FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________________ to ______________________
Commission file number 0-21902
StarSight Telecast, Inc.
(Exact name of registrant as specified in its charter)
California 94-3003250
(State or other jurisdiction of incorporation (IRS Employer
or organization) Identification No.)
39650 Liberty Street
Fremont, California 94538
(Address of principal executive offices)
(510) 657-9900
(Registrant's telephone number, including area code)
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 X No
----- -----
As of August 6, 1996, there were 25,410,279 shares outstanding of the
Registrant's Common Stock, no par value.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
STARSIGHT TELECAST, INC.
CONDENSED BALANCE SHEETS
(in thousands, except share data)
June 30, December 31,
1996 1995
(unaudited)
----------- ------------
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 8,262 $ 8,787
Short-term investments available for sale 13,722 --
Accounts receivable 1,101 2,192
Inventories 548 441
Other 612 410
--------- ---------
Total current assets 24,245 11,830
FURNITURE, FIXTURES AND EQUIPMENT, net of accumulated
depreciation of $4,146 and $3,663 1,265 1,637
PATENTS AND LICENSES, net of accumulated
amortization of $724 and $595 2,780 2,866
--------- ---------
TOTAL ASSETS $ 28,290 $ 16,333
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 1,601 $ 1,570
Accrued liabilities 3,511 3,068
Deferred revenue 2,002 2,992
License fee payable 219 286
--------- ---------
Total current liabilities 7,333 7,916
--------- ---------
LONG-TERM LICENSE FEE PAYABLE -- 74
SHAREHOLDERS' EQUITY:
Common Stock, no par value: authorized 50,000,000
shares; issued and outstanding, 25,390,279 and
21,902,018 shares, respectively 125,342 99,400
Unearned compensation (860) (371)
Accumulated deficit (103,525) (90,686)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 20,957 8,343
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 28,290 $ 16,333
========= =========
See notes to condensed financial statements.
<PAGE>
STARSIGHT TELECAST, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except share data)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
-------- -------- -------- --------
Revenues $ 1,528 $ 343 $ 2,774 $ 561
Cost of Goods Sold 391 136 589 208
Inventory reserves and
write offs -- -- -- 930
-------- -------- -------- --------
Gross Profit 1,137 207 2,185 (577)
-------- -------- -------- --------
COSTS AND EXPENSES:
General and administrative 1,813 2,560 5,099 5,225
Litigation costs 1,928 695 3,140 1,749
Engineering and development 897 985 1,785 2,092
Marketing 1,405 2,138 2,617 4,313
Network services and
other expenses 1,369 1,408 2,708 3,034
-------- -------- -------- --------
Total costs and expenses 7,412 7,786 15,349 16,413
-------- -------- -------- --------
OPERATING LOSS (6,275) (7,579) (13,164) (16,990)
-------- -------- -------- --------
INTEREST EXPENSE (4) (10) (9) (20)
INTEREST INCOME 203 197 334 460
-------- -------- -------- --------
NET LOSS $ (6,076) $ (7,392) $(12,839) $(16,550)
======== ======== ======== ========
NET LOSS PER COMMON SHARE $ (0.24) $ (0.35) $ (0.53) $ (0.79)
======== ======== ======== ========
NUMBER OF SHARES USED FOR
CALCULATION OF NET LOSS
PER COMMON SHARE 25,369,248 21,062,577 24,080,798 21,042,132
========== ========== ========== ==========
See notes to condensed financial statements.
<PAGE>
STARSIGHT TELECAST, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
1996 1995
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(12,839) $(16,550)
Adjustments to reconcile net loss to net
cash used in operating activities:
Amortization of unearned compensation 538 367
Depreciation and amortization 612 930
Inventory valuation reserve -- 930
Changes in assets and liabilities:
Accounts payable, accrued liabilities and
deferred revenue (516) (132)
Accounts receivable, inventories and other assets 782 (2,218)
-------- --------
Net cash used in operating activities (11,423) (16,673)
-------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Acquisitions of furniture, fixtures and equipment (111) (509)
Purchases of short-term investments (15,701) --
Maturities of short-term investments 1,979 10,924
Additions to patents and licenses (43) (50)
-------- --------
Net cash provided by (used in) investing activities (13,876) 10,365
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock-net 24,625 --
Proceeds from the exercise of options for common stock 290 117
Repayment of notes payable (141) (152)
-------- --------
Net cash provided by (used in) financing activities 24,774 (35)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (525) (6,343)
CASH AND CASH EQUIVALENTS:
Beginning of period 8,787 10,141
-------- --------
End of period $ 8,262 $ 3,798
======== ========
See notes to condensed financial statements.
