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 March 31, 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 May 3, 1996, there were 25,377,385 shares outstanding of the Registrant's
Common Stock, no par value.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
STARSIGHT TELECAST, INC.
CONDENSED BALANCE SHEETS
(Unaudited)
(in thousands, except share data)
<CAPTION>
March 31, December 31,
1996 1995
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 28,031 $ 8,787
Accounts receivable 1,446 2,192
Inventories 675 441
Other 340 410
--------- ---------
Total Current Assets 30,492 11,830
FURNITURE, FIXTURES AND EQUIPMENT, net of accumulated
depreciation of $3,858 and $3,663 1,426 1,637
PATENTS AND LICENSES, net of accumulated
amortization of $659 and $595 2,818 2,866
--------- ---------
TOTAL ASSETS $ 34,736 $ 16,333
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,775 $ 1,570
Accrued liabilities 3,265 3,068
Deferred revenue 2,808 2,992
License fee payable 290 286
--------- ---------
Total Current Liabilities 8,138 7,916
--------- ---------
LONG-TERM LICENSE FEE PAYABLE -- 74
SHAREHOLDERS' EQUITY:
Common Stock, no par value: authorized 50,000,000 shares;
issued and outstanding, 25,335,969 and 21,902,018
shares, respectively 125,200 99,400
Unearned compensation (1,153) (371)
Accumulated deficit (97,449) (90,686)
--------- ---------
Total Shareholders' Equity 26,598 8,343
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 34,736 $ 16,333
========= =========
<FN>
See notes to condensed financial statements.
</FN>
</TABLE>
<PAGE>
STARSIGHT TELECAST, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except share data)
Three Months Ended
March 31,
1996 1995
---------- ----------
Revenues $1,246 $218
Cost of goods sold 198 72
Inventory reserves and write offs -- 930
---------- ----------
Gross Profit (Loss) 1,048 (784)
COSTS AND EXPENSES:
General and administrative 4,498 3,719
Engineering and development 888 1,107
Marketing 1,212 2,175
Network services and other expenses 1,339 1,626
---------- ----------
Total costs and expenses 7,937 8,627
---------- ----------
OPERATING LOSS (6,889) (9,411)
---------- ----------
Interest expense (5) (10)
Interest income 131 263
---------- ----------
NET LOSS $(6,763) $(9,158)
========== ==========
NET LOSS PER COMMON SHARE $(0.30) $(0.44)
========== ==========
NUMBER OF SHARES USED FOR
CALCULATION OF NET LOSS
PER COMMON SHARE 22,792,348 21,021,687
========== ==========
See notes to condensed financial statements.
<PAGE>
<TABLE>
STARSIGHT TELECAST, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<CAPTION>
Three Months Ended
March 31,
1996 1995
------- ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(6,763) $(9,158)
Adjustments to reconcile net loss to net
cash used in operating activities:
Amortization of unearned compensation 245 128
Depreciation and amortization 384 443
Inventory valuation reserve -- 891
Changes in assets and liabilities:
Accounts payable, accrued liabilities and deferred revenue 218 (270)
Accounts receivable, inventories and other assets 582 (1,379)
------- ------
Net cash used in operating activities (5,334) (9,345)
------- ------
CASH FLOW FROM INVESTING ACTIVITIES:
Acquisitions of furniture, fixtures and equipment (109) (442)
Maturities of short-term investments -- 7,921
Additions to patents and licenses (16) (10)
------- ------
Net cash provided by (used in) investing activities (125) 7,469
------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock-net 24,625 --
Proceeds from the exercise of options for common stock 148 56
Repayment of notes payable (70) (77)
------- ------
Net cash provided by (used in) financing activities 24,703 (21)
------- ------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 19,244 (1,897)
CASH AND CASH EQUIVALENTS:
Beginning of period 8,787 10,141
------- ------
End of period $28,031 $8,244
======= ======
<FN>
See notes to condensed financial statements.
</FN>
</TABLE>
<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 THREE MONTHS ENDED
MARCH 31, 1996 AND MANAGEMENT PLANS FOR 1996
Revenues for the three months ended March 31, 1996 were $1,246,000. 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 three months ended March 31,
1996 was $6,763,000 and net cash used in operating activities for the
three months ended March 31, 1996 was $5,334,000. At March 31, 1996,
the Company had an accumulated deficit of $97,449,000 and cash and cash
equivalents of $28,031,000.
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 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. However, because of its limited commercial operating history, 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 quarter ended March 31, 1996.
The Company believes that its existing cash and cash equivalents
($28,031,000 at March 31, 1996) will be sufficient to sustain the
Company's current level of operations and meet its financial
obligations through the end of 1996.
