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                                 UNITED STATES
                       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, 1999

                                   ACTV, INC.
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                            <C>
                  DELAWARE                                      94-2907258
(State or other jurisdiction of incorporation      (I.R.S. Employer Identification No.)
              or organization)

         1270 AVENUE OF THE AMERICAS
             NEW YORK, NEW YORK                                    10020
  (Address of principal executive offices)                      (Zip Code)
</TABLE>

(212) 217-1600 (Registrant's telephone number, including area code)

Securities registered pursuant to Section 12 (g) of the Act:

                    COMMON STOCK, PAR VALUE $0.10 PER SHARE
                                (Title of Class)

    Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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. / /

    As of March 16, 2000, the aggregate market value of the voting stock held by
non-affiliates of the registrant (based on The Nasdaq Stock Market closing price
of $30.06 on March 16, 2000) was $1,202,428,391.

    As of March 16, 2000, there were 47,147,838 shares of the registrant's
common stock outstanding.

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               SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

    This annual report on Form 10-K contains forward-looking statements as
defined by the Private Securities Litigation Reform Act of 1995. Forward-looking
statements include statements concerning plans, objectives, goals, strategies,
future events or performance and underlying assumptions and other statements,
which are other than statements of historical facts. These statements are
subject to uncertainties and risks including, but not limited to, product and
service demand and acceptance, changes in technology, economic conditions, the
impact of competition and pricing, government regulation, and other risks
defined in this document and in statements filed from time to time with the
Securities and Exchange Commission. All such forward-looking statements are
expressly qualified by these cautionary statements and any other cautionary
statements which may accompany the forward looking statements. ACTV, Inc.
disclaims any obligations to update any forward-looking statements to reflect
events or circumstances after the date hereof.

                               INTRODUCTORY NOTE

    The term "Company" used herein refers to ACTV, Inc. and its subsidiaries
ACTV Entertainment, Inc. and HyperTV Networks, Inc.

                                     PART I

ITEM 1.  BUSINESS

OVERVIEW

    We are a digital media company that has developed proprietary technologies,
called Individualized Television and HyperTV. Individualized Television enables
television programmers and advertisers to create individualized programming for
digital television. HyperTV enhances standard television content with
information and interactivity delivered through the Internet. We believe that
Individualized Television is the only technology that enables viewers to
instantly and seamlessly customize their viewing experiences. HyperTV is one of
the first technologies to provide synchronized delivery of television
programming and Internet content.

INDUSTRY BACKGROUND

    INDIVIDUALIZED TELEVISION

    Although television programming is produced for national, regional and local
audiences, it has not been commercially exploited as an individualized services
medium. According to Paul Kagan Associates, Inc., Carmel, CA, over 97% of U.S.
households have televisions and approximately 69% of those households subscribe
to cable television services. We do not believe that there is currently any
television service, widely available to consumers, providing individualized
programming. Historically, two factors have limited development of
individualized programming: (1) the shortage of channel capacity in a typical
cable system and (2) the lack of digital technology available to provide such
individualized services. However, advances in digital transmission and set-top
box technology have begun to eliminate these barriers to providing
individualized programming.

    The development of compression technology and the digital transmission of
television signals allows for the transmission of a greater number of channels
with better audio and video quality. The resulting expansion of channel capacity
allows a cable or Direct Broadcast Satellite ("DBS") broadcaster to offer a
wider variety of programming choices, including individualized programming.
Traditional analog cable systems typically offer a limited number of programming
channels. Current digital compression technology, however, allows the conversion
of each analog channel into as many as twelve digital channels of programming.
Many major U.S. cable operators are therefore converting significant portions of
their systems from analog to digital.

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    The technology necessary to provide individualized services will become
increasingly available as cable subscribers have increased access to digital
set-top boxes. Kagan estimates that nearly 5.1 million U.S. cable subscribers
had digital set-top boxes at year-end 1999, projecting the number to grow to
approximately 28 million in 2003, and 47 million in 2008. We believe that sales
of digital set-top boxes will increase rapidly as prices decrease. Forrester
Research, Inc. estimates that prices for digital set-top boxes will decline from
$400 to $200 by 2001 as chip vendors reduce the cost of the decoders and tuners
that are the main components of the set-top boxes.

    DBS is a digital television transmission system. We believe that in the
future our Individualized Television service may expand to DBS platforms. Kagan
has estimated that DBS had approximately 11 million subscriber households at the
end of 1999, and projects an increase in this number to approximately
15 million in 2003, and 18 million in 2008.

    Advertising represents a critical application of Individualized Television
programming. According to Veronis Suhler & Associates, advertisers spent
approximately $48.5 billion on television advertising in the United States in
1998. Although traditional television broadcasting, cable and DBS systems do not
provide an integrated means for viewers to respond to programs and
advertisements, the Direct Marketing Association, Inc. ("DMA") estimates that
approximately $105.8 billion of goods and services were purchased through direct
response television programming and advertising in 1999. The DMA predicts that
this amount will grow to approximately $159.8 billion in 2004. (Reprinted from
Economic Impact: US Direct & Interactive Marketing Today 1999 with permission
from the Direct Marketing Association, Inc.) Many advertisers are using
television advertisements to generate requests for product information, which in
turn serve as sales leads for their products and services. Today, most direct
response television purchases and requests for information require a telephone
call, causing advertisers to incur a significant cost per transaction. We
believe that television viewers, advertisers and merchants will respond
favorably to a simple, immediate, inexpensive and automated method enabling them
to participate in television commerce.

    We believe that sports programming also represents a compelling application
of Individualized Television. Participatory and spectator sports are among the
leading pastimes in the United States, as evidenced by the popularity of sports
media and the amount of money consumers spend on sports events, products and
related services. Further, according to industry sources, sports television
programming in the United States consistently draws large audiences, with sports
broadcasts comprising five of the top ten most widely viewed broadcasts since
1960. According to Kagan, in 1998, broadcast network sports television
programming attracted $3.7 billion in advertising. In addition, the Sporting
Goods Manufacturers Association estimates that sales (wholesale value) in the
United States of sports equipment, athletic footwear and sports apparel reached
$45.6 billion in 1998.

    HYPERTV

    The Internet has grown rapidly over the past several years and is now a
medium used by millions of people for entertainment, education, e-commerce and
multimedia content. Jupiter Communications projects that by 2001, more than
50 million U.S. households will have Internet connectivity, and by 2002, the
on-line population will rival that of U.S. consumers of cable television and
newspapers at 62 million. In addition, The National Center for Education
Statistics estimates that over 80% of public schools have access to the
Internet. We believe such rapid growth is attributable mainly to the increasing
number of personal computers, technological innovations providing easier, faster
and cheaper access to the Internet and the proliferation of content and services
available on the Internet. Growing use of the Internet and the World Wide Web
has created opportunities for television content providers and their advertising
customers to reach and interact with millions of Internet users.

    The increasing popularity of the Internet and the established popularity of
television have led a growing number of home computer users to simultaneously
access Internet content while they watch

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television. Over half of all PCs in US households, or 22.6 million, are in the
same room as a television and of those, nearly all, or 21.8 million, use the
television and PC simultaneously at least some of the time, according to Media
Metrix.

    Due to its interactive nature, the Internet is an emerging medium that
competes with traditional television because of its ability to provide
customized, targeted programming and advertising to consumers and to generate
cost-effective results for certain advertisers. According to Jupiter
Communications, approximately 45% of Internet users maintain that they watch
less television because of time spent on-line. To combat this migration and gain
on-line market share, broadcasters and cable programmers have begun and are
expected to continue promoting companion on-line programming during shows and
using commercial airtime to drive viewers to far more lucrative on-line
programming. We believe we are well positioned to take advantage of this shift
in consumer media consumption and that the convergence of television and
Internet content promises significant opportunities for enhanced entertainment
programming.

    We believe that the opportunities for television programmers to generate
additional advertising revenues are increasing due to the growing recognition by
advertisers of the potential advantages of Internet-based advertising over
advertising in traditional media. Unlike radio, television and print, the
Internet is highly interactive, creating enhanced opportunities for advertisers
to focus their marketing efforts on specific user groups to directly distribute
targeted information to consumers on an individualized basis and to receive
timely feedback from customers and potential customers. Forrester Research
estimates that the amount of Web advertising worldwide will grow from
$3.3 billion in 1999 to over $33.1 billion by the year 2003. Additionally, as
merchants take advantage of the Internet to deliver a guided selling experience
on-line, integrating intelligent product recommendations, real-time customer
service and simplified buying procedures, more consumers are expected to engage
in e-commerce. International Data Corporation estimates that the number of
consumers making purchases on the Web will grow from 30.8 million in 1998 to
182.6 million in 2003 and that the total value of consumer goods and services
purchased over the Web will increase from $14.9 billion to $177.7 billion over
the same five-year period. The combination of growth in on-line advertising and
e-commerce enhances the Internet's value as a commerce medium.