<PAGE>
STARSIGHT TELECAST, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (unaudited)
1. GENERAL
The accompanying interim condensed financial statements have been
prepared pursuant to the rules and regulations of the Securities and
Exchange Commission for reporting on Form 10-Q. Accordingly, certain
information and footnotes required by generally accepted accounting
principles for complete financial statements have been omitted. The
information contained herein reflects all normal and recurring
adjustments which, in the opinion of management, are necessary to a
fair presentation of the results of operations and financial position
for the interim periods. These interim condensed financial statements
should be read in conjunction with the financial statements and notes
thereto included in the Company's Form 10-K for the twelve months ended
December 31, 1995.
2. RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND MANAGEMENT PLANS FOR 1996
Revenues for the six months ended June 30, 1996 were $2,774,000. As a
result of incurring significant expenses in its development and
operating activities without generating significant revenues, the
Company has incurred significant losses and negative cash flows from
operating activities. The net loss for the six months ended June 30,
1996 was $12,839,000 and net cash used in operating activities for the
six months ended June 30, 1996 was $11,423,000. At June 30, 1996, the
Company had an accumulated deficit of $103,525,000 and cash and cash
equivalents and short term investments of $21,984,000.
There can be no assurance that the Company will ever be able to achieve
revenues in excess of expenses. The Company expects to incur
substantial losses and substantial negative cash flow from operating
activities in the foreseeable future. The Company is dependent on sales
of StarSight(R) products and services and the licensing of its
intellectual property in order to minimize negative cash flow from
operations. Management believes that the availability in the market
place of StarSight capable televisions, VCRs, TVCRs, satellite
receivers, cable and telco converter boxes and stand alone StarSight
receivers, combined with a focused intellectual property licensing
program, is essential to the Company's 1996 revenues and cash flow. The
Company is subject to all of the risks and expenses inherent in the
establishment of a new business enterprise. To address these risks and
expenses, the Company must, among other things, respond to competitive
developments, attract, retain and motivate qualified personnel and
support the expense of marketing a new service based upon innovative
technology. In addition, the Company must successfully launch the
commercial distribution of its products and services, continue to
finance operations and marketing efforts and successfully market its
products and services to potential customers.
<PAGE>
In the third quarter of 1995, the Company took steps to reduce
operating expenses by concentrating on business development efforts
which are believed to be most cost effective. Such expense reductions
were a result of on-going efforts to determine which programs in each
functional area are most productive. These efforts have continued
through the six months ended June 30, 1996.
The Company believes its existing cash and cash equivalents and short
term investments ($21,984,000 at June 30, 1996) will be sufficient to
sustain the Company's current level of operations and meet its
financial obligations through the end of 1996.
3. INTELLECTUAL PROPERTY LITIGATION
The Company is a named plaintiff and counterclaimant in several legal
proceedings where the Company is primarily alleging that others are
infringing the Company's patents and other intellectual property
rights. The Company is also a named defendant in legal proceedings
where patent infringement has been alleged against the Company. From
inception through June 30, 1996, the Company has expensed approximately
$8,840,000 in legal and other costs in connection with such litigation,
of which approximately $3,140,000 was included in general and
administrative expenses in the six months ended June 30, 1996. The
Company expects to incur additional legal costs in future periods
related to the enforcement of the Company's patents involved in the
current and potential future litigation. No estimate of the total
amount of such additional legal costs can be made at this time. The
outcome of these lawsuits cannot presently be determined. Management
believes, based upon the advice of counsel, that the ultimate
resolution of these matters will not have a material adverse effect on
the Company's financial statements taken as a whole.
