SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(AMENDMENT NO. 2)
(Mark One)
(x) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 2001
-------------
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period from ________ to ________
Commission file number 000-19579
INTERACTIVE NETWORK, INC.
(Exact name of registrant as specified in its charter)
California 94-3025019
(State of incorporation) (I.R.S. employer identification number)
180 Second Street, Suite B
Los Altos, California 94022
(Address of principal executive offices and zip code)
(650) 947-3345
(Registrant's telephone number, including area code)
with a copy to Robert S. Townsend
Morrison & Foerster, LLP
425 Market Street
San Francisco, CA 94105
(415) 268-7000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
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 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Shares outstanding as of January 4, 2002
- ----- -----------------------------------------
Common Stock 43,019,277
INTERACTIVE NETWORK, INC.
INDEX
PART I. FINANCIAL INFORMATION Page
----
ITEM 1. FINANCIAL STATEMENTS..............................................1
CONSOLIDATED BALANCE SHEETS AS OF
JUNE 30, 2001 (Unaudited) AND DECEMBER 31, 2000..................1
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000.......2
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
FOR THE SIX MONTHS ENDED JUNE 30, 2001
AND 2000........................................................3
NOTES TO FINANCIAL STATEMENTS (Unaudited).........................4
SIGNATURES.................................................................6
EXPLANATORY NOTE
This Amendment No. 2 on Form 10-Q/A to the Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2001 is being filed to amend Item 1 of Part I to
read as follows. No other changes are being made to the Form 10-Q.
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
INTERACTIVE NETWORK, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2001 DECEMBER 31, 2000
-------------- --------------
(Unaudited)
ASSETS
Current assets:
Restricted cash $ 5,543,978 $ 5,609,735
Cash 948,999 685,168
Royalty fee receivable 135,000 250,000
Prepaid expenses and other current assets 46,523 47,218
-------------- --------------
Total current assets 6,674,500 6,592,121
Deposits and other assets 3,144 3,220
-------------- --------------
Total assets $ 6,677,644 $ 6,595,341
============== ==============
LIABILITIES AND SHAREHOLDERS' (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities $ 791,103 $ 443,952
Liabilities subject to compromise 5,504,922 5,503,263
Promissory note - current - 85,565
Deferred legal fees - 957,775
-------------- --------------
Total current liabilities 6,296,025 6,990,555
Promissory note - noncurrent 1,246,130 598,955
Convertible Promissory Notes 1,120,616 -
Shareholders' deficit:
Preferred stock, no par value, 10,000,000 shares
authorized; no shares issued and outstanding as of
June 30, 2001 and December 31, 2000 - -
Common stock, no par value, 150,000,000 shares
authorized; 43,019,277 shares issued and outstanding
as of both June 30, 2001 and December 31, 2000 145,874,986 145,874,986
Accumulated deficit (147,860,113) (146,869,155)
-------------- --------------
Total shareholders' (deficit) (1,985,127) (994,169)
-------------- --------------
Total liabilities and shareholders' (deficit) $ 6,677,644 $ 6,595,341
============== ==============
See accompanying notes to consolidated financial statements.
1
INTERACTIVE NETWORK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------------- ---------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Royalty fees $ 67,500 $ - $ 135,000 $ -
------------ ------------ ------------ ------------
General and administrative expenses:
Salaries 69,417 65,641 147,336 131,282
Employer payroll taxes 9,004 8,689 22,726 17,331
Contract labor 7,012 11,858 32,520 28,606
Rent 9,000 3,099 18,000 5,165
Directors' & Officers' insurance 16,801 - 32,702 -
Other administrative costs 9,796 22,444 16,994 53,065
Legal fees 91,341 117,969 139,450 170,977
Accounting fees 26,060 17,054 47,156 54,372
Advisory fees - - - 390,000
Legal - NTN litigation 23,549 10,135 25,936 14,904
Shareholder relations - proxy - 24,776 1,400 28,659
------------ ------------ ------------ ------------
General and administrative expenses 261,980 281,665 484,220 894,361
------------ ------------ ------------ ------------
Loss from operations (194,480) (281,665) (349,220) (894,361)
Other (income) and expense
Interest (income) (72,352) (99,196) (145,428) (199,849)
Interest expense 148,409 89,000 286,374 195,000
Net loss from investment in affiliate
accounted for by the equity method 314,486 273,160 619,345 278,651
Reserve for impairment of investment (164,486) - (219,345) -
Litigation settlement - 3,301,000 - 3,081,785
------------ ------------ ------------ ------------
Other (income) and expense, net 226,057 3,563,964 540,946 3,355,587
------------ ------------ ------------ ------------
Loss before reorganization expenses (420,537) (3,845,629) (890,166) (4,249,948)
Reorganization expenses 100,792 250 100,792 106,522
------------ ------------ ------------ ------------
Net loss before federal & state taxes (521,329) (3,845,879) (990,958) (4,356,470)
Federal & state taxes - - - 800
------------ ------------ ------------ ------------
Net loss $ (521,329) $(3,845,879) $ (990,958) $(4,357,270)
============ ============ ============ ============
Basic and diluted loss per share $ (0.01) $ (0.10) $ (0.02) $ (0.11)
Shares used in basic and diluted net
loss per share 43,019,277 39,427,605 43,019,277 39,217,000
See accompanying notes to consolidated financial statements.