OUR BUSINESS STRATEGY

    INDIVIDUALIZED TELEVISION

    One of our business objectives is to make Individualized Television a
leading application for digital television by achieving widespread use of
Individualized Television programming in all programming genres and advertising.
Our strategies for accomplishing this objective include:

    - PROMOTE NATIONAL AWARENESS OF INDIVIDUALIZED TELEVISION THROUGH OUR
      LIBERTY MEDIA AND IN DEMAND JOINT VENTURES.  LMC IATV Events LLC, our
      joint venture with Liberty Media, plans to license and produce
      individualized national or international marquee pay-per-view events,
      including sports, musical, theatrical and news events. Through LMC IATV's
      venture with iN DEMAND, we expect to showcase Individualized Television to
      a national audience leveraging iN DEMAND's marketing and distribution
      capabilities.

    - DEVELOP TARGETED ADVERTISING SERVICES THROUGH DIGITAL ADCO, INC.  We
      believe that advertisers are looking for more efficient ways to reach
      their targeted audiences. We have created a company with Motorola
      Broadband Communications Sector, formerly General Instrument Corporation,
      to develop applications that will enable the digital television industry
      to provide this efficiency to advertisers. The company, called Digital
      ADCO, Inc., will provide the means for television distributors to insert
      advertisements into a digital programming stream without noticeable
      interruption and deliver to their viewers targeted commercial messages
      based on demographic or geographic information or on the viewers' purchase
      behavior. Both we and Motorola Broadband

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      have licensed certain of our intellectual property to the company, and
      have contributed management personnel and technical knowledge to launch
      the business. In addition, Motorola Broadband has made a $5 million
      capital commitment to the company.

    - FOCUS INITIALLY ON SPORTS PROGRAMMING DELIVERED THROUGH PAY-PER-VIEW
      EVENTS AND REGIONAL NETWORKS.  We believe that the features available
      through Individualized Television for sports telecasts, such as a
      different view of the action, highlight packages, statistics or instant
      replays will lead viewers to associate Individualized Television with a
      distinctive experience and result in rapid consumer acceptance of our
      service, products and technology. In addition, focusing on sports
      programming is more cost-efficient than a more diverse programming
      line-up, enabling us to attain profitability with a relatively smaller
      subscriber base.

    - GAIN BROAD DISTRIBUTION OF INDIVIDUALIZED TELEVISION.  We intend to gain
      broad distribution of Individualized Television through digital
      distribution systems, including cable, DBS and eventually broadcast
      television, by concentrating our efforts on the following activities:

       - TARGETING CABLE OPERATORS WITH SIGNIFICANT DIGITAL SYSTEMS.  Initially,
         we plan to distribute our programming through cable systems that
         currently offer, or have indicated they will soon be offering, digital
         set-top boxes to their subscribers.

       - DEVELOPING SOFTWARE COMPATIBLE WITH DBS SET-TOP BOXES.  To increase the
         potential market for Individual Television subscribers, we intend to
         expand the compatibility of our Individualized Television software to
         the greatest number of digital set-top boxes, including those deployed
         in DBS.

    - EXPAND INDIVIDUALIZED TELEVISION PROGRAMMING INTO OTHER TYPES OF
      TELEVISION PROGRAMMING AND INTERNATIONAL MARKETS.  Once we have developed
      programming for marquee events, advertising and regional sports, we intend
      to expand into other types of individualized programming, such as music,
      game shows, news and children's programming and into international
      markets. We may license content from producers of such programming or
      enter into ventures with such entities when opportunities arise, either
      telecasting individualized versions of this new programming on our
      existing network or creating networks tailored to such new programming.
      Additionally, we may license our technology to programmers to allow them
      to create individualized versions of their content.

    HYPERTV

    One of our business objectives is to be a leading provider of software,
hosting and creative services for enhancing television programming with
information and interactivity available through the Internet. Our strategies for
accomplishing this objective include:

    - DEVELOP EARLY AWARENESS AND ADOPTION OF HYPERTV PRODUCTS AND SERVICES.  By
      aggressively rolling out our HyperTV products and services, we intend to
      establish a leading position in the existing market of U.S. households
      that simultaneously use a television set and computer located in the same
      room. We believe that our ability to address the existing convergent
      market provides us with a unique opportunity to develop awareness and
      adoption of HyperTV products and services, in contrast to some of our
      competitors that are focused solely on the future market for
      television/Internet convergence programming that can be received on a
      single device. We expect to leverage the HyperTV brand, installed user
      base and content we develop in the current market to the future
      single-device market.

    - OFFER TELEVISION CONTENT PROVIDERS A TURNKEY SOLUTION FOR
      TELEVISION/INTERNET CONVERGENCE.  We offer networks and other TV content
      providers a turnkey solution for television/ Internet convergence. We
      supply TV programmers with the elements needed to enhance their television
      programming with simultaneously delivered Web content, including user
      software, Web content creation

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      software, and data capture, analysis and reporting. We also supply Web
      content creation creative and program hosting services, but expect in the
      future to license third parties much of the business of providing these
      services.

    - FORM RELATIONSHIPS WITH, OR ACQUIRE, CONTENT OR SOFTWARE PROVIDERS TO
      CREATE HYPERTV-ENHANCED TELECASTS.  We intend to make equity investments
      in, or enter into joint ventures and license agreements with, content and
      software providers to create and offer HyperTV programming that enhances
      standard telecasts. Through such alliances and acquisitions, we expect to
      broaden the experience of the viewer and generate new revenue streams for
      us and our partners, co-venturers and licensors.

    - EXPAND OUR HYPERTV.COM WEBSITE.  We intend to expand the HYPERTV.COM
      website to serve as an Internet portal that will provide a guide and
      connections to all available HyperTV programming and a central source for
      downloading HyperTV software.

    - ESTABLISH A DATA WAREHOUSE.  We intend to establish a data warehouse to
      compile, aggregate and analyze user information. We will make such data
      available to our programming partners and advertisers as a fee-based
      service. We expect this enhanced data to be of significant value to
      HyperTV licensees and programming partners in gaining feedback on their
      television viewing audience. This information will also provide us with a
      unique measure of the market for enhanced television programming and may
      help us to attract new licensees and programming partners.

    - EXPAND HYPERTV INTO OTHER FORMS OF MEDIA.  We intend to use our HyperTV
      products and services to enhance other video delivery systems, including
      video streamed over the Internet for broadband applications and video
      delivered from DVDs or CD-ROMs. In addition, we will seek to form
      relationships with radio stations and other providers of streamed audio on
      the Internet to enhance their content using HyperTV.

    With increases in digital broadband capacity and the deployment of the next
generation of digital set-top boxes, we expect that the market for the
integration of television programming and Internet content delivered to viewers
through a single device will begin to grow significantly. Our long-term
objective is to be a leader in this market by providing powerful programming
tools for television networks, advertisers, cable networks and DBS through the
integration of Individualized Television with HyperTV products and services.

INDIVIDUALIZED TELEVISION

    OVERVIEW

    Individualized Television is a patented process for creating interactive and
instantly customized television content and advertising in response to viewer
remote control entries or to stored demographic information. Individualized
Television remembers a viewer's inputs throughout a program and can later
deliver tailored content to the viewer based on those inputs. We create
individualized programming by simultaneously sending the viewer multiple
television signals, related in time and content, and switching among those
signals without a visually perceptible delay. With Individualized Television,
the viewer experiences the video, audio and graphics of a single fluid
programming stream, while the programming on the other signals remains
transparent.

    In addition, Individualized Television offers advertisers the opportunity to
convey more effectively their messages. Advertisers can use Individualized
Television to target viewers based on demographic information stored in digital
set-top boxes or on viewers' inputs in response to basic questions about
themselves or the products advertised. We expect Individualized Television to
generate revenues from subscriber fees, advertising sales and sales of software
and services related to targeted advertising.

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    We believe that Individualized Television is a core breakthrough for
television programming and advertising. For example

    - the viewer of a national or international pay-per-view sporting event or a
      regional sports telecast can select from features such as a different view
      of the action, highlight packages, statistics or instant replays;

    - a car commercial can ask viewers to identify the models that most interest
      them and, based upon their answers, provide individualized information
      about the identified models;

    - neighbors watching the same television program can see entirely different
      advertisements based upon demographic information stored in their
      respective set-top boxes; and

    - a child viewing a program can engage a favorite television character in
      what seems to be a one-on-one dialogue.

    TECHNOLOGY

    We create individualized programming by allowing the viewer to select from a
number of frame-synchronized video, graphics and/or audio signals delivered
simultaneously to their digital set-top box. The viewer sees and hears only one
of the signals at a given moment while the others remain transparent. Each
viewer interacts with the programming individually by making selections using
the standard cable remote control that comes with a digital set-top box. An
unlimited number of viewers can make selections simultaneously. In response to
the viewer's keyed inputs, the individualized programming seamlessly switches
from one signal to another, providing each viewer with programming appropriate
to the input. The individualized programming signal is not interrupted when a
viewer switches between programming elements because, unlike channel switches on
the television, the switch occurs with frame accuracy and no perceptible delay.
Our Individualized Television software in the digital set-top box maintains a
"memory" of the viewer's choices and can automatically switch from one digital
video, audio and graphics stream to another based on the viewer's earlier input.
At appropriate points during an Individualized Television program, the set-top
box will make these automatic switches, recall information, create graphics
and/or implement other pre-programmed instructions. The viewer's individually
selected preferences, inputs, or information maintained in the set-top box's
memory determine the particular program seen by each viewer.