4. INVENTORIES
Inventories are summarized as follows (in thousands):
June 30, December 31,
1996 1995
------- -----------
Raw materials $ 548 $ 441
Finished products 4,490 5,099
------- -------
Total 5,038 5,540
Less lower of cost-or-market
valuation allowance (4,490) (5,099)
------- -------
Inventory, net $ 548 $ 441
======= =======
<PAGE>
5. REPRICING OF EMPLOYEE STOCK OPTIONS
In January 1996, the Company repriced the exercise price of 299,201
common stock options (originally granted to certain employees at prices
from $15.00 to $5.00) to $3.50. The Company recorded unearned
compensation of $1,028,000 which was calculated based on the difference
between the market value of the Company's common stock at the repricing
date and the $3.50 exercise price. The Company will record compensation
expense over the remaining vesting period of the repriced options. For
the three and six months ended June 30, 1996, the Company recorded
$202,000 and $347,000, respectively, in additional compensation related
to the repriced options.
6. NET LOSS PER SHARE
The net loss per share for the six months ended June 30, 1996 and 1995
is based on the weighted average number of shares of common stock
outstanding during those periods. No effect has been given to
unexercised stock options and warrants because the effect would be
antidilutive.
7. SUBSEQUENT EVENT
On July 23, 1996, the American Arbitration Association awarded the
Company $15,000,000 plus attorney's fees and arbitration costs against
Scientific-Atlanta, Inc. ("Scientific-Atlanta") for breach of contract,
including misappropriation of certain Company intellectual property. In
addition to the monetary award, the Company was granted injunctive
relief prohibiting Scientific-Atlanta, except under certain limited
conditions, from accepting any new customer orders for any products
incorporating an interactive electronic program guide that utilizes any
information derived either directly or indirectly from the Company for
a period of three years beginning from the date of the award. The
Company expects to recognize a gain related to this arbitration award
upon receipt of the cash damages from Scientific-Atlanta.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Any forward looking statements contained in the following discussion or
elsewhere in this document involve risks and uncertainties which may cause
actual results to differ materially from those discussed. A wide range of
factors could contribute to those differences, including those discussed in this
document.
Overview
The Company was incorporated in May 1986. Since inception, the Company
has devoted substantially all of its resources toward the development and
commercial introduction of a patented on-screen interactive television program
guide and VCR control service marketed under the StarSight(R) brand name. The
Company generates revenue from subscription sales of the StarSight service to
customers, either through service providers, such as cable operators and local
telephone companies ("telco"), or directly from the Company. The Company also
generates revenues through licensing the Company's intellectual property for
non-StarSight capable products. The Company has been unprofitable since its
inception and expects to incur substantial losses for the foreseeable future. As
of June 30, 1996, the Company had accumulated a deficit of $103,525,000.
The Company has entered into technology development and licensing
agreements with key manufacturers for the manufacture of StarSight-capable
televisions, VCRs, TVCRs and stand alone StarSight receivers. These
manufacturers include Thomson Consumer Electronics (RCA, GE, ProScan)
("Thomson"), Zenith Electronics Corporation ("Zenith"), Sony Electronics, Inc.
("Sony"), Mitsubishi Consumer Electronics America, Inc. ("Mitsubishi"), Toshiba
America Consumer Products, Inc. ("Toshiba"), Matsushita Television Company
(Panasonic, Quasar) ("Matsushita"), Philips Consumer Electronics Company
(Magnavox) ("Philips"), Sharp Electronics Corporation ("Sharp"), Samsung
Electronics America, Inc. ("Samsung"), LG Electronics U.S.A., Inc. ("GoldStar"),
and Daewoo Electronics Corp. of America ("Daewoo"). The Company has also entered
into license agreements with General Instrument Corp. ("General Instrument"),
Scientific-Atlanta and Zenith for the incorporation of StarSight-enabling
technology into cable converter boxes to be manufactured by them for sale to
cable system operators that offer StarSight to their customers.
The Company has also entered into marketing and distribution agreements
with Uniden America ("Uniden") and NextWave Communications ("NextWave") for the
marketing and distribution of StarSight capable satellite receivers to C-band
satellite service customers. The Company is currently engaged in several
negotiations with additional manufacturers for similar agreements.
