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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(x) Quarterly report pursuant to Section 13 or 15(9) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 1999
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( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period from _____ to _____
Commission file number 000-19579
INTERACTIVE NETWORK, INC.
(Exact name of registrant as specified in its charter)
California 94-3025019
(State of incorporation) (I.R.S. employer identification number)
1161 Old County Road
Belmont, California 94002
(Address of principal executive offices and zip code)
(650) 508-8793
(Registrant's telephone number, including area code)
with a copy to Robert S. Townsend
Morrison & Foerster, LLP
425 Market Street
San Francisco, CA 94105
(415) 268-7000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes ___ No x
---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Shares outstanding as of May 14, 1999
- ----- -------------------------------------
Common Stock 38,655,030
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INTERACTIVE NETWORK, INC.
INDEX
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PART I. FINANCIAL INFORMATION Page
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ITEM 1. FINANCIAL STATEMENTS....................................................... 1
CONSOLIDATED BALANCE SHEET AS OF
DECEMBER 31, 1998 AND MARCH 31, 1999 (Unaudited)......................... 1
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, 19991............................... 2
STATEMENT OF CONSOLIDATED CASH FLOWS (Unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, 1999................................ 3
NOTES TO FINANCIAL STATEMENTS.............................................. 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................ 4
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS........................................................... 7
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS........................................................... 7
SIGNATURES ............................................................................ 8
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INTERACTIVE NETWORK, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF AS OF
12/31/98 3/31/99
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 300,601 $ 155,993
Prepaid expenses 78,256 78,256
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Total Current Assets 378,857 234,249
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Total Assets 378,857 234,249
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LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities
Accounts Payable -- 255,000
Accrued Taxes Payable -- 800
Other Accrued Liabilities 214,821 3,600
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Total Current Liabilities 214,821 259,400
Liabilities Subject to Compromise 46,296,316 46,296,316
Long Term Liabilities 845,400
Shareholders' Deficit
Common Stock 103,281,755 103,283,861
Accumulated Deficit - Prior (149,414,035) (149,414,035)
Accumulated Deficit - Current -- (1,036,693)
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Accumulated Deficit (46,132,280) (47,166,867)
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Total Liabilities and Equity (Deficit) $ 378,857 $ 234,249
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</TABLE>
1
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INTERACTIVE NETWORK, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, 1999
(UNAUDITED)
<S> <C>
Revenues: --
General and Administrative Expenses: --
Salaries 40,250
Employer Payroll Taxes 3,710
Contract Labor 25,600
Rent 1,100
Insurance --
Other Administrative Costs 33,346
Accounting Fees 255,000
Legal - NTN Litigation 7,620
Shareholder Relations - Proxy 30,862
Payroll Taxes - Q395 6,252
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Total G&A Expenses 403,740
REORGANIZATION ITEMS:
Professional Fees 634,179
U.S. Trustee Quarterly Fees 500
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Total Reorganization Items 634,679
Interest 2,526
Net Profit (Loss) Before Federal & State Taxes (1,035,893)
Federal & State Income Taxes 800
===========
Net Profit (Loss) $(1,036,893)
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</TABLE>
2
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INTERACTIVE NETWORK, INC.
STATEMENT OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
3 MONTHS
ENDED
MARCH 31, 1999
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (1,036,693)
Adjustments to reconcile net loss to net cash provided by (used for)
operating activities:
Reorganization expenses 845,400
Changes in assets and liabilites:
Accounts payable 255,000
Taxes payable 800
Other accrued liabilities (211,221)
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Cash provided by (used in) operating activities: (146,714)
====================
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock 2,106
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Cash provided by (used in) financing activities: 2,106
====================
NET DECREASE IN CASH (144,608)
CASH:
Beginning of period 300,601
End of period 155,993
</TABLE>
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INTERACTIVE NETWORK, INC.