    CONTENT

    We intend to develop applications of Individualized Television for both
national and regional markets. For national distribution of Individualized
Television, we formed a joint venture with Liberty Media, called LMC IATV
Events, LLC, to license and produce individualized marquee pay-per-view events,
including sports, musical, theatrical and news events for national or
international distribution. We have granted LMC IATV Events an exclusive license
to produce and distribute these pay-per-view events incorporating our
individualized programming enhancements. In exchange for granting this license,
we received a one-third equity interest in the net profits of the joint venture
and have no obligation to make capital contributions.

    Subsequently LMC IATV Events entered into a joint venture with iN DEMAND,
LLC (formerly known as Viewer's Choice, LLC), to create a cable and satellite
pay-per-view programming venture. Through this venture, with iN DEMAND's
marketing and distribution capabilities, we expect to showcase Individualized
Television to a national audience. iN DEMAND, the nation's leading pay-per-view
network, serves over 1,700 affiliated systems with approximately 27 million
addressable households and 112 million channel subscribers nationwide. Its five
stockholders include AT&T/TCI Communications, Inc., Time Warner
Entertainment-Advance/Newhouse Partnership, Comcast Programming Ventures, Inc.,
MediaOne of Delaware, Inc. and Cox Communications Holdings, Inc.

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Viewer's Choice was renamed iN DEMAND on January 1, 2000. The joint venture is
founded on a long-term agreement between the parties, which plan to produce and
distribute a minimum of four marquee events each year, beginning in early 2000,
depending on the licensing of suitable initial events. The events will be
available for viewers to purchase and watch, as long as they have digital cable
boxes or satellite receivers that support our Individualized Television
technology. The pay-per-view events could include U.S. professional team
championships and all-star competitions, international sporting events and
large-scale rock concerts.

    Advertisers can use Individualized Television in several ways to reach a
targeted audience. During an individualized program, we can ask viewers to
respond to basic questions about themselves or to choose among alternative
product models. Based on these responses or choices, we can send the most
appropriate advertisement to each viewer. For instance, an Individualized
Television enhanced car commercial could "ask" viewers to identify specific
models that most interest them and based on their answers, the car commercial
would "respond" with detailed information about that specific model. Viewers who
make no selection will receive an advertisement selected by the advertiser.
Viewers' responses are stored in their digital set-top boxes' memory. Based on
this information, the advertiser can subsequently provide appropriate follow-up
content such as premium offers, additional information or more targeted
commercial messages. Alternatively, relying on demographic information about the
digital television household stored in the set-top box, the advertiser can
deliver to each household, among a set of alternative advertisements, the
commercial that best targets its customers. In this case, what viewers see is
determined not by their selections or responses but by demographic information.

    In November 1999, we formed a company with Motorola Broadband to develop
applications for the delivery of addressable advertising to cable subscribers
regardless of whether or not they are subscribers receiving Individualized
Television service. The applications developed through this company, called
Digital ADCO, Inc., will permit advertisers to deliver targeted messages to
individual viewers based on demographic information stored in their digital
set-top boxes. The Digital ADCO system will allow different advertisements to go
to different households watching the same television show.

    Under the terms of our agreement with Motorola Broadband, we have licensed
five of our patents to Digital ADCO in exchange for 51% of the common stock of
Digital ADCO, and Motorola Broadband has licensed six of its patents plus made a
$5 million capital commitment for 49% of Digital ADCO's common stock. Any
capital contribution after Motorola Broadband has fulfilled its initial
$5 million commitment will be made pro rata based on ownership interests. We
anticipate that Digital ADCO will generate revenues from three major sources:
software license fees, fees for inserting digital codes into commercials to
identify their target audiences, and advertisement handling fees.

    We have entered into a master license agreement, expiring in June 2003, that
sets forth the framework for negotiating with each of FOX Sports Net's 19 owned
or affiliated regional sports networks to provide content for a planned
individualized sports programming service. FOX Sports Net, which reaches more
than 72 million homes nationwide, features professional basketball, hockey and
baseball games, as well as college sports events. To date, we have entered into
licensing agreements with the following five regional sports networks FOX Sports
Net Southwest, FOX Sports Net West, FOX Sports Net Northwest, Sunshine Network
and FOX Sports Net Bay Area.

    Although we chose to focus our initial commercialization efforts on marquee
events, advertising and regional sports, we believe that our Individualized
Television system will have universal applications. It is our objective to
expand our Individualized Television to include many other genres of television
programming. We believe that Individualized Television can become a standard for
interactive digital television programming distributed through cable systems,
DBS, and digital broadcast television.

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    PRODUCTION

    We expect to bear the incremental content, transmission, delivery and master
control costs incurred in connection with the production and distribution of
individualized programming for pay-per-view events and regional networks.
Currently, we have a state-of-the-art master control facility in Irving, Texas.
Our master control receives multiple video/audio feeds via fiber lines from the
programmers that produce the standard telecasts to which we add individualized
elements. We intend to construct or lease similar facilities for creating and
distributing individualized programming for each of our future regional sports
networks.

    DISTRIBUTION

    We are initially targeting Individualized Television, which is
software-based, for distribution through digital cable systems. To offer
Individualized Television, a cable operator needs only to have our software
downloaded to the set-top boxes of its digital subscribers. All the cable
subscriber needs to receive our service is a digital set-top box with our
software download. We have agreements with the leading manufacturers of digital
set-top terminals--Motorola Broadband, Scientific-Atlanta and Pioneer--to
achieve compatibility of our software with their equipment. Motorola Broadband
and Scientific-Atlanta shipped 98.3% of the digital set-top boxes delivered in
1998 and are projected to ship 95.9% of the digital set-top boxes in 2000,
according to Kagan. All of Motorola Broadband's digital terminals are compatible
with our software. By the time Scientific-Atlanta's digital set-top boxes are
deployed in the United States in any significant quantity, we expect that our
software will be compatible with these terminals as well.

    For our pay-per-view event business, iNDemand will provide distribution of
Individualized Television programming, through an exclusive United States
distribution agreement. iN DEMAND is the nation's leading pay-per-view network,
serving over 1,700 affiliated systems with approximately 27 million addressable
households. Its five stockholders include AT&T / TCI Communications, Inc., Time
Warner Entertainment-Advance/Newhouse Partnership, Comcast Programming
Ventures, Inc., MediaOne of Delaware, Inc., and Cox Communications
Holdings, Inc.

    The initial distribution of our regional sports programming will be provided
by cable operators that are currently upgrading their service from analog to
digital transmission and deploying digital set-top boxes. The service may be
carried part-time or full-time and may be carried as a single service or in any
tier or package of services. As of this date, neither the final pricing nor
launch dates have been agreed upon.

    To support Individualized Television, we do not require any communication
capability from the set-top box back to the cable operator's system, also known
as a "back channel." There is no additional memory or hardware necessary to
upgrade a digital set-top terminal for delivering the individualized programming
to subscribers.

HYPERTV

    OVERVIEW

    HyperTV is a patented process that enhances a television program or
advertisement with related and synchronized content delivered through the
Internet. We believe that HyperTV has potential applications for virtually all
forms of television programming and advertising. For instance:

    - a music video network can send its viewers song lyrics, band member
      biographies or trivia through the Internet in sync with its television
      content;

    - a network, televising a movie, can sell banner advertisements on the
      Internet and generate revenues from the sale of movie-related merchandise;
      and

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    - a HyperTV-enhanced automobile advertisement can deliver detailed
      information from the manufacturer's website or link to local dealer
      websites where viewers can schedule test drives.

    Initially, HyperTV will serve the growing number of TV viewers who
simultaneously use the Internet to complement and enhance their TV viewing
experiences. As digital set-top box technology becomes more sophisticated and
powerful and as more cable operators offer high speed Internet access, we
anticipate that subscribers will be able to experience both video and Internet
content delivered simultaneously to their televisions. We believe that our
proprietary HyperTV technology uniquely positions us to capitalize on this
anticipated convergence of television and Internet content.

    TECHNOLOGY

    Like Individualized Television, HyperTV is a software-based system. We offer
free HyperTV software through direct or indirect downloads from our HYPERTV.COM
website. HyperTV works either by embedding a stream of Web page addresses into
the video or audio signal or by transmitting the addresses directly over the
Internet to the user's computer. The Web content is synchronized to what is
being shown on a particular television channel.

    Because HyperTV is software-based and platform independent, it can operate
on any of today's most popular computer operating systems, including, Windows,
Macintosh or UNIX. HyperTV supports both analog and digital television systems,
so programmers and users do not have to upgrade their existing systems to use
HyperTV enhanced television content.

    ENTERTAINMENT

    We believe that the most significant portion of HyperTV's future revenues
will come from the entertainment market, where we believe the sources of revenue
will be software licensing, data management services, on-line advertising sales,
e-commerce applications, event sponsorship, and program hosting and content
creation fees. We expect in the future to license third parties to perform much
of the program hosting and content creation service business for HyperTV.