3. AGREEMENTS WITH THOMSON
During the first quarter 1996, the Company and THOMSON multimedia S.A.
("THOMSON") finalized agreements to form a long-term strategic
relationship to aggressively incorporate and promote StarSight
technology and related services in selected THOMSON product lines. The
key terms and conditions of these agreements follow:
* The Company sold 3,333,333 shares of its Common Stock to THOMSON
for $25,000,000 ($7.50 per share). The net proceeds to the
Company, after deducting placement fees, were $24,625,000. Such
placement fees of $375,000 were paid to a shareholder pursuant to
an investment advisor agreement with the shareholder.
* The Company granted THOMSON a warrant to purchase 2,000,000
shares of the Company's Common Stock as follows: up to 1,000,000
shares at $7.50 per share on or prior to February 1, 1998 and up
to the balance of the shares at $10.00 per share on or prior to
February 1, 1999. In addition, THOMSON has the right to purchase
on or prior to September 18, 1996 any additional shares at 85% of
market value, as defined in the warrant, which would increase
THOMSON's aggregate percentage ownership of the Company to 16.5%
of the Company's issued and outstanding Common Stock. The total
number of shares purchasable by THOMSON under the warrant is
limited to 19.6% of the Company's issued and outstanding Common
Stock.
* THOMSON will put StarSight capability into a significant portion
of THOMSON's suitable consumer electronic products over the life
of the 10 year agreement.
* The Company will pay THOMSON a per subscriber fee for new
subscribers using a THOMSON StarSight capable product. Fees under
this agreement are limited to certain annual maximums through the
year 2000.
* The Company will pay THOMSON a percentage of all subscription and
related fees derived from THOMSON StarSight capable products. Fees
under this agreement begin after the achievement of an agreed-upon
minimum of THOMSON StarSight capable products manufactured or
procured by THOMSON. In addition, the Company will pay THOMSON a
percentage of all revenues related to consumer electronics
products whether or not the subscriber is using a THOMSON
StarSight capable product. Such fees under this
<PAGE>
agreement begin after the achievement of an agreed-upon minimum of
THOMSON StarSight capable products manufactured or procured by
THOMSON. This agreement expires in 2010.
* The Company and THOMSON each agree to contribute significant
specific dollar advertising commitments in 1997 and 1998 for
advertising and promotion of THOMSON StarSight capable products.
4. PATENT INFRINGEMENT 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 March 31, 1996, the Company has expensed
approximately $6,912,000 in legal and other costs in connection with
such litigation, of which approximately $1,212,000 was included in
general and administrative expenses in the three months ended March 31,
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. Accordingly, no
provision for any loss that may result upon the resolution of these
matters has been made in the accompanying financial statements.
5. INVENTORIES
Inventories are summarized as follows (in thousands):
March 31, December 31,
1996 1995
-------------- ------------------
Raw materials $ 675 $ 441
Finished products 4,827 5,099
------ ------
Total 5,502 5,540
Less lower of
cost-or-
market valuation (4,827) (5,099)
allowance ------ ------
Inventory, net $ 675 $ 441
===== =====
6. REPRICING OF EMPLOYEE STOCK OPTIONS
In January 1996, the Company repriced the exercise price of 299,201
common stock options (originally granted to employees at prices from
$15.00 to $5.00) to $3.50.
<PAGE>
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 months ended
March 31, 1996, the Company recorded $145,000 in additional
compensation related to the repriced options.
7. NET LOSS PER SHARE
The net loss per share for the three months ended March 31, 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.
<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 March 31, 1996, the Company had accumulated a deficit of $97,449,000.
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, Inc. ("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. In 1995, the Company brought an arbitration action against
Scientific-Atlanta concerning Scientific-Atlanta's alleged delay in the
deployment of StarSight-capable converters and its development of a competing
electronic program guide allegedly 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 on three U.S. patents owned by Scientific-Atlanta. See Part
II, Item 1: "Legal Proceedings." In addition, the Company has entered into
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 negotiations with additional manufacturers for similar agreements.
The Company devotes significant management time and efforts to identify,
negotiate and enter into additional such relationships, as well as time and
efforts of engineering personnel to customize the
<PAGE>
Company's technology for incorporation in the hardware offered by such
manufacturers. As a part of the Company's strategy in licensing, the Company has
entered into licensing agreements with Thomson, Sony, Toshiba and Panasonic for
use of the Company's intellectual property in certain non-StarSight-capable
digital satellite system equipment manufactured by them. The Company continues
to actively explore opportunities to license the Company's intellectual property
for non-StarSight-capable products where appropriate. In addition, the Company
spends significant management time directed toward the marketing and promotion
of the StarSight service, including customer support and operational issues.