The Company believes its intellectual property applies to several
business segments, including but not limited to direct broadcast satellite,
Internet and PCTV applications. Hence, the Company intends to devote significant
management time and effort to identify, negotiate and enter into royalty bearing
licensing agreements. As part of this licensing strategy, the Company has
already entered into royalty bearing licensing agreements with Thomson, Sony,
Toshiba and Panasonic for the use of certain of the Company's intellectual
<PAGE>
property in connection with certain digital satellite system equipment. The
Company believes its on-going licensing efforts are likely to have a significant
impact on the Company's overall operating success.
In 1995, the Company brought an arbitration action against
Scientific-Atlanta concerning Scientific-Atlanta's delay in the deployment of
StarSight-capable converters and its development of a competing electronic
program guide using the Company's technology in violation of its licensing
agreement with the Company. In apparent response to the arbitration action,
Scientific-Atlanta filed a lawsuit in February 1996 against the Company and
Philips alleging that the Company's stand alone StarSight receiver infringes
three U.S. patents owned by Scientific-Atlanta. On July 23, 1996, the American
Arbitration Association awarded the Company $15,000,000 in monetary damages plus
attorney's fees and arbitration costs against Scientific-Atlanta. In addition to
the monetary award, the Company was granted injunctive relief prohibiting
Scientific-Atlanta, except under certain limited conditions, from accepting any
new customer orders for any products incorporating an interactive electronic
program guide that utilizes any information derived either directly or
indirectly from the Company for a period of three years beginning from the date
of the award. See Part II, Item 1: "Legal Proceedings."
Results of Operations
Revenues for the three and six months ended June 30, 1996 were
$1,528,000 and $2,774,000, respectively. Revenues for the three and six months
ended June 30, 1995 were $343,000 and $561,000, respectively. Revenues increased
in such periods due to an increase in licensing revenues and, to a lesser
extent, increased subscription revenues. As a result of incurring significant
expenses in its development and operating activities without generating
significant revenues, the Company has incurred significant losses. The Company's
net loss was $6,076,000 and $12,839,000 for the three and six months ended June
30, 1996, respectively, compared to $7,392,000 and $16,550,000 for the three and
six months ended June 30, 1995, respectively.
During the six months ended June 30, 1995, the Company recorded an
inventory valuation allowance of $930,000 related to the Company' stand alone
StarSight receiver. There was no comparable expense for the six months ended
June 30, 1996.
General and administrative expense primarily consists of salaries and
benefits of management and administrative personnel in the corporate, finance,
personnel, legal and facilities departments, professional and consulting fees
and general corporate expenditures. General and administrative expense decreased
from $2,560,000 for the three months ended June 30, 1995 to $1,813,000 for the
three months ended June 30, 1996 and from $5,225,000 for the six months ended
June 30, 1995 to $5,099,000 for the six months ended June 30, 1996. The decrease
in general and administrative expense was primarily due to an overall decrease
in spending levels for general and administrative expenses and a decrease in
certain compensation related expenses.
The Company is a named plaintiff and counterclaimant in several legal
proceedings where the Company is primarily alleging that others are infringing
the Company's patents and other intellectual property rights. The Company is
also a named defendant in legal proceedings where patent infringement has been
alleged against the Company. From
<PAGE>
inception through June 30, 1996, the Company has expensed approximately
$8,840,000 in legal and other costs in connection with such litigation.
Litigation costs increased from $695,000 for the three months ended June 30,
1995 to $1,928,000 for the three months ended June 30, 1996 and from $1,749,000
for the six months ended June 30, 1995 to $3,140,000 for the six months ended
June 30, 1996. The increase in such litigation costs is the result of the
arbitration hearing involving Scientific-Atlanta which commenced in April 1996
and the United Video patent infringement trial which began in May 1996. The
Company expects to incur additional legal costs in future periods related to the
enforcement of the Company's patents involved in the current and potential
future suits. No estimate of the total amount of such additional legal costs can
be made at this time. The outcome of these lawsuits cannot presently be
determined.