    We have recently entered into an agreement with The Box Music Network ("The
Box"), which reaches more than 40 million households worldwide, to create
programming that will integrate HyperTV with their 24-hour-a-day interactive
music television programming. The network uniquely tailors programming for each
of its 200 markets. Viewers within each market have the option to call in or go
on-line to request a video for that market from a menu of up to 200 selections.
HyperTV will enable The Box to extend brand identity by synchronizing the
delivery of relevant Web material, Web-based advertising, messages, e-commerce
and chat to broaden the viewer experience and generate new revenue streams. We
will share the incremental on-line revenues and expenses equally with The Box.
We commenced distribution of The Box's enhanced programming in December 1999.

    We have also worked with other TV networks and programmers to produce and
distribute HyperTV presentations, including

    - SHOWTIME Online, Inc. for its STARGATE science fiction program

    - New Line Television, Inc. for pay-per-view exhibitions of AUSTIN POWERS,
      THE SPY WHO SHAGGED ME

    - TBS Superstation for its CYBERBOND: 15 DAYS OF 007 movie festival

    - Turner Network Television for the Screen Actors Guild Awards program and
      the exhibition of a filmed concert tribute to Bob Marley

                                       10
<PAGE>
    DATA MANAGEMENT

    In order to receive HyperTV events, viewers must register for the free
download of the HyperTV plug-in. This registration requires viewers to provide
their names, addresses, birthdates, e-mail addresses and other demographic and
personal interests information. As our servers deliver HyperTV content through
the Internet, we can capture and store information about the users' interactions
with such content in a relational database. This captured information can
include the user's viewing time, click-stream, survey and advertisement
responses, chat participation and e-commerce activities. Analysis of the
resulting database allows programmers, advertisers and other businesses to
understand and profile their viewer base and to build a one-to-one relationship
with each end-user, subject to the user's consent.

    We market HyperTV to television networks and other television content and
advertising producers as a turnkey system consisting of user software, Web
content creation software and creative services, database management and
analysis and program hosting. For program hosting, we intend to create multiple
Internet access facilities, called points of presence or POPs, each consisting
of large-scale computer servers and related equipment, whose architecture and
software are optimized to deliver HyperTV to mass audiences. We have built our
first POP, which is located at the Northeast data center of Exodus
Communications, Inc. As the demand for HyperTV program hosting increases, we
plan to scale up our delivery capacity either by building additional POPs or,
more likely, by contracting for the requisite network capacity and technical
services from third party vendors. We also plan to create a Web portal site at
WWW.HYPERTV.COM which will, among other things, provide a guide and connections
to all available HyperTV programming and a central source for downloading
HyperTV software and software tools.

    EDUCATION

    In mid-1997, we launched the first application of HyperTV, called
eSchool-Registered Trademark-, designed for the education market. eSchool uses
HyperTV technology to integrate educational video with relevant Internet content
and chat functionality. In addition, eSchool gives educators tools to assess a
student's performance and record the results of the assessment.

    Using eSchool software, students can receive traditional video lessons
through frames in their Web browsers or from a television in the classroom.
Simultaneously, eSchool provides separate frames in the Web browser that display
websites with supporting information, a dialogue with a teacher or other
students during a live lesson and a "playlist" of websites received to permit
navigation from one to another. eSchool content creation software allows an
instructor to easily select and order the addresses of the websites and related
questions to be included in the playlist. The website addresses and questions
can be assigned times and sent automatically to students during a pre-recorded
program or in a live lesson. The instructor can have any website address or
question sent to the students at any time.

EQUIPMENT SUPPLIERS

    We do not intend to manufacture set-top converters, terminals, video servers
or other devices in connection with Individualized Television or HyperTV. In
addition, we do not intend to manufacture any computer or networking equipment
needed to build our planned HyperTV POPs. This equipment will be supplied to us
or to third parties pursuant to agreements with third party equipment suppliers.

    In 1996, we signed a non-exclusive, royalty-free manufacturing agreement
with Motorola Broadband for Motorola Broadband's MPEG-2 digital set-top
terminals. Working with us and with Motorola Broadband, Sarnoff Corporation
effected the integration of individualized programming into these terminals. We
and Motorola Broadband also agreed to jointly market our Individualized
Television application, which operates with Motorola Broadband's digital systems
and consumer set-top terminals.

                                       11
<PAGE>
    We have also entered into a non-exclusive, royalty free joint marketing and
development agreement with Scientific-Atlanta to integrate our Individualized
Television programming software with Scientific-Atlanta's advanced digital
set-top boxes, including the Explorer 2000. In addition, we and Pioneer agreed
to integrate our Individualized Television programming software into Pioneer's
digital set-top box software applications to enable reception of Individual
Television through digital set-top boxes that operate using systems developed by
Pioneer. We may grant licenses similar to those granted to Motorola Broadband,
Scientific-Atlanta and Pioneer to other manufacturers that are selected by the
future distributors of Individualized Programming.

PATENTS AND OTHER INTELLECTUAL PROPERTY

    We have sought to protect the proprietary features of our individualized
programming technologies and HyperTV technologies through patents, copyrights,
confidentiality agreements and trade secrets both in the United States and
overseas. As of the present time, the United States Patent and Trademark Office
has issued 19 patents to us that are currently in force. We also have additional
patents pending. The patents expire at various dates from 2003 to 2016.
Corresponding patents for some of the above U.S. patents have been granted or
are pending in Canada, Japan, Australia and the European Patent Office. We
believe such patents will strengthen our competitive position in these
countries.

    There can be no assurance that our patents are enforceable, or, if
challenged, that we can successfully defend them, particularly in view of the
high cost of patent litigation, nor can there be any assurance that we will
derive any competitive advantages from them. To the extent that patents are not
issued for any other products developed by us, we would be subject to more
competition. The issuance of patents may be insufficient to prevent competitors
from essentially duplicating our products by designing around the patented
aspects. In addition, we cannot assure you that our products will not infringe
on patents owned by others, licenses to which may not be available to us, nor
that competitors will not develop functionally similar products outside the
protection of any patents we have or may obtain.

    The inventors named on all of our issued patents have assigned to us all
right, title and interest in and to the above U.S. patents and any corresponding
foreign patents or applications based thereon. We require that each of our full
time employees, consultants and advisors execute a confidentiality and
assignment of proprietary rights agreement upon the commencement of employment
or a consulting relationship. These arrangements generally provide that all
inventions, ideas and improvements made or conceived by the individual arising
out of the employment or consulting relationship are our exclusive property.
These agreements generally also require all such information be kept
confidential and not disclosed to third parties, except with our consent or in
specified circumstances. We cannot assure, however, that these agreements will
provide effective protection for our proprietary information in the event of
unauthorized use or disclosure of such information.

    WOLZIEN PROCESS

    In April 1999, we acquired a patent from Thomas R. Wolzien for on-line media
applications, which we call the Wolzien Process, that expands the functionality
of HyperTV. While HyperTV enables content producers and advertisers to "push"
synchronized Internet content to television viewers, the Wolzien Process
provides the means, based on prompts from television or radio programming, for
users to "pull" relevant content from the Internet to augment that programming
or to communicate directly with an on-line provider. We intend to develop the
Wolzien Process both on a stand-alone basis and in conjunction with the HyperTV
Process. Other applications for the Wolzien Process include real time radio
broadcasting, both analog and digital, and recorded video programming on VCR's,
CD-ROM or DVD players.

                                       12
<PAGE>
    The terms of the patent acquisition agreements provide that the Wolzien
patent and the HyperTV patents will be jointly licensed and all revenue from
such joint licenses will be shared equally between our subsidiary, Media Online
Services, and us. However, Media Online Services has granted us a worldwide
royalty-free license to use the Wolzien patent in our Individualized Television
and eSchool products and services. As consideration for the Wolzien patent,
Thomas R. Wolzien received, among other considerations, an option exercisable at
any time for $49,900 to acquire a 49% interest in Media Online Services.

RESEARCH AND DEVELOPMENT

    We devote a substantial portion of our resources to developing new products,
enhancing existing products, expanding and improving our Individualized
Television and HyperTV technologies and strengthening our technological
expertise. During the years ended December 31, 1996, 1997, 1998, 1999, we
expended approximately $1.2 million, $551,328, $820,475, and $1,392,937,
respectively, on outside research and development. We intend to continue to
devote substantial resources to research and development for the next several
years. As of December 31, 1999, approximately 16 employees, or 28% of our work
force, were primarily engaged in research and development activities.

COMPETITION

    The markets for digital television applications and television/Internet
convergence programming is extremely competitive, and we expect competition to
intensify in the future. The markets for digital television applications and
television/Internet convergence programming are new and quickly evolving and are
characterized by untested consumer demand and a lack of industry standards.
These markets are therefore subject to significant changes in the products and
services offered by existing market participants and the emergence of new market
participants. As a result, it is difficult to determine what companies and
technologies are competing with us or may compete with us in the future in one
or more of our businesses.

