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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2000

Commission File Number 0-19579
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INTERACTIVE NETWORK, INC.
(Exact name of registrant as specified in its charter)

CALIFORNIA 94-3025019
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation and organization)

180 SECOND STREET, SUITE B, LOS ALTOS, CALIFORNIA 94022
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(Address of principal executive offices, including zip code)

(650) 947-3345
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(Registrant's telephone number)

Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE PER SHARE
(Title of class)

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 __

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequently to the distribution of securities under a plan
confirmed by a Court. Yes _X_ No __

The aggregate market value of the voting stock held by non-affiliates
(non-officers, directors and 10% shareholders and excluding the shares held by
the Voting Trust (see Item 12)) of the Registrant, based on the closing price of
the common stock on March 15, 2001, as reported on the OTC Bulletin Board for
the last trading day prior to that date, was approximately $22,977,495. Shares
of common stock held by each executive officer and director and holder of 5% or
more of the outstanding common stock have been excluded from this computation in
that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.

As of March 15, 2001 the Registrant had outstanding 43,019,277 shares
of Common Stock.

Documents Incorporated By Reference

None
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INDEX

INTERACTIVE NETWORK, INC.

Page No.
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PART I

Item 1. BUSINESS.....................................................4

Item 2. PROPERTIES...................................................9

Item 3. LEGAL PROCEEDINGS............................................9

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..........10

PART II

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS..........................................10

Item 6. SELECTED FINANCIAL DATA......................................11

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..........................12

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..................18

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.......................37

PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...........38

Item 11. EXECUTIVE COMPENSATION.......................................39

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT...............................................45

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...............46

PART IV

Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K..................................................47

SIGNATURES...................................................51

CAUTIONS ABOUT FORWARD-LOOKING STATEMENTS

THIS ANNUAL REPORT ON FORM 10-K INCLUDES FORWARD-LOOKING STATEMENTS
ABOUT FUTURE FINANCIAL RESULTS, FUTURE BUSINESS CHANGES AND OTHER EVENTS THAT
HAVE NOT YET OCCURRED. FOR EXAMPLE, STATEMENTS LIKE WE "EXPECT," WE "BELIEVE,"
WE "INTEND" OR WE "ANTICIPATE" ARE FORWARD-LOOKING STATEMENTS. INVESTORS SHOULD
BE AWARE THAT ACTUAL RESULTS MAY DIFFER MATERIALLY FROM OUR EXPECTATIONS BECAUSE
OF RISKS AND UNCERTAINTIES ABOUT THE FUTURE. IN ADDITION, WE WILL NOT
NECESSARILY UPDATE THE INFORMATION IN THIS ANNUAL REPORT ON FORM 10-K IF ANY
FORWARD-LOOKING STATEMENT LATER TURNS OUT TO BE INACCURATE. DETAILS ABOUT RISKS
AFFECTING VARIOUS ASPECTS OF OUR BUSINESS ARE INCLUDED THROUGHOUT THIS ANNUAL
REPORT ON FORM 10-K, INCLUDING THOSE DESCRIBED BELOW IN "FACTORS AFFECTING
FUTURE OPERATING RESULTS" AND ELSEWHERE IN THIS ANNUAL REPORT ON FORM 10-K.

THE TERMS "WE," "OUR," "US," "THE COMPANY" AND "INTERACTIVE" AS USED IN
THIS ANNUAL REPORT ON FORM 10-K REFER TO "INTERACTIVE NETWORK, INC." IN
ADDITION, THIS ANNUAL REPORT ON FORM 10-K INCLUDES OUR TRADEMARKS AND REGISTERED
TRADEMARKS. PRODUCTS OR SERVICE NAMES OF OTHER COMPANIES MENTIONED IN THIS
ANNUAL REPORT ON FORM 10-K MAY BE TRADEMARKS OR REGISTERED TRADEMARKS OF THEIR
RESPECTIVE OWNERS.

PART I

ITEM 1. BUSINESS.

GENERAL

Interactive Network was originally founded to provide interactive
television services, which we began providing in 1991. We incurred significant
expenses in developing, testing and marketing our services, and were forced to
curtail our operations by August 1995, due to lack of ongoing financing. While
in operation, we acquired key strategic investors such as TCI Cable (now a part
of AT&T), NBC, Gannett, Motorola, Sprint, and AC Nielson.

Today, we own certain intellectual property assets related to the
interactive television market and other interactive technology. Our prior
strategic investors remain as our stockholders and our management is confident
in its strategy to deliver stockholder value by marketing our intellectual
property and by working to enhance and develop our patent portfolio. We continue
to concentrate on exploiting our patent portfolio in a cost-effective way
through licenses, joint ventures, strategic alliances, or other methods that do
not involve large overhead demands. In the event that we acquire sole ownership
of TWIN Entertainment, as discussed below, we will move from exploiting our
patent portfolio through broad licensing, joint ventures and strategic alliances
and will instead engage in only restrictive licensing of our intellectual
property and focus on developing and licensing products and services that
utilize our patents.

We have an advisory panel of consultants and have re-employed our
former Chief Scientist, Dr. Robert Brown to provide the technical and management
expertise to assist in the fulfillment of our goals. Further, our management is
planning to hire additional personnel to meet our anticipated future needs. Our
bankruptcy reorganization plan was approved by the Bankruptcy Court in 1999 and
we continue to expend resources in litigating disputed claims. In addition, we
expend significant resources in the maintenance and enforcement of our
intellectual property rights. Our management believes that our intellectual
property assets put our company in a position to be a part of the interactive
content and interactive services businesses currently being developed.

United States and Canada. We have licensed TWIN Entertainment the non-exclusive
use of our patents and other intellectual property for the United States and
Canada. Two Way TV also licensed to TWIN Entertainment certain intellectual
property rights and technology, including then-existing and future content,
software, know-how and other technological materials and information, on a
non-exclusive basis. Additionally, as part of the agreements with Two Way TV to
create TWIN Entertainment, we settled all outstanding claims with Two Way TV and
entered into a separate worldwide license agreement that exclusively licenses
our intellectual property in countries other than the United States and Canada
to Two Way TV in exchange for a royalty payment of a certain percentage of Two
Way TV's world wide sales. Under the terms of the agreement, Two Way TV will pay
us a royalty of 3% of worldwide Gross Profits (as defined in the Termination and
License Agreement dated as of January 31, 2000, which was filed with the SEC on
February 11, 2000 as Exhibit 2.5 to a Report on Form 8-K and which is
incorporated herein by reference), with a minimum annual royalty of no less than
$250,000 by January 31, 2001, with the minimum royalty payment increasing by at
least eight percent (8%) each year thereafter. In March 2001, Two Way TV paid us
a royalty of $250,000 for the year ending December 31, 2000.

During the year ended December 31, 2000, we made additional investments
in TWIN Entertainment in the form of a $750,000 loan in September and a $250,000
loan in December, and Two Way TV made similar loans to TWIN Entertainment. Each
of us and Two Way reserves the right to convert the loan amounts to equity in
TWIN Entertainment in the future under terms to be determined and agreed upon at
a later date by us the parties. We made a further loan of $250,000 on similar
terms as described above in February 2001 to TWIN Entertainment, and Two Way TV
made a similar loan to TWIN Entertainment.

We understand that TWIN Entertainment's management is in discussions
with a number of companies to obtain carriage and content agreements to deliver
and create interactive entertainment under the licensing it has received from
the Company and Two Way TV. For example, TWIN Entertainment has announced an
agreement with the Public Broadcasting Service to produce educational, fully
interactive television games based upon PBS KIDS programs and has also announced
a partnership with Liberate Technologies to supply interactive games and
entertainment to enhanced television subscribers as part of Liberate
Technologies PopTV Variety Pack. It is our belief that TWIN Entertainment will
use our intellectual property and Two Way TV's technology to become an active
participant in the interactive television and broadband market in the U.S. and
Canada.

In December 2000, we announced that we were negotiating the terms of a
transaction with Two Way TV under which we would acquire 100% ownership of TWIN
Entertainment. Under the terms of the transaction as currently proposed, Two Way
TV will exchange its interest in TWIN Entertainment for a substantial stake in
Interactive Network, making Two Way TV our largest shareholder. TWIN
Entertainment will merge with us, forming a single company. Final terms of the
transaction have not been agreed upon, however, and the completion of any
transaction is subject to many conditions, including the negotiation and
execution of definitive legal agreements, due diligence by us and Two Way TV,
approval by both our board and Two Way TV's board, approval by TWIN
Entertainment's shareholders, approval by our shareholders and any required
regulatory review. Thus, while we believe that the transaction will be
completed, it remains possible that the acquisition will not take place or that
the terms of any actual transaction as consummated will be significantly
different from those currently proposed.

INTERACTIVE NETWORK'S INTELLECTUAL PROPERTY

Interactive Network presently holds six United States patents, one of
which expires in 2004, with the remaining patents expiring between 2009 and
2015. We also hold two Canadian patents which are similar to two of our U.S.
patents. As discussed above, we consummated a transaction with Two Way TV
whereby we formed TWIN Entertainment in January 2000 and licensed to it our US
and Canadian patents on a non-exclusive basis. We also entered into a separate
worldwide license agreement that exclusively licenses our intellectual property
in countries other than the United States and Canada to Two Way TV in exchange
for a royalty payment of a certain percentage of Two Way TV's world-wide sales.

There can be no assurance that our patents will be upheld, if
challenged; that competitors might not develop similar or superior technology or
products outside the protection of any patents issued to us; or that others will
not establish patent rights that would substantially interfere with our
business. We attempt to protect our trade secrets and other proprietary
information through agreements with our employees and consultants, and through
other security measures. Although we intend to protect our rights vigorously, we
cannot assure that these measures will be successful. The internet and
interactive television industries are subject to frequent litigation regarding
patent and other intellectual property rights. We are currently involved in
litigation with Networks North, Inc. (formerly NTN Communications Canada, Inc.)
regarding its alleged infringement of our patents in Canada. We cannot assure
that third parties will not assert claims against us with respect to existing or
future intellectual property or that we will not need to assert claims against
other third parties to protect our intellectual property.

We do not intend to return to the plan of business followed by
Interactive Network, Inc., prior to its ceasing operation in mid-1995 that
required us to constantly seek new infusions of capital. Rather, we intend to
take steps to protect, enhance and exploit our patents and other technology in a
manner consistent with our existing resources. The Company intends to continue
to develop and license its patent portfolio while seeking partnerships with
industry leaders for the creation and delivery of interactive content over
multiple platforms throughout the U.S. and Canada. With Dr. Robert Brown and our
advisory panel, we hope to enhance, protect and further exploit our patent
portfolio, our other intellectual property and our market position. We are also
considering the filing of future patent applications on improvements to our
basic technology. In the event of the successful completion of our planned
acquisition of and merger with TWIN Entertainment, we intend to pursue this
strategy with respect to the licenses held by TWIN Entertainment and the
exclusive licensing we currently anticipate the combined entity will receive
from Two Way TV and continue TWIN Entertainment's attempts to develop and market
new products and enter into carriage and content agreements with other
companies.

COMPETITION

We operate in an evolving and competitive industry of interactive
television and interactive television game applications and we expect that
competition will increase. Because we do not currently sell our own products or
services, but instead license our technology to third parties, we do not face
any direct competition in the traditional sense. Our primary competition comes
from companies providing alternatives to the services enabled by our technology.
Until a sufficient market develops for the digital set-top boxes enabled to run
our high-end interactive television game applications, we may face competition
from companies developing and marketing stand-alone game products and services.
In each of our business activities, we face current or potential competition
from competitors that have significantly greater financial, manufacturing,
marketing, sales and distribution resources and management expertise than we
have.

In addition, our future prospects will be dependent upon the successful
development and introduction of new products and the ability to secure and
execute upon carriage and content agreements by TWIN Entertainment, or, if the
acquisition of and merger with TWIN Entertainment is successful, the combined
entity. TWIN Entertainment's competitors in the interactive television content
area are reflective of any game developer doing enhanced television games. In
the event that we do not successfully complete the planned acquisition of and
merger with TWIN Entertainment, our prospects may also depend on our finding new
joint venture or licensing opportunities. We cannot assure that TWIN
Entertainment will be able to successfully develop or market any such new
products or services or that we will find any other such partners, if
applicable. Additionally, we cannot be certain that we will be able to secure
the funding required to maintain existing and planned operational growth and
support to develop and protect our intellectual property rights.

Factors Affecting Future Operating Results
------------------------------------------

IF WE ARE UNABLE TO RAISE ADDITIONAL CAPITAL ON ACCEPTABLE TERMS, OUR
ABILITY TO EFFECTIVELY MANAGE GROWTH AND FUND OUR OPERATIONS WILL BE
HARMED.

We expect that our existing capital resources are not sufficient to
meet our cash requirements for the next 12 months and that we will need to raise
additional financing during that period. Although we had approximately $680,000
in cash as of December 31, 2000, our working capital deficit was approximately
$500,000, due mainly to accounts payable and accrued liabilities and deferred
legal fees. Our budget for 2001 accounts for cash needs of approximately $2.92
million, including repayment of approximately $972,000 of debt due in 2001 and
operational expenses of $1.35 million, which includes approximately $600,000 for
overhead and salaries, the estimated cost for keeping the bankruptcy reserve
account fully funded and $100,000 for corporate investor relations. We currently
expect revenues in 2001 to be insufficient to meet these needs and are in
negotiations to secure other sources of outside financing. Such funds may not be
available on acceptable terms, if at all. If we cannot raise or borrow the
necessary additional funds on acceptable terms, we may not be able to operate
our business as we currently anticipate or develop or enhance our intellectual
property, take advantage of future opportunities or respond to competitive
pressures or unanticipated requirements.

As of December 31, 2000, we raised $3.1 million through the sale of
2,541,672 units to private investors pursuant to a Stock Purchase and Investment
Agreement dated September 13, 2000. Each unit consists of one share of our
common stock and a five-year warrant to purchase one share of our common stock
at an exercise price of $1.90 per share. Under the agreement, these investors
retain substantial control over the use of proceeds from their investment. Our
$750,000 and $250,000 loans to TWIN Entertainment and the $931,000 set aside for
the bankruptcy reserve account in the year ending December 31, 2000, as well as
the $250,000 loan to TWIN Entertainment we made in February 2001, were paid out
of the proceeds from the sale of these units, and we intend to use the remainder
to fund our operations through the second quarter of 2001. As of March 15, 2001,
we have not closed this round of financing. This description is a general
summary only and does not describe all the terms of the investment, which is
governed by the Stock Purchase and Investment Agreement. A copy of the agreement
has been filed as Exhibit 10.19 to our Quarterly Report on Form 10-Q filed with
the SEC on November 14, 2000, and is incorporated herein by reference.

If additional capital is raised through the issuance of equity
securities, the percentage ownership of our existing stockholders will decline,
stockholders may experience dilution in net book value per share, or these
equity securities may have rights, preferences or privileges senior to those of
the holders of our common stock. Any debt financing, if available, may involve
covenants limiting or restricting our operations or future opportunities.

THE MARKET FOR ENHANCED TELEVISION PRODUCTS AND SERVICES IS NEW AND MAY
NOT DEVELOP AS WE ANTICIPATE.