Engineering and development expense is composed primarily of personnel
costs in the areas of product design and development. Engineering efforts
include development of the broadcast network architecture and supporting
software and the design of the StarSight-enabling technology, which is to be
incorporated within televisions, VCRs, TVCRs, satellite receivers, cable and
telco converter boxes and stand alone StarSight receivers. Engineering and
development expense decreased from $985,000 for the three months ended June 30,
1995 to $897,000 for the three months ended June 30, 1996 and from $2,092,000
for the six months ended June 30, 1995 to $1,785,000 for the six months ended
June 30,1996. The decrease in engineering and development expense was primarily
due to lower staffing levels when compared to the previous year's activity.
Marketing expense consists primarily of salaries for sales and
marketing personnel, fees paid to consultants, market research costs, trade
shows and industry awareness and consumer advertising costs. Marketing expense
decreased from $2,138,000 for the three months ended June 30, 1995 to $1,405,000
for the three months ended June 30, 1996 and from $4,313,000 for the six months
ended June 30, 1995 to $2,617,000 for the six months ended June 30, 1996. The
primary items contributing to the decrease in marketing expense were lower
product launch expenditures, as well as lower public relations and product
awareness expenditures. The Company expects marketing expenses to increase
during the remainder of fiscal 1996.
Network services and other expense consists of the combined cost of
purchasing television scheduling data from a TV data supplier and broadcasting
that data over the data distribution network operated by PBS. The Company's
contracts with these service providers have a base fee and a per subscriber
monthly cost with annual maximums on the cost. In addition, network and other
expenses include operating expenses related to subscription order processing and
customer support and manufacturing operations and support. Network services and
other expenses decreased from $1,408,000 for the three months ended June 30,
1995 to $1,369,000 for the three months ended June 30, 1996 and from $3,034,000
for the six months ended June 30, 1995 to $2,708,000 for the six months ended
June 30, 1996. The decrease was primarily attributable to lower spending for
order processing and customer support and decreased manufacturing support costs
associated with the Company's stand alone StarSight receiver.
Liquidity and Capital Resources
<PAGE>
The Company has financed its operations through private placements of
equity securities to individual investors and those corporations with which the
Company has strategic relationships. These private placements have yielded a net
total of approximately $77,125,000 through June 30, 1996. In addition, the
Company completed an initial public offering in August 1993, raising
approximately $42,300,000, net of issuance costs.
As of June 30, 1996, the Company had an accumulated deficit of
$103,525,000. Negative cash flow from operations for the six months ended June
30, 1996 and 1995 was $11,423,000 and $16,673,000, respectively. Only limited
revenues have been generated to date. There can be no assurance that the Company
will be able to achieve revenues in excess of expenses. The Company expects to
incur substantial negative cash flow from operating activities for the
foreseeable future.
The Company anticipates expending a significant portion of its cash
resources for sales and marketing, expanding public awareness, engineering and
development efforts, and other operational expenses associated with the delivery
of the StarSight service to customers. The Company anticipates expending
additional cash resources to provide incentives for manufacturers to incorporate
the StarSight Electronic Program Guide ("EPG") into StarSight-capable products
manufactured by them and for legal costs in future periods related to
enforcement of the Company's patents involved in current and potential
litigation.
The Company is dependent on 1996 sales of the StarSight service to
minimize negative cash flow from operations. The Company believes that the
availability of StarSight-capable televisions, VCRs, TVCRs, satellite receivers,
cable and telco converter boxes and stand alone StarSight receivers in the
market place combined with a focused marketing program is essential to the
Company's 1996 revenues and cash flow.
The Company may seek additional investments from its current or new
strategic investors. In addition, the Company may consider issuance of debt or
equity securities. To the extent the Company raises additional cash by issuing
equity securities, ownership dilution to the existing shareholders of the
Company will result. There can be no assurance, however, that debt or equity
financing will be available when needed or on terms acceptable to the Company.
The Company's future cash requirements will depend on many factors,
including: (i) the rate at which manufacturers of televisions, VCRs, TVCRs,
satellite receivers and cable and telco converter boxes incorporate the
Company's proprietary technology into new hardware products manufactured and
marketed by them, (ii) the rate at which customers subscribe to the StarSight
service, (iii) the rate at which cable and telco operators introduce and market
StarSight's EPG to their customers, (iv) the level of marketing required to
increase customers and to attain a competitive position in the market place, (v)
the rate at which the Company is successful in licensing its intellectual
property for non-StarSight-capable products, and (vi) the rate at which the
Company invests in engineering and development and patent protection with
respect to existing and future technology.