Notes to Unaudited Consolidated Financial Statements
March 31, 1999
The consolidated financial information of Interactive Network, Inc. (the
"Company") furnished herein reflects all adjustments, consisting only of normal
recurring adjustments which in the opinion of management are necessary to
present fairly the financial position of the Company as of March 31, 1999 and
the results of its operations and cash flows for the periods presented. This
Quarterly Report on Form 10-Q should be read in conjunction with the financial
statements and notes thereto included in the Company's Form 10-K Report for the
year ended December 31, 1998 filed with the Securities and Exchange Commission
("SEC") on March 15, 1999. The results of operations for the three-month period
ended March 31, 1999 are not necessarily indicative of the results for any
subsequent quarter or for the entire year ending December 31, 1999.
Long Term liabilities consists of professional fees and expenses incurred in
connection with the Company's Chapter 11 bankruptcy proceedings. Payment of
these fees, which is subject to Bankruptcy Court approval, has been deferred by
agreement until April 22, 2000, when payment is due in full without interest.
This amount, as well as the amount of professional accounting fees, are
subject to reduction by the Bankruptcy Court.
On April 23, 1999, the Company consummated its Settlement Agreement with its
secured senior noteholders, pursuant to which $39 million in principal and
accrued interest of the Company's outstanding indebtedness was converted at
$5.00 per share into 7,814,589 shares of the Company's Common Stock, liens on
the Company's patent portfolio and other assets were released, and the
noteholders paid $10 million plus accrued interest to the Company, a substantial
part of which was allocated to pay creditors and to form a reserve account for
the payment of creditors whose claims it is disputing.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with Management's
Discussion and Analysis of Financial Conditions and Results of Operations
contained in the Company's Annual Report for the year ended December 31, 1998,
filed with the SEC on March 15, 1999. The discussion of the Company's current
business and future expectations under this item contain forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ significantly from the results discussed in the forward-looking
statements. Factors that might cause such differences include, but are not
limited to, those discussed in the subsection entitled "Forward Looking
Statements" below.
OVERVIEW
On April 23, 1999, the Company consummated a Settlement Agreement with its
senior secured noteholders (affiliates of TCI, and NBC, Sprint and Motorola),
(the "Settling Parties"), as a result of which the Company was paid $10,000,000
(plus accrued interest thereon) by the Settling Parties, all security interests
held by the Settling Parties in its assets were released, and 7,814,589 shares
of the Company's Common Stock was issued in conversion of outstanding debt in
the amount of $39,072,949 held by the Settling Parties at $5.00 per share.
OTHER CONTINGENCIES AND COMMITMENTS:
There have been no changes in the discussion of "Other Contingencies and
Commitments" since the Company's discussion of that subject in its Annual Report
for the year ended December 31, 1998, except that the claims of Equitable Life
Assurance for $1.2 million, the Internal Revenue Service for $494,000, and
Singatronics for $500,000 have either been barred or withdrawn, and the County
of Santa Clara has reduced its claim from approximately $300,000 to just under
$4,000.
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LIQUIDITY AND CAPITAL RESOURCES
The Settlement Agreement described under "Overview" above was consummated on
April 23, 1999, at which time the Company received $10 million in cash (plus
accrued interest thereon of approximately $300,000). The Company is in the
process of paying undisputed claims and reserving funds for disputed claims in
accordance with its reorganization plan. Accurate figures for these in-progress
activities are not yet available. The Company has also granted a lien on any
income derived from its intellectual property assets until the reserve account
amounts to 100% of the contested amount. The amount of funds available to the
Company after resolution of contested claims will depend on the extent to which
the Company is successful in substantially reducing, defeating or deferring
payment of the substantial claims the Company is contesting described in "Other
Contingencies and Commitments--Claims in Chapter 11 Proceedings Which the
Company is Contesting" in the Company's Annual Report. In the event the Company
is not successful in defeating, substantially reducing or deferring payment of
these claims, the Company's working capital requirements would need to be
satisfied in part by external sources of financing to the extent revenues from
exploitation of its patent portfolio were not sufficient.
The Company's current business plan is not to build up a large work force or
invest in plant, equipment or inventories, but to concentrate on exploiting its
patent portfolio through licenses, joint ventures or other methods that will not
involve large overhead or capital demands on the Company. The Company currently
expects its need for working capital after consummation of the Settlement
Agreement to consist largely of general and administrative and patent
development and marketing expenses of approximately $600,000, expected to be
incurred in generating revenues from its Intellectual Property assets, and
professional fees of approximately $240,000, out of a total annual operating
budget of approximately $500,000.
