The Company's cash position on June 30, 1997 was
$1,690,884, compared to $6,520,756 on December 31, 1996.
During Second Quarter 1997 the Company used $1,911,426 in cash for its
operations, compared with $2,068,308 in Second Quarter 1996. The Company met its
cash needs in Second Quarter 1997 from the remaining proceeds from the private
sale of convertible preferred stock effected in August 1996. The Company met its
cash needs in Second Quarter 1996 from the remaining proceeds from private sales
of common stock effected in 1995, as well as from sales of common stock totaling
$1.9 million that were concluded during the first quarter of 1996.
With respect to investing activities, in Second Quarter 1997 and 1996 the
Company used cash of $531,940 and $398,164, respectively. Investing activities,
in the more recent quarter, were related to master control facility and other
equipment, purchased, leasehold improvements and, computer software production
costs while such activities in the 1996 quarter related to equipment purchases
for the Los Angeles trial.
The Company's balance sheets at June 30, 1997 and December 31, 1996 reflect
expense accruals of $29,651 and $701,517, respectively, related to the Company's
stock appreciation rights plan.
<PAGE>
The Company believes that it may be required to expend approximately $500,000 to
$750,000 million during the remainder of 1997 to facilitate the completion of
current research and development projects, relating principally to software for
both entertainment and education products and services.
The Company's continued marketing of all its products and services on
planned levels and timetables is dependent upon the Company's obtaining the
additional capital necessary to support the Company's future operations at these
levels. Management is continuing its efforts to obtain such additional
financing. If the Company is not successful in obtaining such additional
financing, management believes that the Company can fund its operations at least
through the end of June 1998. To fund its operations at least through the end of
June 1998, without additional financing, the Company will be required to reduce
or forego entirely certain planned expenditures, including all expenditures
related to the launch of its regional entertainment networks and to the
entertainment area of its business in general. If management's assumptions
regarding future events prove incorrect, the Company may be unable to fund its
operations, even at a reduced level, through the end of June 1998.
Statement of Financial Accounting Standards No. 128.
Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings
per Share, effective for interim and annual periods ending after December 15,
1997, establishes standards for computing and presenting earnings per share
("EPS") and simplifies the standards for computing EOS currently found in
Accounting Principles Board Opinion No. 15, Earnings Per Share. Common stock
equivalents under APB No. 15, with the exception of contingently issuable shares
(shares issuable for little or no cash consideration), are no longer included in
the calculation of primary, or basic EPS. Under SFAS No. 128, contingently
issuable shares are included in the calculation of primary EPS. The Company has
determined that the adoption of this statement will have no material effect on
the financial statements.
Statement of Financial Accounting Standards No. 129.
SFAS No. 129, Disclosure of Information about Capital Structure,
effective for periods ending after December 15, 1997, establishes standards for
disclosing information about an entity's capital structure, for all entities.
The statement requires disclosure of the pertinent rights and privileges of
various securities outstanding (stock, options, warrants, preferred stock, debt
and participation rights) including dividend and liquidation preferences,
participant rights, call prices and dates, conversion of exercise prices and
redemption requirements. Adoption of this statement will have no effect of the
Company as it currently discloses the information specified.
Impact of Inflation
Inflation has not had any significant effect on the Company's operating costs.
<PAGE>
PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
There are no pending material legal proceedings to which the Company is a party.
ITEM 2 CHANGES IN SECURITIES
None.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
On May 16, 1997 the Company held an Annual Meeting of Shareholders for which it
solicited votes by proxy. The following is a brief description of the matters
voted upon at the meeting and a statement of the number of votes cast for and
against, and the number of abstentions as to each matter.
1. Election of directors:
For Withheld
Bruce Crowley 11,032,580 149,495
Richard Hyman 10,866,478 315,597
Jess Ravich 11,034,780 147,295
2. To approve an amendment to the Company's Restated Certificate of
Incorporation that would increase the authorized shares of the Company's Common
Stock to 65,000.
For Against Abstain
10,341,965 794,355 45,755
3. To approve an amendment to the Company's Restated Certificate of
Incorporation that would convert Series A and Series B Convertible Preferred
Stock into 1,000,000 shares of preferred stock without designations.
For Against Abstain
6,219,526 651,722 74,675
4. To ratify appointment of Deloitte & Touche, LLP as independent auditors of
the Company.
For Against Abstain
11,103,450 46,925 31,700
<PAGE>
ITEM 5 OTHER INFORMATION
None.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 Computation of Loss per Share
27 Financial Data Schedule
(b) Reports on Form 8-K: None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACTV, Inc.
Registrant
Date: August 13, 1997 /s/ William C. Samuels
--------------- ----------------------
William C. Samuels
Chairman, Chief Executive Officer
and Director
Date: August 13, 1997 /s/ Christopher C. Cline
--------------- ------------------------
Christopher C. Cline
Senior Vice President (principal financial
and accounting officer)
<PAGE>
EXHIBIT 11
ACTV, INC. AND SUBSIDIARIES
COMPUTATION OF LOSS PER SHARE
<TABLE>
<CAPTION>
Six Month Period Three Month Period
Ended June 30, Ended June 30,
1996 1997 1996 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Weighted average shares outstanding ......... 11,684,987 11,916,823 11,891,160 12,003,573
Common stock equivalents .................... -- -- -- --
----------- ----------- ----------- -----------
Total .............................. 11,684,987 11,916,823 11,891,160 12,003,573
=========== =========== =========== ===========
Net loss applicable to common shareholders.. $4,053,019 $3,489,025 $1,492,136 $1,842,723
=========== =========== =========== ===========
Loss per share applicable to common
shareholders ................................ $.35 $.29 $.13 $.15
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000854152
<NAME> ACTV, Inc.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,690,834
<SECURITIES> 0
<RECEIVABLES> 861,138
<ALLOWANCES> 0
<INVENTORY> 312,269
<CURRENT-ASSETS> 3,120,189
<PP&E> 1,675,220
<DEPRECIATION> 814,267
<TOTAL-ASSETS> 7,746,368
<CURRENT-LIABILITIES> 2,007,482
<BONDS> 0
<COMMON> 1,220,307
0
0
<OTHER-SE> 4,518,579
<TOTAL-LIABILITY-AND-EQUITY> 7,746,368
<SALES> 1,342,855
<TOTAL-REVENUES> 1,342,855
<CGS> 355,440
<TOTAL-COSTS> 4,324,696
<OTHER-EXPENSES> 243,827
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,489,025)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,489,025)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,489,025)
<EPS-PRIMARY> .29
<EPS-DILUTED> .29
</TABLE>