The enhanced television products market is currently small and
emerging. Our success depends on the growth and development of this market, and
we are dependent upon the commercialization and broad acceptance by consumers
and businesses of a wide variety of enhanced television products. As is typical
in a new and evolving industry, demand and market acceptance of recently
introduced products and services are subject to a high level of uncertainty and,
a result, our profit potential is unproven. In addition, the potential size of
this new market opportunity and the timing of its development and deployment are
currently uncertain. Recently, deployment schedules of enhanced television
products offered by our partners or competitors have been delayed or refocused
as our industry evolves. Until high-end digital set-top boxes capable of running
our applications are sufficiently deployed in the marketplace and enabled to
utilize our interactive game applications, our profit potential is uncertain. If
the market for enhanced television products does not develop or develops more
slowly than we anticipate, our revenues will not grow as fast as anticipated, if
at all.

OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY.

Our quarterly results of operations may vary significantly in the
future for a variety of reasons, including the following:

o availability of adequate financing;
o timing of recognition of license fees;
o timing of dividends, distributions or stock sales, if any, by
TWIN Entertainment;
o timing of new product and technology introductions by us or
TWIN Entertainment, our licensees or competitors;
o fluctuations in the level of sales by OEMs and other vendors
of products incorporating TWIN Entertainment's or our
technology; and
o general economic conditions.

Each of the above factors is difficult to forecast and thus could
seriously harm our business, financial condition and results of operations.

Through 2001, we expect that revenues will be derived primarily from
dividends or distributions received from TWIN Entertainment and royalties from
our global license to Two Way TV. The uncertain timing of these distributions or
royalties may cause quarterly fluctuations in our operating results. In
addition, our royalties from licenses are totally dependent upon the success of
Two Way TV products and services in the marketplace.

OUR STOCK PRICE MAY BE VOLATILE.

Announcements of developments related to our business, announcements by
competitors, quarterly fluctuations in our financial results and general
conditions in the highly dynamic industry in which we compete or the national
economies in which we do business, and other factors, could cause the price of
our common stock to fluctuate, perhaps substantially. In addition, in recent
years the stock market has experienced extreme price fluctuations, which have
often been unrelated to the operating performance of affected companies. These
factors and fluctuations could have a significantly harmful effect on the market
price of our common stock.

WE HAVE RECOGNIZED VERY LIMITED REVENUE, HAVE INCURRED SIGNIFICANT NET
LOSSES AND MAY NEVER ACHIEVE PROFITABILITY.

Since curtailing operations in 1995, we have incurred losses and have
had negative cash flow. As of December 31, 2000, we had an accumulated deficit
of approximately $146.9 million. We expect to incur operating expenses over the
next several years in connection with the continued development and expansion of
our business. As a result, we expect to continue to incur losses for the
foreseeable future. The size of these net losses depends in part on the growth
in our business and on our expenses. Consequently, we may never achieve
profitability, and even if we do, we may not sustain or increase profitability
on a quarterly or annual basis in the future.

INTELLECTUAL PROPERTY CLAIMS AGAINST US CAN BE COSTLY AND COULD RESULT
IN THE LOSS OF SIGNIFICANT RIGHTS.

From time to time, we or TWIN Entertainment may be subject to
intellectual property litigation which could:

o be time-consuming and expensive;
o divert management's attention and resources away from our
business;
o cause delays in product delivery and new service introduction;
o cause the cancellation of new products or services; or
o require us to pay significant royalties or licensing fees.

The enhanced television industry is highly litigious. A number of
companies in the enhanced television industry earn substantial profits from
technology licensing, and the introduction of new technologies such as ours is
likely to provoke lawsuits from such companies. An unsuccessful claim of
infringement by us or a successful claim of infringement against us could
materially impair our ability to generate revenues.

EMPLOYEES

We are currently operating with a staff of three full-time employees
and are assisted by the members of our advisory panel. In the event of the
acquisition of and merger with TWIN Entertainment, it is currently intended that
the combined staffs of us and TWIN Entertainment will then be headquartered in
new offices and operate as one management team and staff.

ITEM 2. PROPERTIES

Our operations are located in an approximately 1500 square foot leased
facility in Los Altos, California, with our lease expiring on August 1, 2002. We
have an option to extend the lease for one year. This facility houses our
operations and administrative personnel. In the event that we successfully
complete the acquisition of and merger with TWIN Entertainment, we intend to
look for a new location to house our operations and administrative personnel.

ITEM 3. LEGAL PROCEEDINGS

The Company continues to pursue the objections it has to claims of
creditors in its Bankruptcy proceedings. As of December 31, 2000, we have set
aside $5.6 million in a reserve account to pay creditors whose claims we are
disputing, as required under our plan of reorganization. As of March 1, 2001,
prepetition claims either allowed or disputed totaled approximately $5.6
million.

We continue to dispute the claims of National Datacast in our
bankruptcy proceeding. As of November 1, 2000, National Datacast's claim totaled
approximately $4.93 million; as of March 1, 2001, interest had increased it to
about $5.06 million. We have appealed the July 2000 memorandum decision, and
filed our opening brief on March 6, 2001. We have also obtained from the
Bankruptcy Court a stay of enforcement of the judgment by National Datacast
pending the appeal. The stay is conditioned on funding our reserve account to
secure the claims of all unpaid or disputed claims created by our confirmed plan
of reorganization at 100% of the remaining claims and adjusting the reserve
account on a monthly basis thereafter so that all remaining claims continue to
be covered, including accruing interest, where applicable. The Bankruptcy Court
entered the stay order on November 13, 2000. We funded the reserve account
within the deadline set by the stay order, and have continued to keep it funded
at 100%.

David Lockton, a shareholder and our former CEO, filed a complaint in
our bankruptcy case seeking specific performance of his promissory note for $2.0
million, his alleged stock option rights for 2,225,000 shares of our common
stock and back pay on his employment agreement and damages of $17 million. Trial
of Mr. Lockton's claims took place on May 8-11 and May 30-31, 2000. A memorandum
decision was filed by the Bankruptcy Court on September 27, 2000. The Bankruptcy
Court held that Mr. Lockton retained to the right to be paid $1.85 million under
the terms of his promissory note. The Bankruptcy Court also held that Mr.
Lockton was entitled to a judgment allowing Mr. Lockton's claim for $913,810.21
under his employment agreement and found that Mr. Lockton had the right to
exercise options to purchase 900,000 shares of our common stock at $0.09 per
share. Mr. Lockton had within thirty days of the filing of the judgment to
exercise the option or the option would be forfeited. The Court also held that
Mr. Lockton was entitled to postpetition interest on the amount of the judgment
at the rate of 10% per annum simple interest. A judgment was entered on October
30, 2000. On November 13, 2000, Mr. Lockton filed a Motion to Reconsider.
Subsequently, Mr. Lockton offered to withdraw his motion to reconsider and to
forego any appeal in return for payment of his claim by the Company and issuance
by the Company of the 900,000 shares the Bankruptcy Court had found were due
him. Mr. Lockton also requested that the shares be registered for
redistribution. The Company agreed to Mr. Lockton's proposal. Mr. Lockton
withdrew his motion to reconsider and allowed the time to appeal to expire

without filing an appeal. The Company paid him the amount of his allowed claim
plus interest to the date of payment, less the $81,000 purchase price of the
900,000 shares (by agreement with Mr. Lockton), and issued to him and registered
the 900,000 shares. We believe that Mr. Lockton is no longer a creditor of the
Company.

We previously obtained Bankruptcy Court approval of our previously
disclosed preliminary settlement of the claims of the Equitable Life Assurance
Society ("Equitable"). Under the settlement, Equitable accepted a total of
$840,000 on its scheduled claims of $1.7 million, to be paid one half upon
approval by the Bankruptcy Court, and one half in equal monthly installments
over the twelve months thereafter, without interest. As of March 1, 2001, we
have paid the first half of the settlement and made eight (8) of the monthly
payments. The balance owed Equitable following the March 1, 2001 payment is
$140,063.12. There are four payments remaining, the money for which is in the
bankruptcy reserve account.

We obtained a settlement of a disputed claim by Evans Research
Associates that was approved by the Bankruptcy Court. Under the terms of the
settlement, we paid Evans $12,500, which is approximately 70% of the total
amount that was claimed by Evans.

Fish & Richardson claims approximately $266,700 (with interest) as of
March 31, 2001, for prepetition legal services rendered to Interactive. We
contend that we owe Fish & Richardson substantially less, if anything at all. We
recently filed an objection to Fish & Richardson's claim. Fish & Richardson
filed its initial response. At a status conference on March 30, 2001, the
Bankruptcy Court set trial on this dispute for September 4-5, 2001.

We are continuing our litigation against Networks North, Inc. (formerly
NTN Communications Canada, Inc.) in Canada for that company's alleged
infringement of our patents. To date, we have incurred expenses of approximately
$102,667 in connection with the pursuit of this claim.

Other claims of unsecured creditors remain at issue, with settlement
discussions continuing in most instances.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

The following table shows the range of high and low bid prices at which
transactions in our common stock occurred as reported by Dow Jones Interactive
Quotes & Market Data for the periods indicated. On March 1, 2001, the closing
price of our common stock was $0.8438. Our common stock is currently being
traded on the OTC Bulletin Board and is listed under the symbol "INNN."

HIGH LOW
------- -------
FISCAL YEAR ENDED DECEMBER 31, 2000
4th Quarter............................ $1.750 $0.650
3rd Quarter............................ $2.125 $1.090
2nd Quarter............................ $4.031 $1.125
1st Quarter............................ $8.625 $3.000

FISCAL YEAR ENDED DECEMBER 31, 1999
4th Quarter............................ $4.250 $0.531
3rd Quarter............................ $1.380 $0.570
2nd Quarter............................ $1.125 $0.450
1st Quarter............................ $1.030 $0.270

RECENT SALES OF UNREGISTERED SECURITIES

During the period between September 13, 2000, and December 31, 2000, we
sold 2,541,672 units to private investors pursuant to a Stock Purchase and
Investment Agreement dated as of September 13, 2000. Each unit consists of one
share of our common stock and a five-year warrant to purchase one share of our
common stock at an exercise price of $1.90 per share. Under the agreement, these
investors retain substantial control over the use of proceeds from their
investment. We received $3.1 million for the sale of these units. Our $750,000
and $250,000 loans to TWIN Entertainment in the year ending December 31, 2000,
the $931,000 set aside for the bankru ptcy reserve account in the year ending
December 31, 2000 and the $250,000 loan to TWIN Entertainment we made in
February 2001 were paid out of the proceeds from the sale of these units, and we
intend to use the remainder to fund our operations through the second quarter of
2001. This description is a general summary only and does not describe all the
terms of the investment, which is governed by the Stock Purchase and Investment
Agreement. A copy of the Stock Purchase and Investment Agreement has been filed
as Exhibit 10.19 to the Quarterly Report on Form 10-Q filed with the SEC on
November 14, 2000, and is incorporated herein by reference.

On October 19, 2000, we issued Mr. Bruce Bauer 50,000 shares of our
common stock upon his exercise of his stock option for those shares. We received
$4,500 as the exercise price for this purchase and the issuance was made
pursuant to Section 4(2) of the Securities Act.

On October 6, 2000, we issued Mr. John Bohrer 100,000 shares of our
common stock upon his exercise of his stock option for those shares, we received
$9,000 as the exercise price for this purchase and the issuance was made
pursuant to Section 4(2) of the Securities Act.

HOLDERS OF RECORD

As of March 15, 2000, there were 679 shareholders of record of our
common stock.

DIVIDENDS

We have not declared nor paid any dividends since 1997. Future
dividends, if any, will depend on our profitability and anticipated capital
requirements. We have no present intention of paying dividends for the
foreseeable future.

ITEM 6. SELECTED FINANCIAL DATA

The following selected historical consolidated financial data presented
below are derived from our consolidated financial statements. The consolidated
financial statements for the fiscal years ended December 31, 2000 and 1999 have
been audited by Marc Lumer & Company, and for the fiscal years ended 1998, 1997
and 1996 have been audited by KPMG LLP. The selected consolidated financial data
set forth below is qualified in its entirety by, and should be read in
conjunction with, "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

YEARS ENDED DECEMBER 31
-----------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2000 1999 1998 1997 1996
(AUDITED) (AUDITED) (AUDITED) (AUDITED) (AUDITED)

Total Revenue...................................... $250,000 $0 $0 $0 $0
Net income (loss).................................. $(5,602) $8,147 $(1,488) $(5,938) $(4,552)
Net income (loss) per share (basic)................ $(0.14) $0.23 $(0.05) $(0.19) $(0.15)
Shares used in computing net income (loss) per
share (basic)...................................... 40,048 35,516 30,840 30,840 30,840

Total Assets....................................... $6,595 $7,658 $379 $84 $174
Long-term obligations.............................. $685 $917 $0 $0 $33,817
Liabilities subject to Compromise.................. $5,503 $5,016 $46,296 $0 $0
Cash dividends declared per common share........... $0 $0 $0 $0 $0

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

On January 31, 2000, we consummated the formation of a joint venture
company, TWIN Entertainment, which is co-owned and co-managed by us and Two Way
TV under the terms of a Joint Venture and Stock Purchase Agreement dated as of
December 6, 1999. This agreement was filed with the SEC on February 11, 2000, as
Exhibit 2.1 to a Report on Form 8-K and is incorporated herein by reference.
Each of us and Two Way TV invested $500,000 in TWIN Entertainment. TWIN
Entertainment currently expects to develop, market and supply digital (as well
as analog) interactive and related services, products and technology in the
United States and Canada. We have licensed TWIN Entertainment the non-exclusive
use of our patents and other intellectual property for the United States and
Canada. Two Way TV also licensed to TWIN Entertainment certain intellectual
property rights and technology, including then-existing and future content,
software, know-how and other technological materials and information, on a
non-exclusive basis. Additionally, as part of the agreements with Two Way TV to
create TWIN Entertainment, we settled all outstanding claims with Two Way TV and
entered into a separate worldwide license agreement that exclusively licenses
our intellectual property in countries other than the United States and Canada
to Two Way TV in exchange for a royalty payment of a certain percentage of Two
Way TV's world wide sales. Under the terms of the agreement, Two Way TV will pay
us a royalty of 3% of worldwide Gross Profits (as defined in the Termination and
License Agreement dated as of January 31, 2000, which was filed with the SEC on
February 11, 2000 as Exhibit 2.5 to a Report on Form 8-K and which is
incorporated herein by reference), with a minimum annual royalty of no less than
$250,000 by January 31, 2001, with the minimum royalty payment increasing by at
least eight percent (8%) each year thereafter. In March 2001, Two Way TV paid us
a royalty of $250,000 for the year ending December 31, 2000.

We understand that TWIN Entertainment's management is in discussions
with a number of companies to obtain carriage and content agreements to deliver
and create interactive entertainment under the licensing it has received from
the Company and Two Way TV. For example, TWIN Entertainment has announced an
agreement with the Public Broadcasting Service to produce educational, fully
interactive television games based upon PBS KIDS programs and has also announced
a partnership with Liberate Technologies to supply interactive games and
entertainment to enhanced television subscribers as part of Liberate
Technologies PopTV Variety Pack. It is our belief that TWIN Entertainment will
use our intellectual property and Two Way TV's intellectual property rights and
technology to become an active participant in the interactive television and
broadband market in the U.S. and Canada.