The Company believes that its existing cash and cash equivalents and
short term investments ($21,984,000 at June 30, 1996) will be sufficient to
sustain the Company's current level of operations and meet its financial
obligations through the end of 1996.
<PAGE>
PART II - OTHER INFORMATION
Item 1: Legal Proceedings
In October 1993, the Company filed suit in the District Court for the
Northern District of California, San Jose Division, against Gemstar and Michael
R. Levine ("Levine") seeking: (1) a preliminary and permanent injunction and
treble damages for Gemstar's willful infringement of one of the Company's
patents (United States Patent No. 5,151,789, the "789 patent"); (2) a
declaration that the Company does not infringe any claim of United States Patent
No. 4,908,713 (the "713 patent") and/or that any such claim is invalid and/or
unenforceable; (3) a preliminary and permanent injunction and treble damages for
Gemstar's violation of certain antitrust laws; and (4) monetary and exemplary
damages for Gemstar's tortious business activities. Gemstar and Levine
counterclaimed on January 4, 1994 for a preliminary and permanent injunction and
treble damages for the Company's alleged infringement of the '713 patent claims
and for a declaration of noninfringement, invalidity, and/or unenforceability of
the claims of the Company's '789 patent. In addition, on December 8, 1993
Gemstar and Levine moved to dismiss the Company's antitrust claim and the
Company's declaratory relief claim to the extent it sought a declaration of the
unenforceability of the '713 patent due to Levine's alleged inequitable conduct
during the prosecution of the '713 patent. Pursuant to a court order, the
Company's antitrust claim, but not its inequitable conduct claim, was dismissed
with prejudice. The case has been phased to permit resolution of the unequitable
conduct claim, validity and infringement issues, in August 1996, prior to
resolving all other disputed issues.
In November 1993, Gemstar filed an action against the Company in the
District Court for the Central District of California seeking: (1) a preliminary
and permanent injunction and treble damages for the Company's alleged violation
of certain federal and state antitrust laws; (2) for monetary and exemplary
damages for the Company's allegedly tortious business activities; and (3) for a
declaration of the noninfringement, invalidity, and/or unenforceability of the
claims of three of the Company's patents (United States Patent Nos. 5,151,789,
4,706,121, and 4,977,455). In May, 1994, the Central District action was ordered
to be transferred to the Northern District of California, San Jose Division, to
be consolidated with the above mentioned litigation for discovery and pre-trial
purposes. In addition, pursuant to a court order, Gemstar's declaratory relief
claims against the Company's United States Patent Nos. 4,706,121 (the "121
patent") and 4,977,455 (the "455 patent") were dismissed. Discovery is
proceeding in this case and trial date has not yet been set.
In October 1994, SuperGuide Corporation ("SuperGuide") and Gemstar
filed a further lawsuit against the Company in the District Court for the
Northern District of California, San Jose Division. In this action, SuperGuide
and Gemstar are seeking, among other things, preliminary and permanent
injunctions and treble damages for the alleged willful infringement by the
Company of one or more claims of United States Patent Nos. 4,751,578 (the "578
patent") and 5,038,211 (the "211 patent"). On December 8, 1994, the Company
filed counterclaims seeking, among other things, a declaration that the Company
does not infringe any such claims of the '578 and '211 patents, and/or that such
claims are invalid and/or unenforceable. On May 5, 1995, SuperGuide amended its
complaint to add a count asserting that the Company's '121 patent is invalid
and/or unenforceable and is not infringed upon by SuperGuide. The Company filed
a motion to dismiss SuperGuide's
<PAGE>
causes of action with respect to the '121 patent for lack of subject matter
jurisdiction (based on no case or controversy); on August 8, 1995, the Company's
motion was granted. This lawsuit also has been consolidated with the above
mentioned cases for discovery and pre-trial purposes. Discovery is proceeding in
this case and a trial date has not yet been set.