2
INTERACTIVE NETWORK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS
ENDED JUNE 30,
---------------------------
2001 2000
------------ ------------
Cash flows from operating activities:
Net loss $ (990,958) $(4,357,270)
Adjustments to reconcile net loss to net cash provided by (used for)
operating activities:
Loss from investment in affiliate 619,345 278,651
Allowance for investment in affiliate (219,345) -
Changes in assets and liabilities:
Royalty fee receivable 115,000 -
Prepaid expenses and other assets 771 (22,781)
Accounts payable 381,975 (71,055)
Liabilities subject to compromise 1,659 2,331,397
Deferred legal fees (500,000) -
Other accrued liabilities 69,626 350,000
------------ ------------
Cash provided by (used in) operating activities: (521,927) (1,491,058)
Cash flows from investing activities:
Investment in TWIN Entertainment - (500,000)
Promissory note receivable from TWIN Entertainment (400,000) -
------------ ------------
Cash provided by (used in) financing activities: (400,000) (500,000)
------------ ------------
Cash flows from financing activities:
Proceeds from bridge financing 1,120,000 -
Sale of common stock - 350,997
------------ ------------
Cash provided by (used in) financing activities: 1,120,000 350,997
------------ ------------
Net increase (decrease) in cash $ 198,073 $(1,640,061)
Cash:
Beginning of period 6,294,903 7,576,158
------------ ------------
End of period $ 6,492,977 $ 5,936,097
------------ ------------
See accompanying notes to consolidated financial statement.
3
INTERACTIVE NETWORK, INC.
Notes to Unaudited Consolidated Financial Statements
June 30, 2001
The consolidated financial information of Interactive Network, Inc. (the
"Company") furnished herein reflects all adjustments, consisting only of normal
recurring adjustments which in the opinion of management are necessary to
present fairly the financial position of the Company as of June 30, 2001 and the
results of its operations and cash flows for the periods presented. This
Quarterly Report on Form 10-Q should be read in conjunction with the financial
statements and notes thereto included in the Company's Form 10-K Report for the
year ended December 31, 2000 filed with the Securities and Exchange Commission
("SEC") on April 16, 2001. The results of operations for the three-month or
six-month periods ended June 30, 2001 are not necessarily indicative of the
results for any subsequent quarter or for the entire year ending December 31,
2001.
Current liabilities consist of accounts payable, and legal fees and expenses
incurred in connection with the Company's Chapter 11 bankruptcy proceedings and
general corporate work. Payment of Morrison & Foerster's pre-confirmation fees,
which was subject to Bankruptcy Court approval, was deferred by agreement until
April 22, 2000, when payment was due in full without interest. As the Company
lacked funds to pay Morrison & Foerster's fees at that time, Morrison & Foerster
did not apply to the Bankruptcy Court for approval of its fees.
Long-term debt at June 30, 2001 and December 31, 2000, was as follows:
June 30, December 31,
2001 2000
- -------------------------------------------------------------------------
Promissory note - prime + 1% $1,246,130 $684,520
Convertible notes - 10% 1,120,616 -
- -------------------------------------------------------------------------
Less current portion - 85,565
- -------------------------------------------------------------------------
Total long-term debt $2,366,746 $598,955
- -------------------------------------------------------------------------
On June 30, 2001, with approval from the Bankruptcy Court, the Company paid
Morrison & Foerster $500,000 as partial payment of the principal and interest on
the pre-confirmation fees. The remaining pre-confirmation fees are subject to an
agreement between Morrison & Foerster and the Company, with the first payment
due on October 15, 2002. The note accrues interest at 1% per annum over the Bank
of America prime rate.