OTHER CONTINGENCIES AND COMMITMENTS

1. CLAIMS IN CHAPTER 11 PROCEEDINGS WHICH WE ARE CONTESTING.

(a) DAVID LOCKTON. David Lockton, a shareholder and our former CEO,
filed a complaint in our bankruptcy case seeking specific performance
of his promissory note for $2.0 million, his alleged stock option
rights for 2,225,000 shares of our common stock and back pay on his
employment agreement and damages of $17 million. Trial of Mr. Lockton's
claims took place on May 8-11 and May 30-31, 2000. A memorandum
decision was filed by the Bankruptcy Court on September 27, 2000. The
Bankruptcy Court held that Mr. Lockton retained to the right to be paid
$1.85 million under the terms of his promissory note. The Bankruptcy
Court also held that Mr. Lockton was entitled to a judgment allowing
Mr. Lockton's claim for $913,810.21 under his employment agreement and
found that Mr. Lockton had the right to exercise options to purchase
900,000 shares of our common stock at $0.09 per share. The Court also
held that Mr. Lockton was entitled to postpetition interest on the
amount of the judgment at the rate of 10% per annum simple interest. A
judgment was entered on October 30, 2000. On November 13, 2000, Mr.
Lockton filed a Motion to Reconsider. Subsequently, Mr. Lockton offered
to withdraw his motion to reconsider and to forego any appeal in return
for payment of his claim by the Company and issuance by the Company of
the 900,000 shares the Bankruptcy Court had found were due him. Mr.
Lockton also requested that the shares be registered for redistrubtion.
The Company agreed to Mr. Lockton's proposal. Mr. Lockton withdrew his
motion to reconsider and allowed the time to appeal to expire without
filing an appeal. The Company paid him the amount of his allowed claim
plus interest to the date of payment, less the $81,000 purchase price
of the 900,000 shares (by agreement with Mr. Lockton), and registered
and issued to him the 900,000 shares. We believe that Mr. Lockton is no
longer a creditor of the Company.

(b) NATIONAL DATACAST AND OTHER MATERIAL CLAIMS. We filed other claim
objections on June 21, 1999, some of which are still being disputed. We
continue to dispute the claims of National Datacast in our bankruptcy
proceeding. As of November 1, 2000, National Datacast's claim totaled
approximately $4.93 million; as of March 1, 2001, interest had
increased it to about $5.06 million. We have appealed the July 2000
memorandum decision, and filed our opening brief on March 6, 2001. We
have also obtained from the Bankruptcy Court a stay of enforcement of
the judgment by National Datacast pending the appeal. The stay is
conditioned on our funding of the reserve account securing the claims
of unpaid or disputed claims created by our confirmed plan of
reorganization at 100% of the remaining claims and adjusting the
reserve account on a monthly basis thereafter enough to cover remaining
claims in light of accruing interest, where applicable. The Bankruptcy
Court entered the stay order on November 13, 2000. The Company funded
the reserve account within the deadline set by the stay order, and has
continued to keep it funded at 100%.

(c) OTHER CLAIMS AND SETTLED CLAIMS. We previously obtained Bankruptcy
Court approval of our previously disclosed preliminary settlement of
the claims of the Equitable Life Assurance Society ("Equitable"). Under
the settlement, Equitable accepted a total of $840,000 on its scheduled
claims of $1.7 million, to be paid one half upon approval by the
Bankruptcy Court, and one half in equal monthly installments over the
twelve months thereafter, without interest. As of March 1, 2001, we
have paid the first half of the settlement and made eight (8) of the
monthly payments. The balance owed Equitable following the March 1,
2001, payment is $140,063. There are four payments remaining, the money
for which is set aside in our reserve account.

We obtained a settlement of a disputed claim by Evans Research
Associates that was approved by the Bankruptcy Court. Under the terms
of the settlement, we paid Evans $12,500, which is approximately 70% of
the total amount that was claimed by Evans.

Fish & Richardson claims approximately $266,700 (with interest) as of
March 1, 2001, for prepetition legal services rendered to Interactive.
We contend that we owe Fish & Richardson substantially less, if
anything at all. We recently filed an objection to Fish & Richardson's
claim. At a status conference on March 30, 2001, the Bankruptcy Court
set trial on this dispute for September 4-5, 2001.

We are continuing our litigation against Networks North, Inc. (formerly
NTN Communications Canada, Inc.) in Canada for that company's alleged
infringement of our patents. To date, we have incurred expenses of
approximately $102,677 in connection with the pursuit of this claim.

3. CONTRACTUAL COMMITMENTS. The Bankruptcy Code contemplates that a
debtor in Chapter 11 proceedings may identify executory contracts that it
intends to assume as a part of its plan of reorganization. Executory contracts
that are not expressly assumed are deemed rejected, and the only remedy of the
other party to the contract is to pursue a claim for damages for breach of
contract following confirmation of the Plan of Reorganization. As previously
disclosed in our Annual Report and Proxy Statement for our special meeting on
March 31, 1999, we assumed certain obligations under existing contracts,
including a 1992 Stock Purchase Agreement with Gannett Co., Inc. and a 1992
know-how license agreement with Two Way TV (the latter having been terminated
under our Termination and License Agreement with Two Way TV in January 2000). We
have treated obligations we had to TCI, NBC, Sprint and Motorola as terminated
under the Settlement Agreement. In addition, we did not assume several
contractual arrangements that had not been operative for many years. If at some
future date the other party to one of those arrangements should seek to assert
that the arrangement was still in effect on the date of confirmation of our plan
of reorganization, we will review the matter and take such steps as we consider
appropriate to recognize or disavow the contract in a manner that will be in our
best interest.

4. TWO WAY TV JOINT VENTURE. As discussed above, the Company formed a
joint venture with Two Way TV and for $500,000 purchased one half of the capital
stock of TWIN Entertainment, the joint venture company. We currently expect that
TWIN Entertainment will develop, market and supply digital (as well as analog)
interactive and related services, products and technology in the United States

and Canada. As a significant shareholder of TWIN Entertainment, the Company's
revenues are affected by TWIN Entertainment's revenues. Although we have no
obligation to provide further funds to TWIN Entertainment, we made additional
investments in TWIN Entertainment in the form of a $750,000 loan and a $250,000
loan to TWIN Entertainment, and Two Way TV made similar loans to TWIN
Entertainment. Each of us and Two Way reserves the right to convert the loan
amounts to equity in TWIN Entertainment in the future under terms to be
determined and agreed upon at a later date by us and Two Way as the shareholders
of TWIN Entertainment. We made a further loan of $250,000 on similar terms as
described above in February 2001 to TWIN Entertainment, and Two Way TV made a
similar loan to TWIN Entertainment.

We have licensed TWIN Entertainment the non-exclusive use of our
patents and other intellectual property for the United States and Canada. Two
Way TV also licensed to TWIN Entertainment certain intellectual property rights
and technology, including then-existing and future content, software, know-how
and other technological materials and information, on a non-exclusive basis.
Additionally, as part of the agreements with Two Way TV to create TWIN
Entertainment, we settled all outstanding claims with Two Way TV and entered
into a separate worldwide license agreement that exclusively licenses our
intellectual property in countries other than the United States and Canada to
Two Way TV in exchange for a royalty payment of a certain percentage of Two Way
TV's world wide sales. Under the terms of the agreement, Two Way TV will pay us
a royalty of 3% of worldwide Gross Profits (as defined in the Termination and
License Agreement dated as of January 31, 2000, which was filed with the SEC on
February 11, 2000, as Exhibit 2.5 to a Report on Form 8-K and is incorporated
herein by reference), with a minimum annual royalty of no less than $250,000 by
January 31, 2001, with the minimum royalty payment increasing by at least eight
percent (8%) each year thereafter. In March 2001, Two Way TV paid us a royalty
of $250,000 for the year ending December 31, 2000.

In December 2000, we announced that we were negotiating the terms of a
transaction with Two Way TV under which we would acquire 100% ownership of TWIN
Entertainment. Under the terms of the transaction as currently proposed, Two Way
TV will exchange its interest in TWIN Entertainment for a substantial stake in
Interactive Network, making Two Way TV our largest shareholder. TWIN
Entertainment will merge with us, forming a single company. Final terms of the
transaction have not been agreed upon, however, and the completion of any
transaction is subject to many conditions, including the negotiation and
execution of definitive legal agreements, due diligence by us and Two Way TV,
approval by both our board and Two Way TV's board, approval by TWIN
Entertainment's shareholders, approval by our shareholders and any required
regulatory review. Thus, while we believe that the transaction will be
completed, it remains possible that the acquisition will not take place or that
the terms of the transaction will be significantly different from those
currently proposed.

5. LEGAL EXPENSES. We incurred legal expenses currently reflected on
the balance sheets of $957,775 prior to confirmation of our bankruptcy
reorganization plan on April 22, 1999, which became payable on April 22, 2000,
subject to Bankruptcy Court approval, which our counsel intends to seek. We also
incurred post-confirmation legal expenses, principally in preparing and
litigating objections to claims filed in the bankruptcy proceeding and for
general corporate matters, on which a balance of $684,520 remains unpaid, as of
December 31, 2000. We have entered into an agreement with our counsel for
payment of these expenses on the following terms: the preconfirmation legal fees
currently reflected on the balance sheets as $957,775 is due and payable on
September 30, 2001, with interest accruing from October 15, 2000 at 1% per annum
over Bank of America's prime rate and the $684,520 is payable in equal monthly
installments over two years, commencing October 15, 2001, with interest accruing
from October 15, 2000 at 1% per annum over Bank of America's prime rate. We also
issued to our counsel a warrant exercisable in whole or in part from time to
time for 5 years, to purchase sufficient shares of our common stock to enable
the warrant holder, by tender of the warrant in satisfaction of such
indebtedness (and any indebtedness incurred in appealing Bankruptcy Court
awards), to extinguish such indebtedness in full. The warrant exercise price is
$1.23 per share. In addition to the foregoing legal expenses, through December
31, 2000, contingent legal expenses in the amount of approximately $1.1 million
have been incurred by the Company in contesting claims in the Bankruptcy Court,
which we will be obligated to pay only out of savings realized from a successful

reversal or reduction on appeal of awards granted by the Bankruptcy Court with
respect to contested claims, or, if an appeal is not pursued, through
cancellation of the unscheduled contingent legal expenses by exercise of a
warrant containing substantially the same terms as the warrant described above.

LIQUIDITY AND CAPITAL RESOURCES

We consummated a settlement agreement with our secured senior
noteholders and have paid all undisputed claims under our confirmed plan of
reorganization. A substantial portion of the proceeds received from the
noteholders was allocated to pay creditors and a large portion of those funds
were set aside in a reserve account for the payment of creditors whose claims we
are continuing to dispute. As of December 31, 2000, the balance of these
reserved funds was $5.6 million. As of March 1, 2001, the total of all allowed
and disputed prepetition claims either allowed or disputed totaled approximately
$5.6 million. The amount of funds available to us after resolution of contested
claims with creditors will depend on the extent to which we are successful in
substantially reducing, defeating or deferring payment of the claims we are
contesting. In the event we are not successful in defeating, substantially
reducing or deferring payment of these claims by creditors, our working capital
requirements would need to be satisfied in part by external sources of financing
to the extent revenues from exploitation of our patent portfolio are not
sufficient. Certain investors have agreed to allow the Company to use funds
committed in our recently completed financing (see below) by them to supplement
our bankruptcy reserve account to provide for 100% of the remaining claims
covered by this account under our confirmed plan of reorganization as of
November 30, 2000 and to add funds thereafter on a monthly basis to retain the
100% coverage as interest accrues on certain of those claims, as applicable. By
this arrangement, we have obtained an order of the Bankruptcy Court staying the
enforcement of the National Datacast claim. The Bankruptcy Court entered the
stay order on November 13, 2000. The Company funded the reserve account within
the deadline set by the stay order, and has continued to keep it funded at 100%.
The only remaining claims, which are secured by the reserve account, are those
of National Datacast (which is on appeal as discussed above), Fish & Richardson
(which is subject to a claim objection proceeding as discussed above) and
Equitable (which claim is being paid on a monthly basis pursuant to a settlement
with Equitable, with four equal installments of about $35,000 remaining). The
claims were secured by a lien on the revenue arising from our intellectual
property, but in accordance with our confirmed plan of reorganization, the lien
was released because the reserve account is funded for 100% of remaining
credtitor claims. Since our last report, we have paid the claims of David B.
Lockton and Evans Research Associates.

Our current business plan continues to be one of exploiting our patent
portfolio through negotiating favorable licensing with those companies actively
involved in, or planning to enter into, the area of interactive advertising
and/or the delivery, or production of interactive entertainment where we believe
a license from the Company will be required to avoid their infringement upon one
or more of the Company's patents. Where we cannot make favorable agreements with
companies whom we believe are infringing upon the Company's intellectual
property, it is management's intention to litigate that infringement to enforce
and to protect our rights. Additionally, we will continue to support TWIN
Entertainment, which we feel will be successful in the future by contracting
with content providers to create interactive programming and with cable and
satellite operators to deliver interactive content to their subscribers. In the
event of the successful completion of the acquisition of and merger with TWIN
Entertainment, we will move from exploiting our patent portfolio solely through
licenses, joint ventures and strategic alliances and will instead engage in
restrictive licensing of our intellectual property and also develop and license
products and services that utilize our patents.

Management intends to continue its patent development program and to
continue to seek out mutually advantageous agreements with other related
companies to form partnerships and alliances which will enhance the value of,
and assist in exploiting, our technology. We continue to pursue our claims for
patent infringement against Networks North, Inc. (formerly NTN Communications
Canada, Inc.) in Canada and intend to litigate these claims to full resolution.
To date, we have incurred expenses of approximately $102,667 in connection with
the pursuit of this claim. As is customary in Canada, we were also required by
the Court to post a bond for $27,160 to cover the defendant's legal costs in the
case of an unfavorable decision against the plaintiff. We currently expect to
incur aggregate additional expenses in excess of $100,000 in connection with the
pursuit of this claim.

Our working capital deficit as of December 31, 2000, was approximately
$500,000, due in part to deferred legal fees owed in September 2001 and accounts
payable and accrued liabilities. Our budget for 2001 contains expenses of
approximately $2.9 million, including repayment of approximately $972,000 of
debt due in 2001 and operational expenses of $1.35 million, which includes the
estimated cost for keeping the bankruptcy reserve account fully funded. We
currently expect our need for working capital for year 2001 to consist largely
of general and administrative expenses, repayment of debt due in 2001, $250,000
paid to TWIN Entertainment in February 2001, and professional fees of
approximately $400,000. We anticipate a total operating budget of approximately
$2.9 million for year 2001. We currently expect revenues in 2001 to be
insufficient to meet budgeted needs for cash and are in negotiations to secure
outside sources of financing. In the event we do not secure adequate financing,
our ability to meet our working capital needs could be seriously impaired.

FINANCING ACTIVITIES. In the fiscal year ended December 31, 2000, we
received $195,500 upon the exercise of stock options.

Between September 13, 2000, and December 31, 2000, we raised $3.1
million through the sale of 2,541,672 units to private investors pursuant to a
Stock Purchase and Investment Agreement dated September 13, 2000. Each unit
consists of one share of our common stock and a five-year warrant to purchase
one share of our common stock at an exercise price of $1.90 per share. Under the
agreement, these investors retain substantial control over the use of proceeds
from their investment. Our $750,000 and $250,000 loans to TWIN Entertainment and
$931,000 set aside for the bankruptcy reserve account in the year ending
December 31, 2000, were paid out of the proceeds from the sale of these units,
and we intend to use the remainder to fund our operations through the second
quarter of 2001. This description is a general summary only and does not
describe all the terms of the investment, which is governed by the agreement. A
copy of the agreement has been filed as Exhibit 10.19 to the Quarterly Report on
Form 10-Q filed with the SEC on November 14, 2000, and is incorporated herein by
reference.