Results of Operations
Revenues for the three months ended March 31, 1996 and 1995 were
$1,246,000 and $218,000, respectively. Revenues increased in 1996 due to an
increase in licensing revenues and, to a lesser extent, increased subscription
revenue. 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 $6,763,000 for the three
months ended March 31, 1996 compared to $9,158,000 for the three months ended
March 31, 1995.
During the quarter ended March 31, 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 quarter ended March
31, 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 increased
from $3,719,000 for the three months ended March 31, 1995 to $4,498,000 for the
three months ended March 31, 1996. The increase in general and administrative
expense was primarily due to increased legal expenses related to the Company's
patent litigation and one-time compensation expense in connection with the
retirement of the Company's Chairman of the Board.
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 March 31,1996, the Company
has expensed approximately $6,912,000 in legal and other costs in connection
with such litigation, of which approximately $1,212,000 was included in general
and administrative expenses in the three months ended March 31, 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. Accordingly, no provision for any loss that may result upon the
resolution of these matters has been made in the accompanying financial
statements.
Engineering and development expense is composed primarily of personnel
costs in the areas of product design and development. Engineering efforts
include development of
<PAGE>
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
$1,107,000 for the three months ended March 31, 1995 to $888,000 for the three
months ended March 31, 1996. The decrease in engineering and development expense
was primarily due to lower staffing levels when compared to the previous year's
first quarter.
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 $2,175,000 for the three months ended March 31, 1995 to
$1,212,000 for the three months ended March 31, 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 related to the development and
manufacture of the Company's stand alone StarSight receivers. Network services
and other expenses decreased from $1,626,000 for the three months ended March
31, 1995 to $1,339,000 for the three months ended March 31, 1996. The decrease
was primarily attributable to lower staffing levels for order processing and
customer support and decreased manufacturing support costs associated with the
Company's stand alone StarSight receiver.
Liquidity and Capital Resources
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 March 31, 1996. In addition, the
Company completed an initial public offering in August 1993, raising
approximately $42,300,000, net of issuance costs.
As of March 31, 1996, the Company had an accumulated deficit of
$97,449,000. Negative cash flow from operations for the three months ended March
31, 1996 and 1995 was $5,334,000 and $9,345,000, 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 and other 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
<PAGE>
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 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
($28,031,000 at March 31, 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 was dismissed with prejudice. In addition, the case
has been phased to permit resolution of 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 causes of action with respect to the `121
patent for lack of subject matter jurisdiction (based
<PAGE>
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 PMC patents, 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. See "Patents,
Trademarks, Copyrights and Proprietary Information." 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-week 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. The
parties await a decision from the three member arbitration panel, following
exchange of post-trial briefs.
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
<PAGE>
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. Accordingly, no provision for any loss that may
result upon the resolution of these matters has been made in the accompanying
financial statements.
<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 Company did not file any reports on Form 8-K during the
quarter ended March 31, 1996.
<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: May 15, 1996 -------------------------------------
LARRY W. WANGBERG
Chairman of the Board of Directors and
Chief Executive Officer
/s/ MARTIN W. HENKEL
Dated: May 15, 1996 ---------------------------------
MARTIN W. HENKEL
Executive Vice President
Chief Financial Officer
Exhibit 11.1
STARSIGHT TELECAST INC.
Calculation of Loss Per Share
(in thousands, except share data)
Three Months Ended
March 31,
1996 1995
------------ ------------
Net Loss $ (6,763) $ (9,158)
============ ============
Weighted average shares of
common shares outstanding 22,792,348 21,021,687
Common share equivalents related
to options and warrants -- --
------------ ------------
Common share and common share equivalents 22,792,348 21,021,687
============ ============
Net loss per common share and
common share equivalent $ (0.30) $ (0.44)
============ ============
The net loss per share for the three months ended March 31, 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> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 28,031
<SECURITIES> 0
<RECEIVABLES> 1,446
<ALLOWANCES> 0
<INVENTORY> 675
<CURRENT-ASSETS> 30,492
<PP&E> 5,284
<DEPRECIATION> 3,858
<TOTAL-ASSETS> 34,736
<CURRENT-LIABILITIES> 8,138
<BONDS> 0
<COMMON> 125,200
0
0
<OTHER-SE> (98,602)
<TOTAL-LIABILITY-AND-EQUITY> 34,736
<SALES> 1,246
<TOTAL-REVENUES> 1,246
<CGS> 198
<TOTAL-COSTS> 7,937
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5
<INCOME-PRETAX> (6,763)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,763)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,763)
<EPS-PRIMARY> (.30)
<EPS-DILUTED> (.30)
</TABLE>