In the second quarter of 2001, the Company raised $1.12 million through the sale
of 112 units to private investors pursuant to 10% Convertible Promissory Notes
and Common Stock Purchase Warrants. Each unit consists of (i) a $10,000
convertible promissory note bearing interest at 10% per annum that is
convertible into its common stock at the rate of $.50 per share, and (ii) a
five-year warrant to purchase 20,000 shares at an exercise price of $.60 per
share. An additional $505,000 (50.5 units) was raised in the third quarter under
the same terms.
The issuance of convertible debt securities by the Company with a detachable
conversion feature did not create a "beneficial conversion feature" because the
conversion price ($.60) was not "in-the-money at the commitment date." As
described in EITF 98-5, the debt was therefore accounted for in accordance with
APB Opinion 14, Accounting for Convertible Debt and Debt Issued with Stock
Purchase Warrants, Paragraph 16. The Company determined that the portion of the
proceeds from the issuance allocable to the warrants is de minimus, and
therefore the entire proceeds were treated as debt.
4
INVESTMENT 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 300 De Haro Street, Suite 342, San Francisco, CA 94103.
TWIN Entertainment operates in the United States and Canada using technology
licensed to it by the Company and Two Way TV. In addition to its initial
investment of $500,000, the Company made additional investments in TWIN
Entertainment in the form of multiple loans totaling $1.25 million through the
first quarter of 2001. The Company made further loans of $50,000 in May 2001 and
$100,000 in June 2001 and, after the quarter ended June 30, 2001, made
additional loans of $100,000 in July 2001 and $100,000 in August 2001. Two Way
TV made similar loans to TWIN Entertainment, leaving the relative ownership
interests in TWIN Entertainment unchanged. Each party reserves the right to
convert such amounts to equity in TWIN Entertainment in the future under terms
to be determined and agreed upon at a later date by the parties.
Condensed financial data of TWIN Entertainment for the three and six month
periods ended June 30, 2001 follows:
FROM INCEPTION AT
JANUARY 10, 2000
THREE MONTHS ENDED SIX MONTHS ENDED THROUGH
JUNE 30, 2001 JUNE 30, 2001 JUNE 30, 2001
SUMMARY OF OPERATIONS
Revenues $ 0 $ 0 $ 0
Costs and expenses 1,456,452 1,456,452 3,642,901
Income taxes 1,800 1,800 2,600
Net loss (1,458,252) (1,458,252) (3,645,501)
Interactive Network's equity in net income (729,126) (729,126) (1,822,751)
BALANCE SHEET DATA ASSETS
Current assets 60,247
Non-current assets 351,115
--------------
Total assets $ 411,362
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities 326,863
Long-term debt 2,800,000
Other non-current liabilities
Shareholders' deficit (2,715,501)
---------------
Total liabilities and shareholders' $ 411,362
deficit
The Company periodically evaluates the recoverability of its equity investments,
in accordance with APB No. 18, "The Equity Method of Accounting for Investments
in Common Stock," and if circumstances arise where a loss in value is considered
to be other than temporary, the Company will record a write-down of investment
cost. The Company's recoverability analysis is based on the projected
undiscounted cash flows of the operating ventures, which is the lowest level of
cash flow information available. The Company's share of the operating loss from
its joint venture investment in TWIN Entertainment was approximately $314,000
for the quarter ended June 30, 2001 accounted for by the equity method. The
Company also adjusted its allowance against its investment and outstanding loans
in the amount of $164,486 to write the investment, including loans, down to zero
at June 30, 2001, as no assurance can be made that the joint venture will be
profitable in the future.
5
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
Date: January 9, 2002
INTERACTIVE NETWORK, INC.
(Registrant)
By: /s/ Bruce W. Bauer
----------------------------------------------
Bruce W. Bauer
Chairman of the Board
President, Chief Executive Officer (principal
executive officer) and Chief Financial
Officer (principal financial officer)
6