Pursuant to an agreement with one of our advisory board members, we
received $250,000 in exchange for shares of our common stock.

We recognize that we will require additional financing to meet our
budgeted needs for 2001.

RESULTS OF OPERATIONS

REVENUES. In 2000, we recorded a royalty fee of $250,000, due from Two
Way TV, which we received in March 2001. We had no revenues from operations for
the years ended December 31, 1999 or 1998.

GENERAL AND ADMINISTRATIVE EXPENSES. The Company incurred general and
administrative expenses of $1.9 million for the year ended December 31, 2000,
which consisted primarily of $133,000 related to professional fees for
accounting and audit services, $110,000 of professional services related to
market research, PR and litigation support, $390,000 of professional advisory
fees and $246,000 related to proxy solicitation, SEC compliance, shareholder
relations and our annual meeting in 2000. Other operating expenses included
legal expense of $446,000 related to general corporate matters, including
litigation related to bankruptcy claims which we continue to dispute, and
$322,000 of payroll and related expenses. The increase of $556,000 from the $1.3
million for the year ended December 31, 1999 was primarily due to $390,000 of
professional advisory services not incurred in prior year, $84,000 increase over
prior year payroll expenses, and $71,000 of increases expense related to legal
fees related to litigation. General and administrative expenses were $192,000
more in the year ended December 31, 1999 than general and administrative
expenses for the year ended December 31, 1998, which was $1.1 million. This
increase was primarily due to increased legal fees in 1999.

OTHER INCOME AND EXPENSE

INTEREST INCOME. Our interest income for the year ended December 31,
2000, was approximately $407,000, which consisted primarily of interest earned
on proceeds from the settlement with the Settling Parties. The increase of
$137,000 from the $270,000 for the year ended December 31, 1999, was primarily
due to the interest received on the proceeds from the settlement. Interest
income for the year ended December 31, 199, 1998 was approximately $6,600. The
increase of $263,000 between 1998 and 1999 was primarily due to the interest
received on the proceeds from the settlement.

INTEREST EXPENSE. Our interest expense for the year ended December 31,
2000, 1998 and 1998 was approximately $548,000, $458,000 and $619,000,
respectively. The amounts for 1998 and 1997 represent interest accrued on the
12% Senior Secured Convertible Promissory Notes issued to the Settling Parties,
which were converted as part of the Settlement Agreement. This interest stopped
as of the consummation of the Settlement Agreement. Interest expense for 2000
and 1999 was related to interest accrued to unsecured creditors as part of our
bankruptcy reorganization.

OTHER INCOME. In 2000, we recorded no other income. In 1999, we
recorded other income of approximately $141,000, which consisted of checks
written to other unsecured creditors in our bankruptcy which were returned for
various reasons. After performing the actions and waiting for the amount of time
specified by our counsel, we redeposited these checks and accounted for these
funds as other income. We recorded no other income in 1998.

LITIGATION SETTLEMENT. No settlement was received in 2000. We did,
however, incur additional losses of $1.9 million in 2000 resulting from
increased claims by unsecured creditors which were approved by the Bankruptcy
Court. We received $10.4 million from the Settling Parties upon the consummation
of the Settlement Agreement during the year ended December 31, 1999, and
$502,000 in connection with the proceeds from other unrelated litigation during
the year ended December 31, 1998.

REORGANIZATION EXPENSES. We had reorganization expenses for the years
ended December 31, 2000, 1999 and 1998 of approximately $464,000, $865,000 and
$252,000, respectively. These expenses were directly related to our Chapter 11
bankruptcy reorganization, entered into as a condition to the consummation of
the Settlement Agreement, the litigation and other expenses incurred in
contesting claims in our bankruptcy reorganization, which is still ongoing.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE RISK. It is our policy not to enter into derivative
financial instruments. We do not currently have any significant foreign currency
exposure since we do not transact business in foreign currencies. Due to this,
we did not have significant overall currency exposure at December 31, 2000.

FOREIGN CURRENCY RATE RISK. As almost all of our sales and expenses are
denominated in U.S. dollars, we have experienced only insignificant foreign
exchange gains and losses to date, and we do not expect to incur significant
gains and losses. We do not engage in foreign currency hedging activities.

ITEM 8. FINANCIAL STATEMENTS

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS:

PAGE
----
Independent Auditor's Report - Marc Lumer................................ 19
Independent Auditors' Report - KPMG LLP.................................. 20
Consolidated Balance Sheets.............................................. 21
Consolidated Statements of Operations.................................... 22
Consolidated Statements of Changes in Shareholders' Equity (Deficit)..... 23
Consolidated Statements of Cash Flows.................................... 24
Notes to Consolidated Financial Statements............................... 26

INDEPENDENT AUDITOR'S REPORT

The Board of Directors and Shareholders
Interactive Network, Inc.:

I have audited the accompanying consolidated balance sheet of Interactive
Network, Inc. and subsidiary (the "Company") as of December 31, 2000 and 1999,
and the related consolidated statements of operations, shareholders' equity
(deficit) and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. My responsibility
is to report on these consolidated financial statements based on the results of
my audits.

I conducted my audits in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audits provide a reasonable basis for my report.

In my opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 2000 and December 31, 1999, and the results of its operations and
its cash flows of the years ended December 31, 2000 and December 31, 1999 in
conformity with generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2, the
Company entered into a settlement agreement with certain parties in litigation
(the "Settlement Agreement") whereby the Company entered into a reorganization
by filing a voluntary petition for relief under Chapter 11 of the United States
Bankruptcy Code in the United States Bankruptcy Court for the Northern District
of California (the "Bankruptcy Court") on September 14, 1998. Substantially all
liabilities of the Company as of the date of this report are subject to
settlement under a plan of reorganization confirmed by the Bankruptcy Court on
April 23, 1999. The Company is currently operating under the confirmed plan of
reorganization under the jurisdiction of the Bankruptcy Court and continuation
of the Company as a going concern is contingent upon, among other things, the
ability to (1) develop an appropriate business plan and strategic direction for
the Company's planned future operations, including conservation of available
capital and working capital as the Company seeks to further develop and exploit
its patent portfolio, (2) confirm the availability of net operating tax losses
after reorganization, and (3) generate adequate sources of working capital and
other liquidity as necessary to meet future obligations. Management's plans in
regard to these matters are also described in Note 3. These contingencies and
the uncertainties inherent in the bankruptcy process raise substantial doubt
about the ability of the Company to continue as a going concern. The
consolidated financial statements do not include any adjustments that might
result from the outcome of these uncertainties.

/s/ Marc Lumer & Company
------------------------
Marc Lumer & Company

San Francisco, California
April 13, 2001

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
Interactive Network, Inc.:

We have audited the accompanying consolidated statements of operations,
shareholders' deficit and cash flows of Interactive Network, Inc. and subsidiary
(the "Company") for the year ended December 31, 1998. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our report.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2, the
Company entered into the Settlement Agreement whereby the Company commenced a
reorganization by filing a voluntary petition for relief under Chapter 11 of the
United States Bankruptcy Code in the United States Bankruptcy Court for the
Northern District of California (the "Bankruptcy Court") on September 14, 1998.
Substantially all liabilities of the Company as of the date of this report are
subject to settlement under a plan of reorganization to be confirmed by the
Bankruptcy Court. The Company is currently operating as debtor-in-possession
under the jurisdiction of the Bankruptcy Court and continuation of the Company
as a going concern is contingent upon, among other things, the ability to (1)
formulate an acceptable plan of reorganization that will be confirmed by the
Bankruptcy Court, and be able to fully implement that plan in compliance with
the Settlement Agreement, (2) settle the claims of unsecured creditors within
available cash resources as currently contemplated by management, (3) develop an
appropriate business plan and strategic direction for the Company's planned
future operations after reorganization including conservation of available
capital and working capital as the Company seeks to further develop and exploit
its patent portfolio, (4) confirm the availability of net operating tax losses
after reorganization, and (5) generate adequate sources of working capital and
other liquidity as necessary to meet future obligations. Management's plans in
regard to these matters are also described in Note 3. These contingencies and
the uncertainties inherent in the bankruptcy process raise substantial doubt
about the ability of the Company to continue as a going concern. The
consolidated financial statements do not include any adjustments that might
result from the outcome of these uncertainties.

/s/ KPMG LLP
------------
KPMG LLP

Mountain View, California
March 15, 1999

INTERACTIVE NETWORK, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999

2000 1999
------------- -------------

ASSETS

Current assets:
Restricted cash $ 5,609,735 $ 6,365,758
Cash 685,168 1,210,399
Royalty fee receivable 250,000 -
Prepaid expenses and other current assets 47,218 81,576
------------- -------------

Total current assets 6,592,121 7,657,733

Deposits 3,220 220
------------- -------------
Total assets $ 6,595,341 $ 7,657,953
============= =============

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

Current liabilities:
Accounts payable and accrued liabilities $ 443,952 $ 614,077
Accrued liabilities to officer - 3,600
Deferred legal fees - current portion 957,775 -
Promissory note - current portion 85,565 -
------------- -------------

Total current liabilities 1,487,292 617,677

Liabilities subject to compromise 5,503,263 5,015,718
Deferred legal fees - net of current portion - 916,867
Promissory note - net of current portion 598,955 -
------------- -------------
7,589,510 6,550,262
------------- -------------

Commitments and Contingencies (Notes 7, 8 and 11)
Shareholders' equity (deficit):
Preferred stock, no par value, 10,000,000 shares
authorized; no shares issued and outstanding
as of December 31, 2000 and 1999 - -

Common stock, no par value, 150,000,000 shares
authorized; 43,019,277 and 38,855,030 shares
issued and outstanding as of December 31, 2000
and 1999, respectively 145,874,986 142,374,810

Accumulated deficit (146,869,155) (141,267,119)
------------- -------------
Total shareholders' equity (deficit) (994,169) 1,107,691
------------- -------------

Total liabilities and shareholders' equity (deficit) $ 6,595,341 $ 7,657,953
------------- -------------

See accompanying notes to consolidated financial statements.

INTERACTIVE NETWORK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

2000 1999 1998
------------ ------------ ------------

Royalty fees $ 250,000 $ - $ -
------------ ------------ ------------
General and administrative expenses 1,873,168 1,317,182 1,124,943
------------ ------------ ------------
Loss from operations (1,623,168) (1,317,182) (1,124,943)

Other (income) and expense
Interest income (406,738) (270,373) (6,618)
Interest expense (contractual interest exceeds
recorded interest expense by $4,453,297 in 1998) 547,913 458,000 618,821
Other (income) - (141,273) -
Net loss from investment in affiliate
accounted for by the equity method 1,170,857 - -
Allowance for investment in affiliate 329,143 - -
Litigation settlement 1,873,273 (10,375,380) (501,837)
------------ ------------ ------------

Other (income) and expense, net 3,514,448 (10,329,026) 110,366
------------ ------------ ------------
Income (loss) before reorganization expenses (5,137,616) 9,011,844 (1,235,309)

Reorganization expenses 464,420 864,928 252,220
------------ ------------ ------------
Net income (loss) $(5,602,036) $ 8,146,916 $(1,487,529)
============ ============ ============

Basic net income (loss) per share $ (0.14) $ 0.23 $ (0.05)
============ ============ ============
Fully diluted net income (loss) per share $ (0.14) $ 0.22 $ (0.05)
============ ============ ============
Shares used in basic per share calculation 40,048,468 35,515,617 30,840,441
============ ============ ============
Shares used in fully diluted per share calculation 40,048,468 37,574,827 30,840,441
============ ============ ============

See accompanying notes to consolidated financial statements.

INTERACTIVE NETWORK, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

Common Stock
-------------------------------
Shares Amount Accumulated Total Shareholders'
deficit Equity (Deficit)
-------------- -------------- -------------- --------------

Balances as of December 31, 1997 30,840,441 $ 103,281,755 $(147,926,506) $ (44,644,751)
Net Loss (1,487,529) (1,487,529)
-------------- -------------- -------------- --------------
Balances as of December 31, 1998 30,840,441 103,281,755 (149,414,035) (46,132,280)
Net Income 8,146,916 8,146,916
Exercise of Stock Options 200,000 20,106 --- 20,106
Conversion of Notes Payable
into Common Stock 7,814,589 39,072,949 --- 39,072,949
-------------- -------------- -------------- --------------
Balances as of December 31, 1999 38,855,030 142,374,810 (141,267,119) 1,107,691
Net loss --- --- (5,602,036) (5,602,036)
Sale of Common Stock 2,600,913 3,350,837 --- 3,350,837
Cost of Stock Issuance --- (46,161) --- (46,161)
Exercise of Stock Options 1,563,334 195,500 --- 195,500
-------------- -------------- -------------- --------------
Balances as of December 31, 2000 43,019,277 $ 145,874,986 $(146,869,155) $ (994,169)
============== ============== ============== ==============

See accompanying notes to consolidated financial statements.

INTERACTIVE NETWORK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

2000 1999 1998
------------ ------------ ------------

Cash flows from operating activities:
Net income (loss) $(5,602,036) $ 8,146,916 $(1,487,529)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Reorganization expenses 464,420 864,928 252,220
Loss from investment in affiliate 1,170,857 - -
Allowance for investment in affiliate 329,143 - -
Changes in operating assets and liabilities:
Royalty fee receivable (250,000) - -
Prepaid expenses and other assets 31,358 (3,540) (44,701)
Accounts payable (170,125) 614,077 -
Accrued liabilities to officer (3,600) 3,600 948,473
Accrued interest - - 619,210
Deferred legal fees and promissory note 261,008 - -
Liabilities subject to compromise 2,908,538 - -
------------ ------------ ------------
Net cash provided by (used in)
operating activities before reorganization
items (860,437) 9,625,981 287,673
Professional fees paid for services rendered in connection
with Chapter 11 proceedings - - (37,399)
Payments to unsecured creditors (2,420,993) (2,370,531) -
------------ ------------ ------------
Net cash provided by (used in) operating activities (3,281,430) 7,255,450 250,274
------------ ------------ ------------

Cash flows provided by investing activities:
Investment in TWIN Entertainment (500,000) - -
Promissory note receivable from TWIN Entertainment (1,000,000) - -
------------ ------------ ------------
Net cash used in investing activities (1,500,000) - -
------------ ------------ ------------

Cash flows provided by financing activities:
Sale of common stock, net 3,304,676 - -
Exercise of stock options 195,500 20,106 -
------------ ------------ ------------
Net cash provided by financing activities 3,500,176 20,106 -
------------ ------------ ------------

Increase (decrease) in cash (1,281,254) 7,275,556 250,274

Cash at beginning of year 7,576,157 300,601 50,327
------------ ------------ ------------

Cash at end of year $ 6,294,903 $ 7,576,157 $ 300,601
============ ============ ============

Supplemental disclosure of cash flow information:
Income taxes paid $ 4,000 $ 800 $ -
------------ ------------ ------------
Interest paid $ 214,889 $ 123,113 $ -
------------ ------------ ------------

Non-Cash Items:
Conversion of current liabilities to
liabilities subject to compromise $ - $ - $46,296,316
------------ ------------ ------------
Conversion of notes payable into common stock $ - $39,072,949 $ -
------------ ------------ ------------
Reorganization expenses $ - $ 752,046 $ 214,821
------------ ------------ ------------

See accompanying notes to consolidated financial statements.