RESULTS OF OPERATIONS
Revenues. During the quarter ended March 31, 1999, the Company realized no
revenues.
Costs of Revenues. The Company incurred no costs of revenues in the quarter
ended March 31, 1999.
Research and Development. The Company incurred no research and development
expenses in the quarter ended March 31, 1999.
Selling and Marketing. The Company incurred no selling and marketing expenses
in the quarter ended March 31, 1999.
General and Administrative. The Company incurred general and administrative
expenses of $403,740 in the quarter ended March 31, 1999. Of these, $255,000
related to professional fees for accounting and audit services
Interest Income (Expense). The Company realized $2,526 of interest income and
incurred no interest expense during the quarter ended March 31, 1999.
Net Losses. During the quarter ended March 31, 1999, the Company incurred a net
loss of $1,036,693. This loss resulted primarily from expenses incurred for
salaries, expenses related to the Company's Chapter 11 reorganization, and
expenses of proxy solicitation for its special Meeting of Shareholders on March
31, 1999.
FORWARD LOOKING STATEMENTS.
The Management's Discussion and Analysis of Financial Condition and Results of
Operations sections of this quarterly report contain forward-looking statements
that are based on current expectations, estimates, forecasts and projections
about the Company's future prospects, plans and strategies, management's beliefs
and assumptions made by management. Words such as "expects," "anticipates,"
"intends," "plans," "believes," "seeks," "estimates," variations on such words
and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and
involve certain risks, uncertainties and assumptions which are difficult to
predict. Therefore, actual results may differ significantly from the results
described in these forward-looking statements, including changes that could
affect the value of the Company's
5
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intellectual property assets and decisions by the bankruptcy court in which the
Company's Chapter 11 proceeding is pending with respect to allowance of
contested claims which may cause a resulting increase in post-petition interest
on claims and could reduce the Company's anticipated working capital. The
Company undertakes no obligation to update publicly any forward-looking
statements, whether as a result of new information, future events or otherwise.
6
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PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The action of the United States Bankruptcy Court for the Northern
District of California on April 12, 1999, confirming Registrant's
Chapter 11 plan of reorganization, as reported in Registrant's report
on Form 8-K filed with the Securities and Exchange Commission on April
14, 1999, is incorporated here by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The results of the Registrant's Special Meeting of Shareholders held on
March 31, 1999, as reported in Registrant's report on Form 8-K filed
with the Securities and Exchange Commission on April 14, 1999, are
incorporated herein by reference.
ITEM 6. EXHIBITS
Exhibit 2.1 Plan of Reorganization. The action of the United
----------------------
States Bankruptcy Court for the Northern District of
California on April 12, 1999, confirming Registrant's
Chapter 11 plan of reorganization, as reported in
Registrant's report on Form 8-K filed with the
Securities and Exchange Commission on April 14, 1999,
is incorporated here by reference.
Exhibit 22.1 Published Report Regarding Matters Submitted to Vote
----------------------------------------------------
of Securityholders. The results of the Registrant's
------------------
Special Meeting of Shareholders held on March 31,
1999, as reported in Registrant's report on Form 8-K
filed with the Securities and Exchange Commission on
April 14, 1999, are incorporated herein by reference.
Exhibit 27.1 Financial Data Schedule.
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7
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SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
Date: May 14, 1999
INTERACTIVE NETWORK, INC.
(Registrant)
By: /s/ Bruce W. Bauer
-------------------------------------
Bruce W. Bauer
Chairman of the Board
President and Chief Executive Officer
8
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM
10-Q--MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 155,993
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 234,249
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 234,249
<CURRENT-LIABILITIES> 259,400
<BONDS> 0
0
0
<COMMON> 103,283,861
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 234,249
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 403,740
<OTHER-EXPENSES> 634,679
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,035,893)
<INCOME-TAX> 800
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,036,693)
<EPS-PRIMARY> (.034)
<EPS-DILUTED> (.034)
</TABLE>