    We believe our competitors in the television/Internet convergence
programming and services markets include RespondTV, Liberate Technologies, Mixed
Signals, More.com, NTN, OpenTV, Inc., Spiderdance, Inc., Starwave's Enhanced TV,
Wink Communications, Inc. and Worldgate Communications, Inc. We also face
competition from other traditional broadcast and cable television networks. Many
of these competitors are currently offering (or may soon offer) services that
will compete with some or all of our current and proposed HyperTV products and
services. In addition, we compete with companies such as Apple, Microsoft
Corporation's WebTV, Motorola Broadband, RealNetworks, Inc., Source Media, Inc.
and Veon that provide applications which enable video content to be "streamed"
over the Internet. Many of these applications could be extended and compete with
some or all of our existing or proposed HyperTV applications.

    We do not believe that there are currently any competitors offering products
comparable to Individualized Television. But there are a number of companies,
including NDS Group plc, who are offering products and services that are similar
to different portions of our Individualized Television service. Furthermore, we
expect to face competition in the future from traditional television and cable
broadcasters such as ABC, CBS, CNN, FOX and NBC. Some of these broadcasters have
in the past and may in future develop and broadcast their own
television/Internet convergence programming or programming that is similar to
Individualized Television.

GOVERNMENT REGULATION

    We believe that neither our present or future implementation of
Individualized Television is subject to any direct substantial government
regulation. However, the broadcast industry in general, and cable

                                       13
<PAGE>
television, DBS and wireless communication in particular, are subject to
substantial government regulation.

    TELEVISION  Pursuant to federal legislation enacted in 1992, which we call
the 1992 Cable Act, the Federal Communications Commission substantially
re-regulated the cable television industry in various areas including rate
regulation, competitive access to programming, "must carry" and retransmission
consent for broadcast stations. These rules, among other things, restrict the
extent to which a cable system may profit from, or recover costs associated
with, adding new program channels, impose certain carriage requirements with
respect to television broadcast stations, limit exclusivity provisions in
programming contracts and require prior notice for channel additions, deletions
and changes. The United States Congress and the FCC also have under
consideration, and may in the future adopt, new laws, regulations and policies
regarding a wide variety of matters which could, directly or indirectly,
materially adversely affect our operations.

    INTERNET  Increased regulation of the Internet might slow the growth in use
of the Internet, which could decrease demand for our services, increase our cost
of doing business or otherwise have a material adverse effect on our business,
financial condition and results of operations. Congress has recently passed
legislation regulating certain aspects regarding the use of the Internet,
including children's protection, copyright infringement, user privacy, taxation,
access charges and liability for third-party activities. In addition, federal,
state and local governmental organizations as well as foreign governments are
considering other legislative and regulatory proposals that would regulate the
Internet. Areas of potential regulation include libel, pricing, quality of
products and services, intellectual property ownership and personal privacy. We
collect and store significant personal information from users of our
Individualized Television and HyperTV applications and plan to use such
information to develop our businesses, particularly with respect to targeted
advertising, or otherwise generate revenues. Storage and use of such information
is subject to state and federal regulation. Storage and use of such information
may also subject us to privacy claims relating to our use and dissemination of
personal information. We do not know how courts will interpret laws governing
the Internet or the extent to which they will apply existing laws regulating
issues such as property ownership, libel and personal privacy to the Internet.
Therefore, we are not certain how new laws governing the Internet or other
existing laws will affect our business.

    We are unable to predict the outcome of future federal legislation or
regulatory proposals or the impact of any current or future laws or regulations
on our operations. There can be no assurance that we will be able to comply with
any future laws or regulations that may be imposed on our operations.

EMPLOYEES

    At December 31, 1999, we employed 87 full-time employees. We are not subject
to any collective bargaining agreements. We believe that our relationships with
our employees are generally satisfactory.

ITEM 2. PROPERTY--OFFICES AND FACILITIES

    We maintain our principal and executive offices at Rockefeller Center, 1270
Avenue of the Americas, New York, New York, where we lease approximately 10,600
square feet. Our lease for 2,600 square feet and for 8,000 square feet of this
space extends through February 2000 and January 2001 respectively. We also lease
office and technical space in four other facilities, one each in New York, New
York, Dallas, Texas, Houston, Texas and Los Angeles, California. None of these
leases extends beyond December 31, 1999. We lease approximately 12,000 square
feet at 233 Park Avenue South, New York, New York, where most of our HyperTV
operations are located, and we have committed to lease 20,000 square feet next
door at 225 Park Avenue South. This lease commitment extends through 2015. Our
lease at 233 Park Avenue South terminates at such time as we occupy the space at
225 Park Avenue South. We expect to be able to move into 225 Park Avenue South
early in 2001. We have also

                                       14
<PAGE>
committed to lease approximately 8,000 square feet of office space in
Branchburg, New Jersey for ACTV's and Digital ADCO's technical and research
facilities. That lease commitment extends into 2005.

ITEM 3. LEGAL PROCEEDINGS

    There are no pending material legal proceedings to which ACTV is a party.

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

    On May 20, 1999 we held an Annual Meeting of Stockholders for which we
solicited votes by proxy. The following is a brief description of the matters
voted upon at the meeting and a statement of the number of votes cast for and
against, and the number of abstentions as to each matter.

1.  Election of directors:

<TABLE>
<CAPTION>
                                                                 FOR       WITHHELD
                                                              ----------   --------
<S>                                                           <C>          <C>
William Samuels.............................................  26,926,845    44,863
William Frank...............................................  26,915,170    56,538
</TABLE>

2.  To approve the adoption of the ACTV's 1999 Stock Option Plan.

<TABLE>
<CAPTION>
   FOR           AGAINST        ABSTAIN
----------       --------       --------
<S>              <C>            <C>
25,325,428..     994,092        652,188
</TABLE>

3.  To ratify the appointment of Deloitte & Touche, LLP as independent auditors

<TABLE>
<CAPTION>
   FOR           AGAINST        ABSTAIN
----------       --------       --------
<S>              <C>            <C>
26,922,888..      21,658         27,162
</TABLE>

PART II

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

    ACTV's common stock is traded on The Nasdaq Stock Market under the symbols
"IATV". The following table sets forth the high and low bid prices for Common
Stock as reported by Nasdaq.

<TABLE>
<CAPTION>
                                                                 COMMON STOCK
                                                              -------------------
1999 QUARTER                                                    HIGH       LOW
------------                                                  --------   --------
<S>                                                           <C>        <C>
First.......................................................   11.44       3.81
Second......................................................   25.25       9.25
Third.......................................................   16.44       8.88
Fourth......................................................   51.75      13.25
</TABLE>

<TABLE>
<CAPTION>
1998 QUARTER                                                    HIGH       LOW
------------                                                  --------   --------
<S>                                                           <C>        <C>
First.......................................................    2.13       1.50
Second......................................................    2.50       1.38
Third.......................................................    2.97       1.50
Fourth......................................................    4.50       1.56
</TABLE>

    On March 16, 2000, there were approximately 374 holders of record of ACTV's
47,147,838 outstanding shares of common stock.

                                       15
<PAGE>
    On March 16, 2000, the high and low bid prices of the common stock as
reported by Nasdaq were $28.06 and $31.38, respectively.

    ACTV has not paid cash dividends since its organization. We plan to use
earnings, if any, to fund growth and do not anticipate the declaration or the
payment of cash dividends in the foreseeable future.

ITEM 6.  SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                        YEARS ENDED DECEMBER 31,
                                     --------------------------------------------------------------
                                        1995         1996         1997         1998         1999
                                     ----------   ----------   ----------   ----------   ----------
                                            (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                  <C>          <C>          <C>          <C>          <C>
Statement of Operations Data:

Revenues...........................  $    1,312   $    1,476   $    1,651   $    1,406   $    2,118
                                     ----------   ----------   ----------   ----------   ----------
Costs and expenses:
  Cost of sales....................         334          647          472          219          174
  Operating expenses...............       1,261        1,956        1,361        2,005        3,241
  Selling and administrative.......       4,998        6,333        6,880        9,862       17,037
  Depreciation and amortization....         687          420          328        1,106        1,577
  Amortization of goodwill.........         426          426          426          426          426
  Loss on investment...............          --          274           --           --           --
  Stock appreciation rights........         567          184         (347)       2,000        1,950
                                     ----------   ----------   ----------   ----------   ----------
    Total costs and expenses.......       8,237       10,240        9,120       15,618       24,405
                                     ----------   ----------   ----------   ----------   ----------
Loss from operations...............      (6,961)      (8,764)      (7,469)     (14,212)     (22,287)
Interest (expense) income--net.....          40          159          116         (748)        (595)
Minority interest--subsidiary
  preferred stock dividend and
  accretion........................          --        1,695        3,006        5,429           --
                                     ----------   ----------   ----------   ----------   ----------
Minority interest--subsidiary......          --           --           --           --         (588)
Net (loss) before extraordinary
  item.............................      (6,921)     (10,300)     (10,359)     (20,389)     (22,883)
                                     ----------   ----------   ----------   ----------   ----------
Net (loss).........................      (6,827)     (10,300)     (10,359)     (20,389)     (22,883)
Preferred stock dividends and
  accretion........................          --           --           --          479          494
                                     ----------   ----------   ----------   ----------   ----------
Net (loss) applicable to common
  stockholders.....................  $   (6,827)  $  (10,300)  $  (10,359)  $  (20,868)  $  (23,378)
                                     ==========   ==========   ==========   ==========   ==========
Loss per common share before
  extraordinary item...............  $    (0.68)  $    (0.88)  $    (0.80)  $    (0.98)  $    (0.61)
                                     ==========   ==========   ==========   ==========   ==========
Basic and diluted (loss) per common
  share............................  $    (0.67)  $    (0.88)  $    (0.80)  $    (0.98)  $    (0.61)
                                     ==========   ==========   ==========   ==========   ==========
Weighted average number of common
  shares outstanding...............  10,162,128   11,739,768   12,883,848   21,399,041   38,219,009