In October 1993, United Video and its Trakker, Inc. subsidiary brought
suit against the Company in the United States District Court for the Northern
District of Oklahoma, seeking a declaratory judgment that its interactive
program guide products do not infringe any of the Company's '121, '455 or '789
patents. The Company counterclaimed based on United Video's infringement of the
'121 patent, and requested damages for past infringement, for declaratory and
injunctive relief to halt future infringement, for exemplary damages based on
the willful nature of United Video's infringement, and reimbursement of its
attorney fees. United Video subsequently expanded the litigation by requesting
similar declarations with respect to all of the Company's pending patent
applications and its later-acquired patents from Personalized Media
Communications ("PMC") but subsequently amended its complaint to limit the
patents in suit to just the three patents identified above plus five PMC patents
which are licensed to the Company. The Company moved to defer consideration of
all non-'121 patent issues pending resolution of the parties' dispute concerning
the '121 patent, and the court granted this motion. During 1994, the parties
began discovery and United Video brought a series of eight summary judgment
motions, all of which were denied. It also amended its complaint to add various
additional defense theories and federal antitrust claims; similar to the
non-'121 patent issues, litigation of the antitrust claims has been deferred
pending resolution of the '121 patent infringement claims. Discovery as to the
'121 patent claims is complete and the '121 infringement trial, previously set
for November 6, 1995, was re-set for January 29, 1996. In December 1995, the
Company moved to include its recently issued United States Patent Nos. 5,479,266
(the "266 patent") and 5,479,268 (the "268 patent"), and asked the court to
postpone the January 29, 1996 trial date for a limited period of time so as to
hear the '121, '266 and '268 infringement issues at the same time. United Video
opposed the Company's motion for a continuance, but did not object to the
addition of the '266 and '268 patents but argued that they should not be heard
with the '121 patent issues. Pursuant to a court order, the January 29, 1996
trial date was postponed to May 8, 1996. A subsequent court order denied the
Company's previously filed motion to dismiss, which motion was based on newly
discovered evidence. As such, the trial began on May 8, 1996 and is expected to
cover only the '121 patent issues over a multi-month period.
In October 1992, the Company and Scientific-Atlanta entered into a
license agreement under which Scientific-Atlanta received, among other things,
the rights to the '121, '455 and '789 patents for the purpose of developing
converters that would accommodate the Company's electronic program guide system.
On April 13, 1995, the Company served an arbitration demand on
Scientific-Atlanta alleging breach of the license agreement, unfair competition,
breach of the covenant of good faith and fair dealing, intentional
misrepresentation and interference with prospective economic advantage. The
arbitration hearing began on April 9, 1996 and concluded on May 2, 1996. On July
23, 1996, the American Arbitration Association awarded the Company $15,000,000
in monetary damages plus attorney's fees and arbitration costs against
Scientific-Atlanta for breach of contract, including misappropriation of certain
Company intellectual property. In addition to the monetary award, the Company
was granted injunctive relief prohibiting Scientific-Atlanta, except under
certain limited conditions, from accepting any new customer orders for
<PAGE>
any products incorporating an interactive electronic program guide that utilizes
any information derived either directly or indirectly from the Company for a
period of three years beginning from the date of the award.
In February 1996, Scientific-Atlanta filed a complaint against the
Company and Philips Electronics North America Corporation ("Philips") for patent
infringement. The lawsuit alleges that the manufacture, sale and use of the
Company's stand alone StarSight receiver infringes Scientific-Atlanta's U.S.
Patent Numbers 4,991,011, 5,477,262 and 5,247,364, and seeks damages in an
unspecified amount, injunctive relief and recovery of costs and attorneys fees.
The Company has certain indemnification obligations under an Agreement dated
October 27, 1994 between the Company and Philips, including defending Philips in
this case.
The Company intends to vigorously defend the allegations against it and
to actively pursue its claims against each party. The outcome of these lawsuits
cannot presently be determined.
<PAGE>
Item 4: Submission of Matters to a Vote of Security Holders
On May 16, 1996 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. To elect twelve directors to serve until the next Annual Meeting of
Shareholders until their successors are elected.