INTERACTIVE NETWORK, INC.

Notes to Consolidated Financial Statements

December 31, 2000, 1999 and 1998

(1) THE COMPANY

Interactive Network, Inc. (the "Company") was incorporated in
California on November 10, 1986, to engage in the design, development,
and marketing of a subscription-based interactive television
entertainment system. As discussed more fully below, the Company was
unable to continue operations due to the lack of additional financing
and curtailed operations in August 1995.

The Company currently does business only in the state of California and
is in good standing with the Secretary of State. Prior to 1995, the
Company was qualified to do intrastate business in four other states,
but ceased doing business outside California in 1995, and its
qualification to do business in those other states has been revoked or
surrendered. The Company filed delinquent income tax returns for the
years 1995-1998 and paid the corresponding state minimum taxes in 2000.

The Company has been in compliance with its Securities and Exchange
Commission ("SEC") filings since the filing of its Form 10-K for the
fiscal year ended December 31, 1998. The last quarterly financial
report filed by the Company with the SEC was its Form 10-Q for the
quarter ended September 30, 2000.

(2) REORGANIZATION AND BASIS OF REPORTING

In August of 1995, the Company commenced litigation (the "Litigation")
against certain shareholders and their affiliated entities (the
"Settling Parties"). The Litigation arose in relation to the use of the
Company's intellectual property as collateral for secured loans made to
the Company. See Note 12 for additional information.

On July 10, 1998, the Company and the defendants in the Litigation, the
Settling Parties, entered into an agreement (the "Settlement
Agreement") whereby the Company filed a petition under Chapter 11 of
the Bankruptcy Code in the U.S. Court for the Northern District of
California on September 14, 1998 (the "Petition Date"). Under the terms
of the Settlement Agreement, upon entry by the Bankruptcy Court of a
final non-appealable order confirming the Company's Plan of
Reorganization (the "Plan"), the Settlement Agreement was consummated
and the Company was paid $10 million (plus accrued interest thereon,
which approximates $375,380). Additionally, an amount of $2.5 million
was paid by the Settling Parties directly to the Company's attorneys in
respect of the Company's legal fees associated with the Litigation.
Security interests in the Company's assets were released and 7,814,589
shares of the Company's common stock were issued in conversion of
outstanding debt held by the Settling Parties in the amount of $39.1
million, of which $26.5 million represents the principal amount and
$12.6 million represents accrued interest, as of February 25, 1998
(when interest ceased to accrue under terms of the Settlement
Agreement). In addition, the Settlement Agreement includes releases of
the Settling Parties by the Company and releases of the Company by each
of the Settling Parties with respect to the litigation and any other
preexisting claims or contracts including the cancellation of
outstanding warrants.

The Company's Plan under Chapter 11 was filed on December 22, 1998, and
the First Amendment to the Plan was filed on February 18, 1999,
providing for payment in full to all of the Company's creditors on
their allowed claims. The final date for filing claims was January 19,
1999, at which time non-duplicative claims totaling approximately $13.7
million were filed or scheduled (not including the claims of the
Settling Parties). Under the Plan, the Company intends to pay in full
allowed claims, has paid $5.1 million in allowed claims, and believes
that (in addition to expenses of administration of approximately

$500,000) there are no more than approximately $5 million in allowed
claims (plus certain accrued interest), although the final figure is
subject to the claims objection and allowance procedures under Chapter
11. The Bankruptcy Court commenced a hearing on confirmation of the
Plan on February 18, 1999. The hearing was completed in March 1999, and
the Plan was confirmed on April 12, 1999.

The Company retained possession of its property throughout the
bankruptcy process and is authorized to operate and manage its
businesses and enter into all transactions (including, among other
items, paying employee wages, obtaining services, supplies and
inventories) that it could have entered into in the ordinary course of
business had there been no bankruptcy filing.

Liabilities subject to compromise presented in the accompanying
consolidated balance sheet represent the Company's estimate of
pre-petition liabilities allowed as of December 31, 2000, and 1999,
subject to adjustment in the reorganization process (see Note 7). Under
Chapter 11, actions to enforce certain claims against the Company are
stayed if the claims arose, or are based on events that occurred, on or
before the Petition Date. Other liabilities may arise or be subject to
compromise as a result of rejection of executory contracts and
unexpired leases or the Bankruptcy Court's resolution of claims for
contingencies and other disputed amounts. Although the Plan was
confirmed, the Company is still disputing the claims of certain
creditors, and such claims are considered Liabilities Subject to
Compromise herein. The Company has also settled with many of its
creditors and repaid those amounts in 2000 and 1999.

(3) GOING CONCERN

The accompanying consolidated financial statements have been presented
on the basis that the Company is a going concern, which contemplates
the realization of assets and the satisfaction of liabilities in the
normal course of business. As a result of the Chapter 11 filing and
circumstances relating to the filing, realization of assets and
satisfaction of liabilities is subject to uncertainty. Resolution of
disputed liabilities could materially change the amounts reported in
the accompanying consolidated financial statements, which do not give
effect to adjustments to the carrying values of assets and liabilities.
The ability of the Company to continue as a going concern is contingent
upon, among other things, the ability to (1) fully implement the
confirmed Plan in compliance with the Settlement Agreement (2) develop
an appropriate business plan and strategic direction for the Company's
planned future operations, including conservation of available capital
and working capital as the Company seeks to further develop and exploit
its patent portfolio, (3) confirm the availability of net operating tax
loss carryforwards after reorganization, (4) generate adequate sources
of working capital and other liquidity as necessary to meet future
obligations and (5) settle the claims of the unsecured creditors within
the available cash resources as currently contemplated by management.

The Company's business plan is to concentrate on further development
and exploitation of its patent portfolio through licenses, joint
ventures or other methods that will not involve substantial capital
requirements or large overhead expenses for the Company. The Company
does not intend to engage in the manufacture or sale of products
involving its patents, which would require investment in plant,
equipment or inventories, and believes that the cash it received under
the Settlement Agreement will, after paying its creditors under the
Plan, be inadequate to supply any necessary working capital during
fiscal 2001. Additional working capital will be necessary to meet the
contemplated cash needs. In the event that the Company completes its
acquisition of and merger with TWIN Entertainment, the newly existing
company may develop, market and sell products relating to the Company's
patents. Additional working capital will be necessary to meet the
potential cash needs.

(4) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) PRINCIPLE OF CONSOLIDATION

The accompanying consolidated financial statements include the
accounts of the Company and its wholly owned Nevada subsidiary
formed in 1994, RealTime Gaming Systems, Inc. This subsidiary
has no assets or liabilities and ceased to do business during
1995.

(b) FAIR VALUE OF FINANCIAL INSTRUMENTS

The Financial Accounting Standards Board's (FASB) Statement of
Financial Accounting Standards (SFAS) No. 107, DISCLOSURES
ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, defines the fair
values of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between
willing parties. At December 31, 2000 and 1999, the fair
values of the Company's cash, other current assets and other
accrued liabilities approximate their carrying values due to
their short maturity. As stated in Note 7, certain accounts
payable and accrued liabilities are included amongst
liabilities subject to compromise as of December 31, 2000 and
1999. Accordingly, the fair value of these items is not
readily determinable.

The preparation of consolidated financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

(d) CONCENTRATION OF RISK

The Company places its cash and temporary cash investments
with well-established financial institutions. At December 31,
2000 and 1999 and periodically throughout the years, such cash
balances were in excess of FDIC insurance limits.

(e) PER SHARE INFORMATION

Basic and diluted net income (loss) per share are computed
using the weighted-average number of outstanding shares of
common stock. Diluted net loss per share does not include the
effect of the following contingently issuable shares because
their effects are antidilutive.

December 31,
---------------------------------------------------------------------------------------
2000 1999 1998
---------------------------------------------------------------------------------------
Number Weighted- Number Weighted- Number Weighted-
of Shares Average of Shares Average of Shares Average
Exercise Exercise Exercise
Price Price Price
------------ ------------ ------------ ------------ ------------ ------------

Stock Options 3,437,500 $0.64 3,887,500 $0.54 1,350,000 $0.17
Outstanding

Shares issuable upon 2,541,672 $1.90 234,753 $3.87 709,210 $5.96
the exercise of
warrants
============ ============ ============
5,979,172 4,122,253 2,059,210
============ ============ ============

Also, net loss per share for 1998 does not include the effect
of shares issued on the conversion of secured notes payable
because their effects were antidilutive. See Note 7.

(f) INCOME TAXES

Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period
that includes the enactment date. Where a deferred tax asset
has been recognized, a valuation allowance is established if,
based on available evidence, it is more likely than not that
the deferred tax asset will not be realized.

(g) STOCK OPTION PLAN

The Company has adopted SFAS No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION, which permits entities to recognize
as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS
No. 123 also allows entities to continue to apply the
provisions of Accounting Principals Board (APB) Opinion No.
25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and provide pro
forma net income disclosures for employee stock option grants
made as if the fair value based method defined in SFAS No. 123
had been applied. The Company has elected to continue to apply
the provisions of APB Opinion No. 25 and provide the pro forma
disclosure provisions of SFAS No. 123.

(h) RECLASSIFICATION OF FINANCIAL STATEMENT PRESENTATION

Certain reclassifications have been made to the 1999 financial
statements to conform with the 2000 financial statement
presentation. Such reclassifications have had no effect on net
income or gross margin as previously reported.

(i) COMPREHENSIVE INCOME / LOSS

The Company has no significant components of other
comprehensive income or loss.

(j) RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, as amended by
SFAS No. 137 and No. 138 in June 1999 and June 2000,
respectively. These Statements establishe accounting and
reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts
(collectively referred to as derivatives), and for hedging
activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement
of financial position and measure those instruments at fair
value. For a derivative not designated as a hedging
instrument, changes in the fair value of the derivative are
recognized in earnings in the period of change. The Company
must adopt SFAS No. 133 for fiscal years beginning after June
15, 2000. Management believes the adoption of SFAS No. 133
will not have a material effect on the consolidated financial
position or results of operations of the Company.

In April 1998, the American Institute of Certified Public
Accountants issued Statement of Position (SOP) 98-5, REPORTING
ON COSTS OF START-UP ACTIVITIES, which provides guidance on
the financial reporting of start-up costs and organization
costs. It requires costs of start-up activities and
organization costs to be expensed as incurred. Start-up

activities are defined broadly as those one-time activities
related to opening a new facility, introducing a new product
or service, conducting business in a new territory, conducting
business with a new class of customer or beneficiary,
initiating a new process in an existing facility, or
commencing some new operation. The SOP is effective for
financial statements for fiscal years beginning after December
15, 1998. The Company has determined that the adoption of the
SOP did not have an effect on its consolidated financial
statements.

(5) ROYALTY FEE RECEIVABLE

The Company entered into a worldwide license agreement that exclusively
licenses its intellectual property in countries other than the United
States and Canada to Two Way TV in exchange for a royalty payment of a
certain percentage of Two Way TV's world wide sales. Under the terms of
the agreement, Two Way TV will pay the Company a royalty of 3% of
worldwide Gross Profits, with a minimum annual royalty of no less than
$250,000 by January 31, 2001, with the minimum royalty payment
increasing by at least eight percent (8%) each year thereafter. In
March 2001, Two Way TV paid the Company a royalty of $250,000 for the
year ending December 31, 2000, which is reflected on the accompanying
financial statements as a royalty fee receivable.

(6) INVESTMENTS IN AFFILIATE

The Company owns 50% of the outstanding capital stock of TWIN
Entertainment, Inc. ("TWIN Entertainment"), a corporate joint venture
between the Company and Two Way TV Limited ("Two Way TV"). TWIN
Entertainment's offices are located at 4929 Wilshire Boulevard - Suite
930, Los Angeles, CA 90010. TWIN Entertainment operates in the United
States and Canada using technology licensed by the Company and Two Way
TV. Both the Company and Two Way TV made investments in the joint
venture of $500,000 each during 2000, and then each party loaned an
additional $1,000,000 during the year. Each shareholder reserves the
right to convert the loans to equity in TWIN Entertainment in the
future at terms to be determined and agreed upon at a later date by
Interactive Network and Two Way TV, who are TWIN Entertainment's
shareholders.

The Company's share of the joint venture loss from the investment in
the amount $1,170,857, represents the operating expenses of TWIN
Entertainment for the period from January 31, 2000 (inception) through
December 31, 2000. The Company recorded an allowance against the
investment and loans in the amount of $329,143 to write the investment,
including loans, down to zero at December 31, 2000 as no assurance can
be made that the joint venture will be profitable in the future.

(7) LIABILITIES SUBJECT TO COMPROMISE

Liabilities subject to compromise include substantially all of the
current and noncurrent liabilities of the Company as of the Petition
Date which are subject to settlement under the Plan. These liabilities
were transferred from their respective pre-petition balance sheet
accounts to liabilities subject to compromise. Certain pre-petition
liabilities have been approved by the Bankruptcy Court for payment and
to the extent not paid, are included in accrued expenses and other
payables as of December 31, 2000 and 1999. Liabilities subject to
compromise are summarized as follows:

2000 1999
------------ ------------

SECURED NOTES AND ACCRUED INTEREST $ 513,088 $ -

ACCOUNTS PAYABLES AND ACCRUED EXPENSES 4,990,175 3,292,325

ACCRUED LIABILITIES TO SHAREHOLDERS - 1,723,393
------------ ------------
$ 5,503,263 $ 5,015,718
============ ============

At December 31, 2000, $5,609,735 of the Company's cash was in a reserve
account held for settlement of claims from creditors.

The Settlement Agreement was consummated upon entry by the Bankruptcy
Court of a final non-appealable order confirming the Plan. Upon
consummation, the secured note holders released their security
interests and accrued interest of approximately $39 million and the
Company issued them 7,814,589 shares of common stock as part of the
settlement. This represents a conversion of the aggregate principal and
interest at $5.00 per share.

At December 31, 1999, the accrued liabilities to shareholder consists
of amounts accrued in relation to claims filed by a current shareholder
and former officer of the Company (the "Shareholder"). Included in this
amount are certain claims for unpaid compensation, amounts due under a
deferred compensation-noncompetition agreement, and interest, as to
which the Company may contest the time of payment or seek to reduce the
amounts payable under the Chapter 11 proceedings. The deferred
compensation-noncompetition agreement was entered into between the
Company and the Shareholder in December 1994. Concurrently with the
execution of the deferred compensation-noncompetition agreement, a
contingent promissory note in the principal amount of $2,000,000 issued
by the Company to the Shareholder in December 1986 as consideration for
the sale of certain patent rights by the Shareholder to the Company was
canceled. Under the terms of this agreement the Company made a cash
payment of $150,000 in 1994 to the Shareholder. The Company also agreed
to make a cash payment of $55,000 and to cancel the Shareholder's
obligation to the Company under a promissory note in the principal
amount of $45,000 on January 1, 1996. In addition, commencing January
1, 1996, the Company agreed to pay the Shareholder $62,500 on each
January 1, April 1, July 1 and October 1 thereafter through October 1,
2002, provided that the Company's available cash was sufficient to
satisfy the Company's requirements during the following 90-day period
and that the Shareholder continued to comply with the terms of the
deferred compensation-noncompetition agreement. To date the Company has
made no payments, other than the initial $150,000 in 1994. In
consideration of and as a condition to such payments, the Shareholder

agreed that during the eight-year period ending on December 31, 2002,
he would not engage in or become associated with any person or entity
engaged in any activity in the United States or Canada that is
competitive with the business of the Company.