Balance Sheet Data:
Cash and cash equivalents..........  $    3,532   $    6,521   $      554   $    5,189   $    8,816
Working capital (deficiency).......       2,397        5,094       (1,082)       3,419        9,857
Total assets.......................       8,551       11,693        7,902       13,606       28,152
Long-term debt (including current
  portion).........................          --           --           --        4,315        4,803
Preferred stock of a
  subsidiary(1)....................          --        1,675        3,006        5,429           --
Total stockholders' equity
  (deficiency).....................       6,894        9,201       (1,613)       4,763       19,640
</TABLE>

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

(1) In 1998, we converted the preferred stock into equity. See Note 5 to our
    consolidated financial statements for the year ended December 31, 1999.

                                       16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

YOU SHOULD READ THE FOLLOWING DISCUSSION TOGETHER WITH OUR CONSOLIDATED
FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE AND INCORPORATED BY
REFERENCE. THE RESULTS DISCUSSED BELOW ARE NOT NECESSARILY INDICATIVE OF THE
RESULTS TO BE EXPECTED IN ANY FUTURE PERIODS. TO THE EXTENT THAT THE INFORMATION
PRESENTED IN THIS DISCUSSION ADDRESSES FINANCIAL PROJECTIONS, INFORMATION OR
EXPECTATIONS ABOUT OUR PRODUCTS OR MARKETS OR OTHERWISE MAKES STATEMENTS ABOUT
FUTURE EVENTS, SUCH STATEMENTS ARE FORWARD-LOOKING AND ARE SUBJECT TO A NUMBER
OF RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THE STATEMENTS MADE. SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS" FOR FURTHER INFORMATION ABOUT FORWARD-LOOKING STATEMENTS.

OVERVIEW

    Since our inception, the primary focus of our operating activities has been
to develop proprietary technologies that enable programmers and advertisers to
create individualized programming and programming enhancements--first for
television and later for the emerging area of television/Internet convergence.
We call our technologies for the television and television/Internet convergence
markets Individualized Television and HyperTV, respectively.

RESULTS OF OPERATIONS

    Since we have engaged principally in the research and development of
Individualized Television and HyperTV, our historical results of operations are
not indicative of, and should not be relied upon as an indicator of, our future
performance.

    COMPARISON OF FISCAL YEAR ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998

    REVENUES.  Revenues increased 51% to $2.1 million for the year ended
December 31, 1999, from $1.4 million for the year ended December 31, 1998, due
to an increase in HyperTV sales. Substantially all of our revenues in 1998 and
the majority of our revenues in 1999 were derived from sales of HyperTV
software, services and related computer hardware.

    TOTAL COSTS AND EXPENSES.  Total costs and expenses increased 56% to $24.3
million for the year ended December 31, 1999, from $15.6 million for the year
ended December 31, 1998. Cost of sales decreased 20% to $174,032 for the year
ended December 31, 1999, from $218,574 for the year ended December 31, 1998, and
cost of sales as a percentage of revenues decreased to 8% for the year ended
December 31, 1999 from 16% for the year ended December 31, 1998. The decrease as
a percentage of revenues was the result of an increase in service-driven
revenues in the recent year having proportionately less associated direct costs.
Total costs and expenses, excluding cost of sales, increased 57% to $24.2
million for the year ended December 31, 1999, from $15.4 million for the year
ended December 31, 1998.

    The increase in operating expenses during 1999 of $1.2 million or 62% is due
principally to the expansion of the Company's HyperTV business, including the
introduction of HyperTV to the entertainment market in 1999.

    We also incurred a $3.1 million charge related to an incentive compensation
provision that is based on changes in the market value of our common stock
during the twelve-month period ended March 31, 1999. We are accruing the total
value of the award in four equal quarterly amounts, beginning March 31, 1999,
since it is payable in quarterly installments that are contingent on continued
employment by us of the executive receiving this compensation. We have paid
approximately 55%, of the award in the form of our unregistered common stock.
Selling and administrative expense increased 73% to $17.0 million for the year
ended December 31, 1999, from $9.9 million for the year ended

                                       17
<PAGE>
December 31, 1998, due chiefly to non-cash employee compensation, paid in the
form of stock and to greater expenses related to HyperTV.

    We continue to innovate in the areas of software development and
intellectual properties. Accordingly, our Depreciation and amortization expense
increased approximately $.5 million or 43%.

    The SAR expense for both years ended December 31, 1998 and 1999 was $2.0
million. In September 1999, we exchanged all of our outstanding SARs for stock
options with the same exercise prices and vesting dates. To account for this
exchange, we simultaneously incurred non-cash compensation expense of $1.3
million as a component of selling and administrative expense and non-cash income
of $2.6 million from the elimination of our liability related to SARs.
Additionally, we incurred a $381,000 non-cash charge to deferred expenses for
those SARs that have not vested.

    INTEREST (EXPENSE) INCOME--NET.  Interest expense increased 12% to
$1,044,227 for the year ended December 31, 1999, from $932,247 for the year
ended December 31, 1998. Interest expense is related to the $5.0 million notes
issued in January 1998 by one of our subsidiaries. We chose to pay the interest
due on the notes on June 30, 1998 and December 31, 1998 in kind rather than in
cash. Interest income increased 144% to $448,757 for the year ended
December 31, 1999, from $184,285 for the year ended December 31, 1998. The
increase was due to higher average cash balances in 1999.

    MINORITY INTEREST--SUBSIDIARY PREFERRED STOCK DIVIDEND AND ACCRETION.  For
the year ended December 31, 1999, we had no accrual for or payments of
subsidiary preferred stock dividends, compared to accruals of $200,305 for the
year ended December 31, 1998, related to preferred stock issued by a subsidiary
of ours, which was accounted for as a minority interest. The subsidiary
preferred stock was retired in November 1998 in exchange for a combination of
our new Series B preferred stock, which was subsequently redeemed in full in
May 1999, common stock and warrants. In addition, we paid all preferred
dividends during the year ended December 31, 1998 in the form of our common
stock.

    PREFERRED STOCK DIVIDEND AND ACCRETION.  For the year ended December 31,
1999, we paid $494,431 in preferred stock dividends, related to our Series B
preferred stock, compared to no such preferred dividend payments during the
comparable 1998 period. The Series B preferred stock was issued in
November 1998 and was redeemed in full in May 1999.

    NET LOSS APPLICABLE TO COMMON STOCKHOLDERS.  Net loss applicable to common
stockholders increased 12% to $23.4 million, or $0.61 per basic and diluted
share, for the year ended December 31, 1999, from $20.9 million, or $0.98 per
basic per basic and diluted share, for the year ended December 31, 1998.

    COMPARISON OF FISCAL YEAR ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997

    REVENUES.  Revenues decreased 15% to $1.4 million for the year ended
December 31, 1998, from $1.7 million for the year ended December 31, 1997. The
decrease was the result of our product shift toward on-line learning software
and services in 1998 and away from video programming and related equipment. All
of our revenues during 1998 were derived from the on-line learning market,
compared to 20% in 1997.

    TOTAL COSTS AND EXPENSES.  Total costs and expenses increased 71% to
$15.6 million for the year ended December 31, 1998, from $9.1 million for the
year ended December 31, 1997. Cost of sales decreased 54% to $218,574 for the
year ended December 31, 1998, from $471,956 for the year ended December 31,
1997, and cost of sales as a percentage of revenues decreased to 16% in 1998
from 29% in 1997. The decrease as a percentage of revenues was due to a shift in
revenue mix from video programming and related equipment, which represented the
majority of revenues in 1997, to eSchool which has higher gross margins. Total
costs and expenses, excluding costs of sales, increased 78% to

                                       18
<PAGE>
$15.4 million for the year ended December 31, 1998, from $8.6 million for the
year ended December 31, 1997. The increase was attributable to a number of
factors, including a large change in stock appreciation rights due to a higher
common stock price at December 31, 1998, a rise in both operating expenses and
selling and administrative expense principally from increased activity of our
Texas-based regional network operation and to higher depreciation and
amortization expense. Depreciation and amortization expense increased 103% to
$1.5 million from $754,053 for 1997. This increase was due principally to
depreciation for the full year in 1998 of television production equipment
installed in our Texas subsidiary's facility, compared to several months during
1997, and to greater amortization of software development costs in the more
recent year.