DIRECTOR FOR WITHHELD
-------- --- --------
Larry W. Wangberg 21,023,751 56,198
Brian L. Klosterman 20,985,251 94,698
Martin W. Henkel 20,985,251 94,698
Jack C. Clifford 21,025,251 54,698
Ajit M. Dalvi 20,984,089 95,860
Donn M. Davis 21,024,151 55,798
Thomas E. Dooley 21,025,151 54,798
John F. Doyle 21,025,251 54,698
John W. Goddard 21,025,251 54,698
Edward D. Horowitz 20,983,089 96,860
James E. Meyer 21,025,151 54,798
Jacques Thibon 21,024,151 55,798
2. To approve an amendment to the 1989 Stock Incentive Program to increase
the limit on the number of shares of Common Stock granted to an employee in a
calendar year.
For: 19,992,930 Against: 1,056,494 Abstain: 30,525
3. To ratify appointment of Deloitte & Touche LLP as independent auditors
of the Company for the fiscal period ending December 31, 1996.
For: 21,039,975 Against: 19,852 Abstain: 20,122
<PAGE>
Item 5: Other Information
On July 23, 1996, the American Arbitration Association awarded the
Company $15,000,000 in monetary damages plus attorney's fees and arbitration
costs against Scientific-Atlanta for breach of contract, including
misappropriation of certain Company intellectual property. In addition to the
monetary award, the Company was granted injunctive relief prohibiting
Scientific-Atlanta, except under certain limited conditions, from accepting any
new customer orders for any products incorporating an interactive electronic
program guide that utilizes any information derived either directly or
indirectly from the Company for a period of three years beginning from the date
of the award.
<PAGE>
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Statement regarding computation of loss per share.
27.1 Financial data schedule
(b) Reports on Form 8-K.
The Registrant filed a report on Form 8-K dated as of April
19, 1996 regarding the retirement of Michael W. Faber as the
Chairman of the Board of Directors and as a member of the
Board of Directors of the Registrant.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
StarSight Telecast, Inc.
/s/ LARRY W. WANGBERG
Dated: August 14, 1996 -------------------------------------
LARRY W. WANGBERG
Chairman of the Board of Directors and
Chief Executive Officer
/s/ MARTIN W. HENKEL
Dated: August 14, 1996 ---------------------------------
MARTIN W. HENKEL
Executive Vice President and
Chief Financial Officer
<PAGE>
INDEX TO EXHIBITS
11.1 Statement regarding computation of loss per share
27.1 Financial data schedule
Exhibit 11.1
<TABLE>
STARSIGHT TELECAST, INC.
Calculation of Loss Per Share
(in thousands, except share data)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Loss $(6,076) $(7,392) $(12,839) $(16,550)
========== ========== ========== ==========
Weighted average shares of
common shares outstanding 25,369,248 21,062,577 24,080,798 21,042,132
Common share equivalents related
to options and warrants -- -- -- --
---------- ---------- ---------- ----------
Common share and common share equivalent 25,369,248 21,062,577 24,080,798 21,042,132
========== ========== ========== ==========
Net loss per common share and
common share equivalent $(0.24) $(0.35) $(0.53) $(0.79)
========== ========== ========== ==========
</TABLE>
The net loss per share for the three and six months ended June 30, 1996 and 1995
is based on the weighted average number of shares of common stock outstanding
during the period. No effect has been given to unexercised stock options and
warrants because the effect would be antidilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 8,262
<SECURITIES> 13,722
<RECEIVABLES> 1,101
<ALLOWANCES> 0
<INVENTORY> 548
<CURRENT-ASSETS> 24,245
<PP&E> 5,411
<DEPRECIATION> 4,146
<TOTAL-ASSETS> 28,290
<CURRENT-LIABILITIES> 7,333
<BONDS> 0
<COMMON> 125,342
0
0
<OTHER-SE> (104,361)
<TOTAL-LIABILITY-AND-EQUITY> 28,290
<SALES> 1,528
<TOTAL-REVENUES> 1,528
<CGS> 391
<TOTAL-COSTS> 7,412
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4
<INCOME-PRETAX> (6,076)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,076)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,076)
<EPS-PRIMARY> (0.24)
<EPS-DILUTED> (0.24)
</TABLE>