The Company had excluded certain amounts from the total claim of the
Shareholder in arriving at the amount included as an allowed claim as
of December 31, 1999. Amounts accrued under the deferred
compensation-noncompetition agreement as of December 31, 1999, reflect
the amounts due at that date under the agreement. The Shareholder claim
included an additional amount of $1 million for interest and penalties
on payments due under this agreement during the period January 1, 1999
to December 31, 2002, which had not been accrued as of December 31,
1999. The claim of the Shareholder was settled in 2000 and the
Shareholder is no longer a creditor of the Company.

The Company will continue to negotiate with creditors to reconcile
claims filed with the Bankruptcy Court to the Company's financial
records. The additional liability arising from this reconciliation
process, if any, is not subject to reasonable estimation. As a result,
no provision has been recorded for these possible claims. The Company
will recognize the additional liability, if any, as the amounts become
subject to reasonable estimation. Additional bankruptcy claims and
pre-petition liabilities may arise from the rejection of executory
contracts and unexpired leases, resolution of contingent and
unliquidated claims and the settlement of disputed claims. Under the
Plan, the outcome of the claims review and objection process may
materially change the amounts and terms of pre-petition liabilities.
Consequently, the amounts included in the consolidated balance sheets
as liabilities subject to compromise may be subject to future
adjustment.

(8) DEFERRED LEGAL FEES AND PROMISSORY NOTE

The Company incurred legal expenses reflected on the accompanying
financial statements at December 31, 2000 and 1999 of $957,775 and
$916,867, respectively, prior to confirmation of the Company's
bankruptcy reorganization plan on April 22, 1999, which became payable
on April 22, 2000, subject to Bankruptcy Court approval and which
counsel intends to seek. The Company also incurred post-confirmation
legal expenses, principally in preparing and litigating objections to
claims filed in the bankruptcy proceeding and for general corporate
matters, on which a balance of $684,520 remains unpaid, as of December
31, 2000. The Company and counsel have executed a promissory note in
this amount, of which $85,565 is reflected as a current liability on
the accompanying financial statements at December 31, 2000. The Company
has entered into an agreement with its counsel for payment of these
expenses on the following terms: preconfirmation legal fees in the
amount of $957,775 is due and payable on September 30, 2001, with
interest accruing from October 15, 2000 and $684,520 payable in equal
monthly installments over two years, commencing October 15, 2001, with
interest accruing from October 15, 2000 at 1% per annum over Bank of
America's prime rate (10.5% at December 31, 2000). The Company also
issued to its counsel a warrant exercisable in whole or in part from
time to time for 5 years, to purchase sufficient shares of our common
stock to enable the warrant holder, by tender of the warrant in
satisfaction of such indebtedness (and any indebtedness incurred in
appealing Bankruptcy Court awards), to extinguish such indebtedness in
full. The warrant exercise price is $1.23 per share. In addition to the
foregoing legal expenses, through December 31, 2000, contingent legal
expenses in the amount of approximately $1.1 million have been incurred
by the Company in contesting claims in the Bankruptcy Court, which the
Company will be obligated to pay only out of savings realized from a
successful reversal or reduction on appeal of awards granted by the
Bankruptcy Court with respect to contested claims, or, if an appeal is
not pursued, through cancellation of the unscheduled contingent legal
expenses by exercise of a warrant containing substantially the same
terms as the warrant described above.

(9) REORGANIZATION EXPENSES

Reorganization expenses recorded in 2000 and 1999 consist of
professional fees paid or incurred for legal services related to the
Company's reorganization.

(10) INCOME TAXES

The Company filed federal and state income tax returns for the years
ended December 31, 1994 through 1998 and paid the corresponding state
minimum taxes in 2000. As of December 31, 2000, the Company had
approximately $115 million and $42 million of federal and California
net operating losses, respectively. The Company also had approximately
$633,000 of federal research and experimentation credit carryforwards,
respectively.

The Company has not determined whether the reorganization or lack of
proper filing of income tax returns from December 31, 1993 through
December 31, 1998 has caused the Company to forfeit its net operating
loss carryforwards.

Should the net operating losses and credits described above, be
available for use, such carryforwards may be restricted in the event of
an "ownership change," as defined in Section 382 of the Internal
Revenue Code. The Company did have such a change in July 1989, and
again in November 1991, subjecting $13.9 million of its net operating
loss carryforwards to an annual limitation not to exceed $1.6 million.
The Company has not determined whether an ownership change has occurred
after December 31, 1993. Further, Section 382 provides that in the
event the Company ceases its trade or business, its net operating
losses and credit carryforwards would be forfeited.

There are sufficient net operating loss carryforwards to offset any
taxable income in 2001.

(11) LEASES

The Company leases its office facility under a lease which expires July
31, 2002. The facility lease is an operating lease, and rent expense
for the years ending December 31, 2000 and 1999 was $20,165 and
$12,396, respectively.

Future minimum lease payments under the lease for years ending after
December 31, 2000 are $36,000 for 2001 and $21,000 for 2002.

(12) COMMON STOCK

The Company has reserved a total of 5,000,000 shares of common stock
for issuance under its 1999 Stock Option Plan (the "1999 Plan"). The
1999 Plan, adopted by the board of directors on February 26, 1999, and
by the shareholders on March 31, 1999, with the increase of shares
reserved under the 1999 Plan from 3,650,000 to 5,000,000 approved by
the shareholders on June 30, 2000, provides for the granting of
incentive stock options to employees (including officers) and
nonqualified stock options to employees, non-employee directors and
consultants, at prices not less than 100% and 85% of the fair market
value of the Company's common shares for incentive and nonqualified
stock options, respectively, at the grant date. Incentive and
nonqualified stock options may have terms of up to 10 years and vest
over periods determined by the Board of Directors. Options generally
vest ratably over a 3- or 4-year period unless as otherwise specified
by the Board of Directors. The 1999 plan has a term of 10 years.
1,962,500 options are available for grant under this plan as of
December 31, 2000.

The Company had reserved 5 million shares of common stock for issuance
under the 1988 Stock Option Plan (the "1988 Plan") under terms
substantially similar to the 1999 Plan. The 1988 Plan had a 10-year
term. This plan expired in September 1998, but some options granted
under that plan remain outstanding.

1988 Plan Options outstanding as of December 31, 2000, are as follows:

Number of Weighted-Average Number of
Outstanding Remaining Contractual Options
Exercise Price Options Life (in Years) Vested
- -------------- -------------- -------------- --------------
$0.09 100,000 0.00 100,000
$0.21 900,000 2.50 900,000
-------------- --------------
1,000,000 1,000,000
============== ==============

On October 19, 2000, the Company issued Mr. Bruce Bauer 50,000 shares
of its common stock upon his exercise of his stock option for those
share for $4,500 at the exercise price.

On October 6, 2000, the Company issued Mr. John Bohrer, a former
director, 150,000 shares of its common stock upon his exercise of his
stock option for those shares for $9,000 at the exercise price.

Options exercisable under the 1988 Plan as of December 31, 2000, 1999
and 1998 were 1,000,000, 1,150,000 and 1,350,000, respectively, with
weighted-average exercise prices of $0.20, $0.18 and $0.17, per share,
respectively. The weighted-average grant date fair value of options
granted in 2000, 1999 and 1998 was $0.31, $0.20 and $0.31,
respectively. No options were granted under the 1988 Plan in 2000 or
1999 as the 1988 Plan expired in September 1998.

The Company has taken the position that the options granted to the
Shareholder in 1995 were not authorized under the 1988 Stock Option
Plan, as amended in 1995, because the number of options granted
exceeded the allowed maximum for a single grant in any one year. In
addition, the Company maintains that 2,456,398 options which were held
by the Shareholder expired in 1998 because they were not exercised
within the time allowed after the Shareholder ceased to be an employee
of the Company. In September 2000, the bankruptcy court held that the
Shareholder had the right to exercise options to purchase 900,000
shares of the Company's common stock at $0.09 per share. The Company
registered those shares and issued them to the Shareholder in December
2000.

The options activity under the 1999 Plan is summarized, as follows:

Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
----------- ----------- ----------- -----------

Outstanding at beginning of year 2,737,500 $ 0.75 - $ -
Granted 300,000 1.49 2,737,500 0.75
Canceled (600,000) 0.84 - -
----------- ----------- ----------- -----------
Outstanding at end of year 2,437,500 0.82 2,737,500 0.75
=========== =========== =========== ===========

Options exercisable at year-end 2,437,500 2,537,500

Weighted average grant-date fair value of
options granted during the year whose
exercise price equaled market price
on date of grant $ 1.49 $ 0.43

Under the 1999 Plan, no options were granted during 2000 or 1999 whose
exercise price was greater or less than market price on the date of grant.

The following table summarizes information about stock options
outstanding at December 31, 2000 under the 1999 Plan:

Options Outstanding Options Exercisable
------------------------------------------------------------- -----------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
------------- ------------- ------------- ------------- ------------- -------------

$0.42 - 1.01 2,037,500 3.5 years $0.65 2,037,500 $0.65
$1.47 - 1.50 300,000 3.5 years 1.49 300,000 1.49
2.23 100,000 3.9 years 2.23 100,000 2.23
------------- ------------- ------------- ------------- ------------- -------------
$0.42 -$2.23 2,437,500 3.5 years $0.82 2,437,500 $0.82
============= ============= ============= ============= ============= =============

The fair value of options granted under the 1999 Plan during the years
ended December 31, 2000, 1999 and 1998 is estimated on the date of
grant using the Black-Scholes model with the following assumptions: no
dividend yield, risk-free interest of 6.0%, and expected lives of 5
years. The volatility assumption for the options granted in 2000 was
139%, and 60% was used for options granted in 1999 and 1998.

The Company uses the intrinsic value-based method under APB Opinion No.
25, in accounting for its employee stock-based compensation plans and,
accordingly, no compensation cost has been recognized for stock options
granted to employees in the accompanying consolidated financial
statements. Had compensation cost for the Company's stock-based
compensation plans been determined consistent with the fair value
approach set forth in SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, the Company's net income (losses) for the years ended
December 31, 2000, 1999 and 1998, would have been:

Years Ended December 31,
---------------------------------------------
2000 1999 1998
------------- ------------- -------------

Net Income (loss) - as reported $ (5,602,036) $ 8,146,916 $ (1,487,529)
Net Income (loss) - pro forma $ (5,847,556) $ 6,991,552 $ (1,590,529)
Basic and diluted net loss per share - as reported $ (0.14) $ 0.23 $ (0.05)
Basic and diluted net loss per share - pro forma $ (0.15) $ 0.19 $ (0.05)

A shareholder holds warrants to purchase the Company's common stock
dependent upon meeting certain performance criteria in offering
television programming identifying the Company's interactive games. The
warrants specify that the shareholder can purchase approximately 25% of
the Company's common stock outstanding at the time of exercise in three
installments of 5%, 10%, and 10% after satisfying each of three
separate performance criteria. In 1994, the Board of Directors amended
the original warrant agreement to establish an exercise price for the
original warrants of either $8.50 per share or 75% of the then current
market price of common stock, and to grant to the shareholder an
additional warrant to purchase 200,000 shares of common stock at an
exercise price of $5.875. The 25% warrants contain certain antidilution
provisions and terms of four, five and six years commencing when the
performance criteria for the first warrant are satisfied. Accordingly,

if and when it becomes probable that this shareholder will satisfy any
of the three separate performance criteria, the Company will recognize
expenses relating to the respective differences between the warrant
exercise prices of the shares and their then fair market value. As of
December 31, 2000, none of these warrants have been exercised, and no
common stock has been issued in relation to these warrants. It is
expected these warrants will be canceled as part of the Settlement
Agreement.

Warrants for 234,753 shares of common stock with exercise prices
ranging from $2.86 to $4.80 per share were assumed under the plan of
reorganization. These warrants expired on March 30, 2000.

The Company issued to its counsel a warrant exercisable in whole or in
part from time to time for 5 years, to purchase sufficient shares of
our common stock to enable the warrant holder, by tender of the warrant
in satisfaction of certain indebtedness (and any indebtedness incurred
in appealing Bankruptcy Court awards), to extinguish such indebtedness
in full. The warrant exercise price is $1.23 per share.

As of December 31, 2000, the Company sold 2,541,672 units to private
investors pursuant to a Stock Purchase and Investment Agreement dates
as of September 13, 2000. Each unit consists of one share of our common
stock and a five-year warrant to purchase one share of our common stock
at an exercise price of $1.90 per share. The Company received $3.1
million for the sale of these units.

(13) LITIGATION

(a) As indicated in Note 2, in August 1995 the Company commenced
litigation against certain shareholders and their affiliated
entities (Settling Parties) alleging that the defendants had
attempted to acquire the Company's intellectual property by
obtaining liens thereon through secured loans, reneging on
commitments to make future loans and then seeking to foreclose
on the Company's intellectual property when the Company could
not sustain its business without additional funds. The
defendants counterclaimed to foreclose their liens. In July
1998, the Settling Parties entered into the Settlement
Agreement referred to in Note 2, settling the litigation,
which was consummated in April 1999.

(b) Prior to 1995, the Company was a party to various litigation
matters with NTN Communications, Inc. ("NTN") and related
parties, primarily involving the validity of the Company's
basic patent, the scope of each party's respective
technologies and the Company's right to offer its game "IN The
Huddle." The Company obtained judgment against NTN enforcing a
prior settlement agreement with NTN and in 1998 received
payment of approximately $500,000 from NTN. The Company is
continuing to pursue litigation in Canada against NTN's
affiliate, Networks North, Inc. (formerly NTN Communications
Canada, Inc.) for infringement of its patent.

(c) In 1995, two securities class action complaints were filed
against the Company and certain of its officers and directors
for alleged violation of Federal securities laws in connection
with various public statements made by the Company and certain
of its officers and directors during the period from January
19, 1994 to March 31, 1995. The securities class action
plaintiffs failed to file a proof of claim in the Company's
bankruptcy proceedings by January 19, 1999.

This claim was settled on September 1, 1999, with expenses
limited to the $500,000 deductible under the Company's
liability insurance. This amount was classified as liabilities
subject to compromise in 1998 and was paid in 1999 in full and
final settlement of the claim.

No litigation settlement was received in 2000. The Company
did, however, incur additional losses of $1.9 million in 2000
resulting from increased claims by unsecured creditors which
were approved by the Bankruptcy Court. The Company received

$10.4 million from the Settling Parties upon the consummation
of the Settlement Agreement during the year ended December 31,
1999, and $502,000 in connection with the proceeds from other
unrelated litigation during the year ended December 31, 1998.