    INTEREST (EXPENSE) INCOME--NET.  We incurred interest expense of $932,247
for the year ended December 31, 1998, compared to no interest expense for the
year ended December 31, 1997. Interest expense is related to the $5.0 million
notes issued in January 1998 by one of our subsidiaries. Interest income
increased 58% to $184,285 for the year ended December 31, 1998, from $116,870
for the year ended December 31, 1997. The increase resulted from higher
available average cash balances in the more recent year.

    MINORITY INTEREST--SUBSIDIARY PREFERRED STOCK DIVIDEND AND ACCRETION.  For
the years ended December 31, 1998 and 1997, we recorded $5.6 million and
$3.0 million, respectively, for dividends and accretion on subsidiary
convertible preferred stock issuances, which were accounted for as a minority
interest. All dividend payments were made in our common stock. The increase
during 1998 is the result principally of our redemption in full of the
subsidiary convertible preferred stock.

    NET LOSS APPLICABLE TO COMMON STOCKHOLDERS.  Net loss applicable to common
stockholders increased 101% to $20.9 million, or $0.98 per basic and diluted
share, for the year ended December 31, 1998, from $10.3 million, or $0.80 per
basic and diluted share, for the year ended December 31, 1997.

LIQUIDITY AND CAPITAL RESOURCES

    Since our inception, we have not generated revenues sufficient to fund our
operations, and we have incurred operating losses. Through December 31, 1999, we
had an accumulated deficit of approximately $95.3 million. Our cash position on
December 31, 1999 was $8.8 million, compared to $5.2 million on December 31,
1998.

    NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

    During the year ended December 31, 1999 and 1998, we used $12.7 million and
$10.0 million, respectively, in cash for our operations. Despite the increase in
net loss in the more recent period, a higher percentage of this loss was the
result of non-cash charges. During the year ended December 31, 1998, we used
$10.0 million in cash for our operations, compared with $6.6 million for the
year ended December 31, 1997. The increase was due to both a higher operating
deficit as well as a net use of cash related to asset and liability changes.
During the years ended December 31, 1997 and 1996, we used $6.6 million and
$7.6 million, respectively, in cash for our operations. The decrease was due to
lower operating expenses and higher gross margins, which more than offset higher
selling and administrative expenses.

    NET CASH USED IN INVESTING ACTIVITIES AND CAPITAL EXPENDITURES

    With respect to investing activities, during the year ended December 31,
1999, we used cash of $10.9 million. These activities were related to the
acquisition of patents and investments in patents pending, computer hardware and
software development. With respect to investing activities during the year ended
December 31, 1998, we used cash of $1.9 million for patents, property and
equipment, and systems and software development. With respect to investing
activities during the year ended

                                       19
<PAGE>
December 31, 1997, we used cash of $2.8 million, related principally to the
purchase of equipment for a television master control facility in Dallas, Texas
and for the systems development related to the incorporation of Individualized
Television into the Motorola Broadband cable set-top box and to eSchool.

    NET CASH PROVIDED BY FINANCING ACTIVITIES

    We met our cash needs in the year ended December 31, 1999 from sales of our
common stock to private investors, totaling approximately $18.9 million, and
from the exercise of stock options and warrants, totaling approximately
$12.0 million. We met our cash needs in the year ended December 31, 1998 from
sales of our common stock totaling approximately $10.8 million to private
investors, including $5.0 million invested by Liberty Media. Liberty Media also
received an option to invest an additional $5.0 million for the same price per
share. We met our cash needs in the year ended December 31, 1997 from the
proceeds of a series of private placements during 1997 of our common stock
totaling $1.5 million, convertible preferred stock totaling $2.0 million, and
from the remainder of funds received from the sale in 1996 of exchangeable
preferred stock issued by a wholly-owned subsidiary totaling $9.1 million.

    With respect to other financing activities, for the year ended December 31,
1999, we redeemed all of our outstanding Series B preferred stock by paying a
total of approximately $5.8 million, which represents a 10% premium above the
stock's face value plus accrued dividends. Because the Series B preferred stock
was convertible into our common stock at $2.00 per share beginning in
November 1999, we effectively redeemed the preferred stock by buying it at an
equivalent of $2.20 per common stock share, a price significantly less than the
market price of a share of our common stock at the time of the redemption. The
redemption avoided the possible future issuance of more than 2.8 million shares
of our common stock.

    In November 1999, we formed a company with Motorola Broadband Communications
Sector, formerly General Instrument Corporation, to develop applications for the
delivery of addressable television advertising. Under the terms of our agreement
with Motorola Broadband, the Company licensed five of our patents to Digital
ADCO in exchange for 51% of the common stock of Digital ADCO. Motorola Broadband
has licensed six of its patents and made a $5.0 million capital commitment for
49% of Digital ADCO's common stock. Any capital contribution after Motorola
Broadband has fulfilled its initial $5.0 million commitment will be made pro
rata based on ownership interests. In November, the first $2.0 million of
$5.0 million was contributed to the company by General Instruments with
$3.0 million to follow in the next twelve months.

    In February 2000, we completed a follow-on offering of 4.0 million common
shares as well as 0.6 million common shares to cover the over-allotments of our
underwriters, Credit Suisse First Boston, Bear Stearns & Co. Inc., Lehman
Brothers, and Salomon Smith Barney. The total common shares of 4.6 million were
priced to the public at $30 per share or $138 million. Underwriting discounts
and commissions of $1.80 per share or $8.28 million were deducted resulting in
net proceeds of $28.70 per share or $129.7 million. We intend to use the net
proceeds from our sale of shares in the offering to repay approximately
$5.9 million of outstanding indebtedness, and for general corporate purposes,
including working capital requirements, potential minority investments in
strategic alliances and potential acquisition.

YEAR 2000 COMPLIANCE

    The year 2000 issue is the result of computer software that was written with
only two digits rather than four digits to represent the year in a date field.
Computer hardware and software applications that are date-sensitive may
interpret a date represented as "00" to be the year 1900 rather than the year
2000. The result could be system failure or miscalculations causing the
disruption of operations.

                                       20
<PAGE>
    We believe that our internal systems, relating to both computer hardware and
software, will function properly with respect to dates in the year 2000 and
beyond. In addition, we believe that our proprietary software either sold
directly to third parties or incorporated in products sold to third parties is
year 2000 compliant. Having performed an assessment of the potential year 2000
problem, we do not expect to incur significant costs related to year 2000
issues. However, there is general uncertainty regarding the year 2000 problem
and its effect on the overall business environment. We cannot determine at this
time whether the year 2000 problem will have a material impact on our operations
or financial condition as the result of significant disruptions to the U.S.
economy or business infrastructure.

IMPACT OF INFLATION

    Inflation has not had any significant effect on our operating costs.

RECENT ACCOUNTING PRONOUNCEMENTS

    In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards, called SFAS, No. 133, Accounting for Derivative
Instruments and Hedging Activities. The statement establishes accounting and
reporting standards requiring that derivative instruments (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or a liability measured at fair value. The statement
requires that changes in a derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
formally document, designate, and assess the effectiveness of transactions that
receive hedge accounting. SFAS No. 133 is effective for fiscal years beginning
after June 15, 2000; however, it may be adopted earlier. It cannot be applied
retroactively to financial statements of prior periods. We have not yet
determined the impact, if any, the adoption of SFAS No. 133 will have on its
financial statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    None

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

    The Financial Statements are listed under Item 14 in this report.

ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

    None.

                                    PART III

ITEM 10. MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

    We intend to file with the Securities and Exchange Commission within
90 days of the end of December 31, 1999 a definitive proxy statement pertaining
to our annual meeting of stockholders to be held in May 2000. Information
regarding our directors and executive officers will appear under the caption
"Election of Directors" in the proxy statement and is incorporated in this
report by reference.

                                       21
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION

    Information regarding executive compensation will appear under the caption
"Executive Compensation" in the proxy statement and is incorporated in this
report by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN
      BENEFICIAL OWNERS AND MANAGEMENT

Information regarding security ownership of certain beneficial owners and
management will appear under the caption "Ownership of Securities" in the proxy
statement and is incorporated in this report by reference.

ITEM 13. CERTAIN TRANSACTIONS

    Information regarding certain transactions will appear under the caption
"Certain Transactions" in the proxy statement and is incorporated in this report
by reference.

                                    PART IV

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

    (a)1. FINANCIAL STATEMENTS:

    See the Consolidated Financial Statements beginning on Page 23 hereafter,
which is incorporated by reference.

                                       22
<PAGE>
                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of ACTV, Inc.:

    We have audited the accompanying consolidated balance sheets of ACTV, Inc.
and subsidiaries ("the Company") as of December 31, 1999 and 1998 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1999. Our
audits also included the financial statement schedule listed in the index at
Item 14 (a)(2). These financial statements and financial statement schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and financial statement schedule based
on our audits.

    We conducted our audits 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 audits provide a reasonable basis for our opinion.