(14) QUARTERLY FINANCIAL INFORMATION--UNAUDITED

A summary of quarterly information follows:

QUARTER ENDED: MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- ------------- ------------ ------------ ------------ ------------

2000
Total revenue.......... $ - $ - $ - $ -
Cost of revenue........ - - - -
Operating loss......... (613, 495) (281,665) (647,702) (330,305)
------------ ------------ ------------ ------------
Net loss............... (511,391) (3,845,879) (1,230,579) (14,187)
Net loss per share,
diluted and basic...... $ (0.01) $ (0.10) $ (0.02) $ (0.01)
------------ ------------ ------------ ------------

1999
Total revenue.......... $ - $ - $ - $ -
Cost of revenue........ - - - -
Operating loss......... (405,487) (126,782) (276,357) (508,556)
------------ ------------ ------------ ------------
Net loss............... (1,036,693) 9,965,243 (454,100) (327,533)
Net loss per share,
basic................ $ (0.03) $ 0.28 $ (0.01) $ (0.01)
fully diluted........ $ (0.03) $ 0.27 $ (0.01) $ (0.01)

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth certain information about our directors
and executive officers as of March 15, 2001:

NAME AGE POSITION
---- --- --------
Bruce W. Bauer 50 Chairman of the Board of Directors,
President, Chief Executive Officer
and Chief Financial Officer

Robert J. Brown 64 Chief Technology Officer and Secretary

William H. Green 74 Director

William L. Groeneveld 35 Director

Robert H. Hesse 58 Director

Lawrence Taymor 52 Director

BRUCE W. BAUER has served as our Chairman of the Board of Directors,
President and Chief Executive Officer since June 1998. In addition, he has
served as our Chief Financial Officer since March 2001. Previously, he served as
our Secretary from November 1996 through June 1998 and again from July 2000
through March 2001, and has been a member of our board since October 1995. Mr.
Bauer was our Chief Executive Officer at the time we filed our plan of
reorganization in bankruptcy court in December 1998. Since January 2000, he has
served as the Chairman of the Board of Directors of TWIN Entertainment, Inc.,
which is 50% owned by our Company. From 1980 to June 1998, Mr. Bauer owned and
operated Unlimited Services and Marathon Management Services, which provided
building and clean room services, supplies and consulting. Mr. Bauer received a
B.S. degree from Wittenberg University in 1974.

ROBERT J. BROWN has served as our Chief Technology Officer since June
1999 and as our Secretary since March 2001. From April 1996 to June 1999, Mr.
Brown served as a Vice President for Fourth Network. From August 1995 to April
1996, Mr. Brown was an independent consultant. From January 1988 to July 1995,
Mr. Brown served as an Executive Vice President in Research and Development for
our Company. Mr. Brown has served as a director of TWIN Entertainment, Inc.
since February 2000. Mr. Brown received a B.S. degree in 1959, an M.S. degree in
1961, and a Ph.D. degree in 1964, all in electrical engineering and all from
Stanford University.

WILLIAM H. GREEN has served as a member of our board since February
1998. Since June 1998, Mr. Green has served as a Director of D.S.I. Corporation,
a dredging specialty company. Since January 1996, Mr. Green has served as a
Director of Arizona Communications. From 1993 to 1998, he served as a consultant
in the aggregate division of Martin Marietta. Mr. Green attended the University
of Nebraska at Omaha from 1946 through 1949.

WILLIAM L. GROENEVELD has served as a member of our board since
September 1998. Since January 1995, Mr. Groeneveld has served as head trader and
is currently President of Wholesale Trading Corp. (formerly known as Program
Trading Corp.).

LAWRENCE TAYMOR has served as a member of our board since October 2000.
Since February 1997, Mr. Taymor has served as the Vice President of Strategic
Partnerships and Intellectual Property of Liberate Technologies. From February
1996 to February 1997, Mr. Taymor served as a Consultant and Vice President of
Programming and Production of Turner New Media. Mr. Taymor received his B.A. in
1970 from Princeton University.

ROBERT H. HESSE has served as a member of our board since June 2000.
Since 1992, Mr. Hesse has served as the President of Dorchester Group, Inc., an
investment banking firm. Mr. Hesse received a B.S. in 1965 from St. Peters
College.

ITEM 11. EXECUTIVE COMPENSATION

COMPENSATION OF NAMED EXECUTIVE OFFICERS

The following table sets forth all compensation earned by our Chief
Executive Officer and each of our four other most highly compensated executive
officers (collectively, the "Named Executive Officers") for the years ended
December 31, 2000, 1999 and 1998.

SUMMARY COMPENSATION TABLE

LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------- -------------------
SECURITIES
SALARY BONUS UNDERLYING OPTIONS
NAME AND PRINCIPAL POSITION YEAR $ $ (#)
- --------------------------- ---- ------------ ------ -------------------

Bruce W. Bauer 2000 144,562 0 50,000
Chairman of the Board of Directors, 1999 131,771 0 1,000,000
Chief Executive Officer and President 1998 67,708(1) 0 900,000

Robert J. Brown 2000 135,000 0 0
Chief Technology Officer 1999 65,814(2) 0 300,000(3)
1998 0 0 0
- -----------------

(1) Represents partial year salary from June 14, 1998 through December 31,
1998 ($125,000 on an annualized basis).

(2) Represents partial year salary from June 22, 1999 through December 31,
1999 ($125,000 on an annualized basis).

(3) Options vest 100,000 per year for three years.

OPTION GRANTS

The following table sets forth information concerning the stock options
granted to each of the Named Executive Officers for the 2000 fiscal year. In
accordance with the SEC rules, also shown below is the potential realizable
value over the term of the option (the period from the grant date to the
expiration date) based on 5% and 10% assumed annual rates of compounded stock
price appreciation. These amounts are based on certain assumed rates of
appreciation and do not represent our estimate of future stock price. Actual
gains, if any, on stock option exercises will be dependent on the future
performance of our common stock.

OPTION GRANTS IN 2000
INDIVIDUAL GRANTS

NUMBER OF POTENTIAL REALIZABLE
SECURITIES PERCENT OF VALUE AT ASSUMED ANNUAL
UNDERLYING TOTAL OPTIONS RATES OF STOCK PRICE
OPTIONS GRANTED TO EXERCISE APPRECIATION FOR OPTION
GRANTED EMPLOYEES PRICE EXPIRATION TERM (1)
NAME (#) IN 2000 ($/SHARE) DATE 5% 10%
-------------- ---------- ---------- ---------- ---------- ---------- ----------

Bruce W. Bauer 50,000(2) 100% $1.50 6/29/2005 $20,721 $45,788

--------------------

(1) Gains are reported net of the option exercise price but before taxes
associated with exercise. These amounts represent certain assumed rates
of annual appreciation. Actual gains, if any, on stock option exercises
are dependent on future performance of our common stock.

(2) All options under this grant were fully exercisable as of the date of
the grant.

OPTION HOLDING AND EXERCISES AND OPTION VALUES

The following table sets forth information concerning option holdings
and exercises for the 2000 fiscal year and the aggregate value of unexercised
options as of December 31, 2000, held by each of the Named Executive Officers.

AGGREGATED OPTION EXERCISES IN FISCAL 2000
AND OPTION VALUES AT DECEMBER 31, 2000

NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
AGGREGATE OPTION OPTIONS AT IN-THE-MONEY OPTIONS AT
EXERCISES IN 2000 DECEMBER 31, 2000 DECEMBER 31, 2000 (1)
--------------------------- ----------------------------- -----------------------------
SHARES
ACQUIRED VALUE
ON EXERCISE REALIZED
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------------- ------------- ------------- ------------- ------------- ------------- -------------

Bruce W. Bauer 50,000 59,560(2) 2,050,000 0 $ 846,460 0
Robert J. Brown 200,000 100,000 $ 47,240 $ 23,620

--------------------

(1) Calculated on the basis of the closing price of our common stock as
reported on the OTC Bulletin Board on December 31, 2000 of $0.7812 per
share, minus the exercise price.

(2) Calculated on the closing price of our common stock subject to the
option, minus the exercise price.

EMPLOYMENT AGREEMENTS

We have entered into written employment agreements with the following
Named Executive Officers:

On June 15, 1999, we entered into an employment agreement with Bruce
Bauer, our Chief Executive Officer. This agreement provides for an annual salary
of $135,000 from June 15, 1999, through June 14, 2000, $145,000 from June 15,
2000, through June 14, 2001, and $155,000 from June 15, 2001, through June 14,
2002. No specific bonus provisions are included in the employment agreement. Mr.
Bauer is also entitled to vacation and standard benefits. Should we terminate
the employment agreement without cause or should Mr. Bauer terminate this
employment for good reason, all earned salary amounts not previously paid plus
an amount equal to the greater of Mr. Bauer's then present salary for six months
or the remainder of the term of the agreement shall become due and payable
effective immediately and paid within a twenty four-hour period after the
termination. A penalty of ten percent (10%) per annum interest, compounded daily
shall be added effective after twenty-four hours on all unpaid balances due Mr.
Bruce Bauer. This description is a summary only. A copy of the employment
agreement was filed as Exhibit 10.13 to our Annual Report on Form 10-K filed
with the SEC on April 14, 2000, and is incorporated herein by reference.

On June 15, 1999, we entered into an employment agreement with Dr.
Robert Brown, our chief technology officer. This agreement provides for an
annual salary of $125,000 from June 22, 1999, through June 21, 2000, $135,000
from June 22, 2000, through June 21, 2001, and $145,000 from June 22, 2001,
through June 21, 2002, and an option to purchase 300,000 shares of our common
stock, vesting 1/3 on each anniversary of the agreement. No specific bonus
provisions are included in the employment agreement. Dr. Brown is also entitled
to vacation and standard benefits. Should we terminate the employment agreement
without cause or should Dr. Brown terminate his employment for good reason, all
earned salary amounts not previously paid plus an amount equal to the greater of
Dr. Brown's then present salary for six months or the remainder of the term of
the agreement shall be paid upon such termination. This description is a summary
only. A copy of the employment agreement was filed as Exhibit 10.14 of our
Annual Report on Form 10-K filed with the SEC on April 14, 2000, and is
incorporated herein by reference.

MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS

During 2000, the Board of Directors met eight times. Each director
attended at least 75% of the aggregate of (a) the total number of Board of
Directors meetings held during the period in which he was a director and (b) the
total number of committee meetings of the Board of Directors on which he served
during the period in which he was a director.

The Board of Directors has an executive committee, consisting of
Messrs. Bauer, Green and Groeneveld. The committee held one meeting in 2000. The
Board of Directors does not have a nominating committee.

COMPENSATION OF DIRECTORS

Our directors who are also employees do not receive any additional
compensation for their services as directors. Directors who are not employees
receive an annual stock option grant of 50,000 shares in lieu of cash
competition. All directors are reimbursed for expenses incurred in connection
with attending board of directors and committee meetings.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Bruce Bauer was an officer of Interactive Network and during the last
fiscal year participated in deliberations of the Board of Directors concerning
executive officer compensation.

BOARD REPORT ON EXECUTIVE COMPENSATION

Annual compensation of our executive officers is determined by our
board of directors. The board of directors was also responsible for
administering the 1988 and 1999 Option Plans, including the grant of options
under such plan. Mr. Bauer is our employee and has voted on matters relating to
executive compensation and stock option grants, including his own compensation
and stock option grants.

We are currently operating with a skeleton staff of two officers (Mr.
Bauer as President and Chief Executive Officer and Chief Financial Officer and
Dr. Brown as Chief Technology Officer and Secretary), and one administrative
assistant/receptionist, to conserve resources until we are able to commence
exploitation of our intellectual property assets. At that time, we will again
commence rehiring staff, as appropriate to carry out our goal of realizing the
value of our intellectual property. In that connection, we have used and may
also use and compensate consultants, including our advisory panel, to assist
management.

Our compensation philosophy is to provide strong incentives to our
executives to maximize the overall value of our company. Our executive officers
are given an opportunity to participate in our growth through equity
participation in the form of stock options granted under our option plan. As a
result, our executive officers are directly rewarded for our performance as
reflected in our stock price and given an additional incentive to contribute to
our future success. Certain recent option grants have been made fully vested in
order to induce our executives and directors to remain with us through the
settlement with our creditors and in lieu of substantial cash compensation.

Base salaries and stock option grants are initially determined on the
basis of (i) the individual officer's position, and (ii) our desire to attract
and retain qualified personnel in a competitive marketplace. Salaries are
generally reviewed annually and are subject to increases based on our
determination that the individual's level of contribution to us has increased
since his or her salary had last been reviewed and increases in competitive pay
levels and the cost of living. Under normal circumstances, our board of
directors also determines initial awards of stock options, within a range
established for employees at various salary levels, based on the employee's
position and responsibilities. As stock options held by employees, including
executive officers, vest, we may approve grants of additional options based on
the employee's past performance and contributions to us. There is no provision
for bonus in the employment agreement of the current President and chief
executive officer, although we may decide to award such in our discretion. No
particular weighting is given to any of the factors considered.

FEES BILLED TO THE COMPANY BY MARC LUMER & COMPANY DURING FISCAL 2000

AUDIT FEES

Fees billed to the Company by Marc Lumer & Company for the 2000 fiscal
year annual audit of its financial statements included in its Annual Report on
Form 10-K for the year ended December 31, 2000, and for review of the financial
statements included in the Company's fiscal year 2000 Quarterly Reports on Form
10-Q totaled approximately $38,322.

FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES

Marc Lumer & Company did not perform any financial information systems
design or implementation services for the Company during fiscal year 2000.

ALL OTHER FEES

Marc Lumer & Company did not perform any other non-audit servicesfor
the Company during fiscal year 2000.

PERFORMANCE GRAPH

The following graph compares the cumulative total shareholder return on
our common stock with that of the Nasdaq Stock Market (U.S.) Index and the
Nasdaq Telecommunications Index. The comparison for each of the periods assumes
that $100 was invested on December 31, 1995, in our common stock including
reinvestment of dividends. These indices, which reflect formulas for dividend
reinvestment and weighing of individual stocks, do not necessarily reflect
returns that could be achieved by individual investors.

Notwithstanding anything to the contrary set forth in any of our
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that might incorporate future filings, the
preceding Compensation Committee Report on Executive Compensation and the
preceding Performance Graph shall not be incorporated by reference into any such
filings, nor shall such Report or graph be incorporated by reference into any
future filings.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL
RETURN*
AMONG INTERACTIVE NETWORK, INC.,
THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE NASDAQ TELECOMMUNICATIONS INDEX

[INTERACTIVE PERFORMANCE GRAPH HERE]

Textual representation of the Performance Graph:

The following descriptive data is supplied in accordance with Rule 304(d) of
Regulation S-T

12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00
-------- -------- -------- -------- -------- --------

Interactive Network, Inc. 100.00 200.31 600.94 1,001.56 9,214.36 2,503.75
NASDAQ Telco. Index 100.00 103.64 147.17 240.44 487.39 222.45
NASDAQ Market Index 100.00 123.04 150.69 212.51 394.92 237.62
-------- -------- -------- -------- -------- --------

- -----------------
(1) The graph assumes that $100 was invested on December 31, 1995, in the
Company's common stock, the NASDAQ Stock Market (U.S.) Index and the NASDAQ
Telecommunications Index and that all dividends were reinvested. No dividends
have been declared or paid on the Company's common stock. Stockholder returns
over the indicated period should not be considered indicative of future
stockholder returns.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires our directors and executive officers, and persons who own more than ten
percent of a registered class of our equity securities, to file with the SEC
initial reports of ownership and reports of changes in ownership of our common
stock and other equity securities. Officers, directors and greater than ten
percent shareholders are required by SEC regulations to furnish us with copies
of all Section 16(a) forms they file.

To our knowledge, based solely on a review of the copies of such
reports furnished to us and written representations that no other reports were
required during the fiscal year ended December 31, 2000, Section 16(a) filing
requirements applicable to Messrs. Bauer, Green, Groeneveld, Hesse and Taymor
were not complied with on a timely basis. However, all have since filed a Form 5
disclosure to bring their required disclosure up to date.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The following table sets forth certain information known to us with
respect to the beneficial ownership of our common stock as of March 15, 2001, by
(i) each shareholder known to us to own beneficially more than 5% of our common
stock; (ii) each of our directors; (iii) the named executive officer in the
summary compensation table; and (iv) all of our directors and executive officers
as a group.

APPROXIMATE
SHARES PERCENT
BENEFICIALLY BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED OWNED(1)
- ------------------------ ----------- ------------
AT&T Corp. (2)................................ 7,773,815 18.07%
32 Avenue of the Americas
New York, NY 10013-2412

National Broadcasting Company, Inc. (2)....... 3,645,575 8.47%
30 Rockefeller Plaza
New York, NY 10112

Gannett Co., Inc. (3)......................... 2,196,666 5.11%
1000 Wilson Boulevard
Arlington, VA 22209

Voting Agreement (4).......................... 7,814,589 18.17%

Perkins Capital Management, Inc. (5).......... 3,855,500 8.96%
730 East Lake Street
Wayzata, MN 55391-1769

Bruce W. Bauer (6)............................ 2,200,500 5.12%

William H. Green (7).......................... 175,000 *

William L. Groeneveld (8)..................... 162,500 *

Robert H. Hesse (9)........................... 384,500 *

Lawrence Taymor (10).......................... 12,500 *

Robert Brown (11)............................. 237,375 *

All executive officers and directors
as a group (6 persons) (12).................. 3,172,375 7.37%

- -------------------

* Less than 1% of outstanding shares.

(1) The percentage calculation is based on an aggregate of 43,019,277
shares outstanding as of March 15, 2001. Except as indicated and
pursuant to applicable community property laws, we believe that all
persons named in the table have sole voting and investment power with
respect to all shares of common stock beneficially owned by them.

(2) Includes for each entity only those shares listed herein for such
entity: (i) 2,942,907 shares held by Tele-Communications, Inc., a
wholly owned subsidiary of AT&T Corp and (ii) 1,902,279 shares held by
National Broadcasting Company, Inc., a wholly owned subsidiary of
General Electric Company which are subject to the Voting Agreement (see
footnote 4 below).

(3) Pursuant to a Stock Purchase Agreement dated December 2, 1992, Gannett
Co., Inc. ("Gannett"), so long as it owns at least 500,000 shares of
the Company's common stock, has the right to cause the Company to
include one person designated by Gannett in the slate of nominees
recommended for election as director. The Company is required to use
its best efforts to cause such designee to be elected as a director,
and David B. Lockton has agreed to vote his shares to cause such
designee of Gannett to be elected to the Board of Directors. Gannett
has advised the Company that it will not exercise any rights it has
under the 1992 Agreement to designate a person to be elected to the
Company's Board of Directors this year.

(4) Pursuant to a certain voting agreement, each of the parties to a
certain settlement agreement agreed to vote their shares issued in such
agreement as directed by a committee (except for matters relating to
David Lockton and certain major transactions of our company), which
currently consists of John Bohrer, William H. Greene and Bruce Bauer.
This agreement does not provide for any other joint action by the
parties thereto. The parties to the voting agreement disclaim
beneficial ownership of shares owned by other parties thereto, and the
committee disclaims beneficial ownership of all of the shares subject
to the voting agreement.

(5) Includes (i) 2,570,500 shares of common stock and (ii) 1,285,000 shares
of common stock that may be purchased upon exercise of warrants that
are exercisable within 60 days of March 15, 2001.

(6) Includes (i) 150,500 shares of common stock and (ii) 2,050,000 shares
that may be acquired upon exercise of stock options that are currently
exercisable.

(7) Includes 175,000 shares of common stock that may be acquired upon
exercise of stock options that are currently exercisable.

(8) Includes 162,500 shares of common stock that may be acquired upon
exercise of stock options that are currently exercisable.

(9) Includes (i) 359,500 shares of common stock and (ii) 25,000 shares of
common stock that may be acquired upon exercise of stock options that
are currently exercisable.

(10) Includes (i) 2,625 shares of common stock, (ii) 2,625 shares of common
stock borrowed and sold short and (iii) 12,500 shares of common stock
that may be acquired upon exercise of stock options that are currently
exercisable.

(11) Includes (i) 37,375 shares of common stock and (ii) 200,000 shares of
common stock that may be acquired upon exercise of stock options that
are currently exercisable.

(12) Includes 2,337,500 shares of common stock that may be acquired upon
exercise of stock options that are exercisable within 60 days of March
15, 2001.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

GANNETT AGREEMENTS

We entered into a stock purchase agreement with Gannett and David B.
Lockton, dated December 2, 1992, as amended (the "Gannett Agreement"). Under the
Gannett Agreement, we sold 1,000,000 shares of common stock to Gannett at a
price of $5.00 per share. The shares sold to Gannett were subject to adjustment
for certain dilutive issuances of securities by us and an aggregate of 1,196,666
shares of common stock have been issued to Gannett pursuant to such
anti-dilution provisions; those provisions have since expired. Under the Gannett
Agreement, Gannett has the right to cause us to include in the slate of nominees
recommended by our board of directors or management to shareholders for election
as directors at each annual meeting of shareholders one person designated by
Gannett. We are required to use our best efforts to cause any common stock for
which our management or directors hold proxies, or are otherwise entitled to
vote, to be voted in favor of the election of such designee. In addition, Mr.
Lockton is required to vote all shares of common stock owned by him in favor of
such designee. Gannett has advised us that it does not choose to exercise its
right to designate a director at this time. Under the Gannett Agreement, we have
also agreed, among other things, to coordinate with Gannett in developing and

marketing certain electronic news services and to provide Gannett with a right
of first refusal to participate exclusively in a partnership or joint venture
with us in doing so. While we have assumed our obligations under the Gannett
Agreement, we have no present plans that would involve the types of business
activities contemplated by that agreement.

The Gannett Agreement also provided Gannett with certain rights with
respect to the registration of its shares of our common stock under the
Securities Act of 1933, as amended (the "Securities Act"). Under the agreement,
if we propose to register any of the securities under the Securities Act, either
for our own account or for the account of other security holders exercising
registration rights, Gannett is entitled to notice of such registration and is
entitled to include shares of such common stock therein. These rights are
subject to certain conditions and limitations, among them the right of the
underwriters of a registered underwritten offering to limit the number of shares
included in that registration. In addition, Gannett has the right to demand that
we file a registration statement under the Securities Act at our expense with
respect to its shares of common stock, and we are required to use our best
efforts to effect such registration, subject to certain conditions and
limitations, including our right not to effect a requested registration within
three months following an offering of its securities. Gannett may also require
us to file registration statements on Form S-3 when such registration form is
available to us. We are generally obligated to pay all expenses incurred in
connection with such registrations, except for underwriting discounts, selling
commissions and stock transfer taxes.

OTHER TRANSACTIONS

We have entered into indemnification agreements with each of our
directors and executive officers. These agreements require us to indemnify our
directors and executive officers to the fullest extent permitted by California
law.

All future transactions between us and our executive officers,
directors, principal stockholders and affiliates will be approved by a majority
of our board of directors, including a majority of the disinterested,
non-employee directors on our board of directors, and will be on terms no less
favorable to us than could be obtained from unaffiliated third parties.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a) The following documents have been filed as a part of this
Annual Report on Form 10-K.

(1) Financial Statements:

Reference is made to the Index to Financial Statements under
Item 8 in Part II of this Form 10-K.

(2) Financial Statement Schedules:

All schedules have been omitted since they are not required or
are not applicable or the required information is shown in the
financial statements and related notes.

(3) Exhibits:

The exhibits listed below are required by Item 601 of Regulation S-K.
Each management contract or compensatory plan or arrangement required to be
filed as an exhibit to this Form 10-K has been identified.

EXHIBIT INDEX

EXHIBIT
NUMBER EXHIBIT DESCRIPTION
--------- ---------------------------------------------------------------

3.1 Amended and Restated Articles of Incorporation of the
Registrant (incorporated by reference to Exhibit 4.1 of
Exhibits to Registrant's Form S-8 Registration Statement, as
filed with the Commission on November 10, 1992)

3.2 Certificate of Determination of the Registrant, filed with the
California Secretary of State on September 20, 1994
(incorporated by reference to Exhibit 3.3 of Exhibits to
Registrant's Form 8-K Report, as filed with the Commission on
October 3, 1994)

3.3 Certificate of Amendment of Amended and Restated Articles of
Incorporation of Registrant, dated May 22, 1995 (incorporated
by reference to Exhibit 3.3 of Exhibits to Registrant's Form
10-K Annual Report, as filed with the Commission on March 30,
1999)

3.4(a) Bylaws of the Registrant, as amended (incorporated by reference
to Exhibit 4.2 of Exhibits to Registrant's Form S-1
Registration Statement, as filed with the Commission on
November 10, 1992)

3.4(b) Amendment to Bylaws of the Registrant, dated February 26, 1999
(incorporated by reference to Exhibit 3.4(b) of Exhibits to
Registrant's Form 10-K Annual Report, as filed with the
Commission on March 30, 1999)

4.1 Specimen Common Stock Certificate of the Registrant
(incorporated by reference to Exhibit 4.1 of Exhibits to
Registrant's Form S-1 Registration Statement (No. 33-58780),
filed with the Commission on February 25, 1993)

9.1 Voting Trust Agreement, included in Settlement Agreement
attached as an Exhibit to the Plan of Reorganization, filed by
Registrant in the United States Bankruptcy Court for the
Northern District of California (incorporated by reference to
Exhibit 1.1 of Exhibits to Registrant's Form 8-K, as filed with
the Commission on April 29, 1999)

*10.1 Sale of Patent Agreement, between the Registrant and David B.
Lockton, dated November 18, 1986, and amendments thereto, dated
December 21, 1987 and July 30, 1990

*10.5 Settlement Agreement and Covenant Not to Sue, between the
Registrant and NTN Communications, Inc., dated April 1987, and
attached Patent License Agreement (Exhibit 10.17 of
Registration Statement)

EXHIBIT
NUMBER EXHIBIT DESCRIPTION
--------- ---------------------------------------------------------------

*10.6(a) Employment Agreement, between the Registrant and David B.
Lockton, dated January 1, 1991 (incorporated herein by
reference to Exhibit 10.22 of Registration Statement)

10.6(b) Rider to Employment Agreement, between the Registrant and David
B. Lockton, dated December 10, 1994 (incorporated by reference
to Exhibit 10.54 to the Annual Report of the Registrant on Form
10-K for the year ended December 31, 1994)

10.7 Deferred Compensation and Non-Competition Agreement, between
the Registrant and David B. Lockton, dated December 10, 1994
(incorporated by reference to Exhibit 10.53 of Exhibit B to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994)

10.8 1999 Stock Option Plan (incorporated by reference to Exhibit A
to the Proxy Statement for the Special Meeting of Shareholders
of Registrant held on March 31, 1999 -- filed with the
Commission on March 15, 1999)

10.9 Form of Stock Option Agreement for use with the 1999 Stock
Option Plan (incorporated by reference to Exhibit 10.9 of
Exhibits to Registrant's Form 10-K Annual Report, as filed with
the Commission on March 30, 1999)

*10.10 Form of Indemnification Agreement (Exhibit 10.31 of Form S-1
Registration Statement)

10.11 Termination and License Agreement, dated January 31, 2000,
between the Registrant and Two Way TV Limited, a corporation
organized under the laws of England and Wales (incorporated by
reference to Exhibit 2.5 of Form 8-K, as filed with the
Commission dated February 11, 2000).

10.12 Joint Venture and Stock Purchase Agreement, dated December 6,
1999, between the Registrant and Two Way TV Ltd., a corporation
organized under the laws of England and Wales (incorporated by
reference to Exhibit 2.1 of Form 8-K, as filed with the
Commission dated February 11, 2000).

10.13 Joint Venture License Agreement, dated January 31, 2000,
between the Registrant, Two Way TV Limited, a corporation
organized under the laws of England and Wales, and TWIN
Entertainment Inc., a Delaware corporation (incorporated by
reference to Exhibit 2.2 of Form 8-K, as filed with the
Commission dated February 11, 2000).

10.14(a) Stock Purchase Agreement, dated December 2, 1992, among the
Registrant, Gannett Co., Inc. and David B. Lockton
(incorporated by reference to Exhibit 28.4 of Exhibits to
Registrant's Form 8-K Report, as filed with the Commission on
December 17, 1992)

EXHIBIT
NUMBER EXHIBIT DESCRIPTION
--------- ---------------------------------------------------------------

10.14(b) Waiver and Amendment of Stock Purchase Agreement, with Gannett
Co., Inc., dated September 22, 1994 (incorporated by reference
to Exhibit 10.12(b) of Exhibits to Registrant's Form 10-K
Annual Report, as filed with the Commission on March 30, 1999)

10.15 Employment Agreement between the Registrant and Bruce Bauer,
dated April 13, 2000 (incorporated by reference to Exhibit
10.13 of Exhibits to Registrant's Form 10-K Annual Report,
filed with the Commission on April 14, 2000)

10.16 Employment Agreement between the Registrant and Dr. Robert
Brown, dated April 13, 2000 (incorporated by reference to
Exhibit 10.14 of Exhibits to Registrant's Form 10-K Annual
Report, filed with the Commission on April 14, 2000)

10.17 Addendum to Consulting Agreement for Gregg Freishtat
(incorporated by reference to Exhibit 10.15 of Exhibits to
Registrant's Form 10-K Annual Report, filed with the Commission
on April 14, 2000)

10.18 Addendum to Consulting Agreement for Eduard Mayer (incorporated
by reference to Exhibit 10.16 of Exhibits to Registrant's Form
10-K Annual Report, filed with the Commission on April 14,
2000)

10.19 Stock Purchase and Investment Agreement dated September 13,
2000 (incorporated by reference to Exhibit 10.19 of Exhibits to
Registrant's Form 10-Q Quarterly Report, filed with the
Commission on November 14, 2000)

23.1 Consent of Independent Auditors -- KPMG LLP

25.1 Power of Attorney. Reference is made to the signature page of
this Report.

- ---------------------------

* Incorporated by reference to the Exhibits of corresponding
number (unless otherwise noted) to Registrant's Form S-1
Registration Statement (No. 33-42951) filed with the Commission
on September 24, 1991, as amended.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

INTERACTIVE NETWORK, INC.

By: /s/ Bruce W. Bauer
----------------------------
Bruce W. Bauer
Chairman of the Board, Chief
Executive Officer, President
and Chief Financial Officer
(Principal Executive Officer
and Principal Financial
Officer)
Date: April 12, 2001

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS:

That the undersigned directors of Interactive Network, Inc., a
California corporation, do hereby constitute and appoint Bruce W. Bauer the
lawful attorney-in-fact, with full power of substitution, for him in any and all
capacities, to sign any and all amendments to this report on Form 10-K and to
file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorney-in-fact or his substitute or
substitutes may do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated.

SIGNATURE TITLE DATE
- ------------------------- -------------------------------- --------------

/s/ Bruce W. Bauer Chairman of the Board, Chief April 12, 2001
- ------------------------- Executive Officer, President
Bruce W. Bauer and Chief Financial Officer
(Principal Executive Officer
and Principal Financial Officer)

/s/ William Green Director April 12, 2001
- -------------------------
William H. Green

/s/ William Groenevld Director April 12, 2001
- -------------------------
William L. Groeneveld

/s/ Robert H. Hesse Director April 12, 2001
- -------------------------
Robert H. Hesse

Director April __, 2001
- -------------------------
Lawrence Taymor