    In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of the Company as of
December 31, 1999 and 1998 and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999 in
conformity with generally accepted accounting principles. Also, in our opinion,
the financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

DELOITTE & TOUCHE LLP
March 3, 2000
New York, New York

                                       23
<PAGE>
                          ACTV, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                              DECEMBER 31,   DECEMBER 31,
                                                                  1998           1999
                                                              ------------   ------------
<S>                                                           <C>            <C>
ASSETS
Current assets:
  Cash and cash equivalents.................................  $  5,188,770   $  8,816,368
  Accounts receivable--net..................................       501,768      1,160,036
  Education equipment inventory.............................       110,405             --
  Other.....................................................       773,613      1,589,430
                                                              ------------   ------------
    Total current assets....................................     6,574,556     11,565,834
                                                              ------------   ------------
Property and equipment--net.................................     2,365,775      3,392,219
                                                              ------------   ------------
Other assets:
  Patents and patents pending...............................       832,336      8,142,928
  Software development costs................................     1,098,756      2,183,950
  Goodwill..................................................     2,214,816      1,788,444
  Other.....................................................       519,802      1,078,683
                                                              ------------   ------------
    Total other assets......................................     4,665,710     13,194,005
      Total.................................................  $ 13,606,041   $ 28,152,058
                                                              ============   ============

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
  Accounts payable and accrued expenses.....................  $    955,686   $  1,708,611
  Deferred stock appreciation rights........................     2,000,062             --
  Preferred dividends payable...............................       200,305             --
                                                              ------------   ------------
    Total current liabilities...............................     3,156,053      1,708,611
  Long-term note payable....................................     4,315,016      4,803,342
  Put warrant...............................................     1,371,624             --
  Minority interest.........................................            --      2,000,593
Stockholders' equity (deficiency):
  Preferred stock, $.10 par value, 1,000,000 shares
    authorized
    Series A 120,000 shares authorized, issued and
      outstanding 56,300 at December 31, 1998, none at
      December 31, 1999.....................................         5,630             --
    Series B stock 6,110 shares authorized, issued and
      outstanding 5,018 at December 31, 1998, none at
      December 31, 1999.....................................     2,805,961             --
  Common stock, $.10 par value, 65,000,000 shares
    authorized: issued and outstanding 29,759,459 at
    December 31, 1998, 42,167,997 at December 31, 1999......     2,975,946      4,216,800
  Additional paid-in capital................................    71,068,230    110,692,842
  Loans receivable from stock sales.........................      (199,900)            --
  Accumulated deficit.......................................   (71,892,519)   (95,270,130)
                                                              ------------   ------------
    Total stockholders' equity (deficiency).................     4,763,348     19,639,512
                                                              ------------   ------------
      Total.................................................  $ 13,606,041   $ 28,152,058
                                                              ============   ============
</TABLE>

                 See Notes to Consolidated Financial Statements

                                       24
<PAGE>
                          ACTV, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                               YEARS ENDED DECEMBER 31,
                                                      ------------------------------------------
                                                          1997           1998           1999
                                                      ------------   ------------   ------------
<S>                                                   <C>            <C>            <C>
Revenues............................................  $  1,650,955   $  1,405,838   $  2,117,938
                                                      ------------   ------------   ------------
Costs and expenses:
  Cost of sales.....................................       471,956        218,514        174,032
  Operating expenses................................     1,360,838      2,004,996      3,241,086
  Selling and administrative........................     6,880,311      9,862,086     17,036,576
  Depreciation and amortization.....................       327,681      1,106,359      1,576,664
  Amortization of goodwill..........................       426,372        426,372        426,372
  Stock appreciation rights.........................      (346,892)     2,000,062      1,950,330
                                                      ------------   ------------   ------------
    Total costs and expenses........................     9,120,266     15,618,389     24,405,060
                                                      ------------   ------------   ------------
Loss from operations................................    (7,469,311)   (14,212,551)   (22,287,122)
                                                      ------------   ------------   ------------
Interest income.....................................       116,870        184,285        448,757
Interest (expense)..................................            --       (932,247)    (1,044,227)
                                                      ------------   ------------   ------------
  Interest (expense) income--net....................       116,870       (747,962)      (595,470)
Minority interest--subsidiary preferred stock
  dividend and accretion............................     3,006,242      5,428,638             --
Minority interest--subsidiary.......................            --             --           (588)
                                                      ------------   ------------   ------------
Net (loss)..........................................   (10,358,683)   (20,389,151)   (22,883,180)
Preferred stock dividends and accretion.............            --        479,173        494,431
                                                      ------------   ------------   ------------
Net (loss) applicable to common stockholders........  $(10,358,683)  $(20,868,324)  $(23,377,611)
                                                      ============   ============   ============
Basic and diluted (loss) per common share...........  $      (0.80)  $      (0.98)  $      (0.61)
                                                      ============   ============   ============
Weighted average number of common sharese
  outstanding.......................................    12,883,848     21,399,041     38,219,009
                                                      ============   ============   ============
</TABLE>

                 See Notes to Consolidated Financial Statements

                                       25
<PAGE>
                          ACTV, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                               YEARS ENDED DECEMBER 31,
                                                      ------------------------------------------
                                                          1997           1998           1999
                                                      ------------   ------------   ------------
<S>                                                   <C>            <C>            <C>
Cash flows from operating activities:
Net loss applicable to common stockholders..........  $(10,358,683)  $(20,868,324)  $(23,377,611)
                                                      ------------   ------------   ------------
Adjustments to reconcile net loss to net cash used
  in operations:
  Depreciation and amortization.....................       754,053      1,532,731      2,003,036
  Stock appreciation rights.........................      (701,517)     2,000,062      1,950,330
  Amortization and accretion of deferred expenses
    related to debt financing.......................            --        241,565        864,147
  Common stock issued for services..................       443,125      2,016,023      6,383,560
  Common stock issued for preferred dividends.......       408,085        162,595             --
  Note issued in lieu of cash interest payment......            --        686,641             --
  Subsidiary preferred stock preferred dividends and
    accretions......................................     2,598,156      5,749,309             --
  Preferred stock accretion.........................            --        315,965        241,513
  Other.............................................        43,188             --             --
Changes in assets and liabilities:
  Accounts receivable...............................        63,960       (198,724)      (658,268)
  Education equipment inventory.....................        99,747        127,352        110,405
  Other assets......................................      (241,117)      (307,426)      (722,963)
  Accounts payable and accrued expenses.............       287,504       (926,471)       506,558
                                                      ------------   ------------   ------------
    Net cash used in operating activities...........    (6,603,499)    (9,468,702)   (12,699,293)
                                                      ------------   ------------   ------------
Cash flows from investing activities:
  Investment in patents and patents pending.........       (50,000)      (598,671)    (7,515,343)
  Purchases of property and equipment...............    (2,159,576)      (531,573)    (1,956,209)
  Investment in software development costs..........      (686,227)      (797,677)    (1,438,654)
                                                      ------------   ------------   ------------
    Net cash used in investing activities...........    (2,895,803)    (1,927,921)   (10,910,206)
Cash flows from financing activities:
  Net proceeds from debt issuance...................            --      4,462,990             --
  Net proceeds from put warrant issuance............            --      1,371,624             --
  Redemption of preferred stock.....................            --       (565,759)    (5,792,538)
  Net proceeds from preferred stock transactions....     2,045,163             --        115,660
  Net proceeds from subsidiary equity
    transactions....................................            --             --      2,000,593
  Net proceeds from equity financing................     1,487,460     10,762,461     30,913,383
                                                      ------------   ------------   ------------
    Net cash provided by financing activities.......     3,532,623     16,031,316     27,237,098
                                                      ------------   ------------   ------------
Net (decrease) increase in cash and cash
  equivalents.......................................    (5,966,679)     4,634,693      3,627,598
  Cash and cash equivalents, beginning of period....     6,520,756        554,077      5,188,770
                                                      ------------   ------------   ------------
  Cash and cash equivalents, end of period..........  $    554,077   $  5,188,770   $  8,816,368
                                                      ============   ============   ============
</TABLE>

                See Notes to Consolidated Financial Statements.

                                       26
<PAGE>
                          ACTV, INC. AND SUBSIDIARIES

          CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
                               COMMON STOCK           PREFERRED SERIES A         PREFERRED SERIES B        ADDITIONAL
                          -----------------------   -----------------------   ------------------------   ---------------
                            SHARES       AMOUNT        SHARES       AMOUNT      SHARES        AMOUNT     PAID-IN-CAPITAL
                          ----------   ----------   ------------   --------   -----------   ----------   ---------------
<S>                       <C>          <C>          <C>            <C>        <C>           <C>          <C>
Balances December 31,
  1996..................  11,787,106   $1,178,711             --    $   --             --   $       --    $ 42,272,205
                          ----------   ----------   ------------    ------    -----------   ----------    ------------
Issuance of shares in
  connection with
  financings............     733,333       73,333         86,200     8,620                                   3,447,778
Issuance of shares for
  services..............     286,511       28,651                                                              414,473
Issuance of shares in
  connection with
  exchange of preferred
  stock.................   1,795,661      179,566                                                            1,994,980
Issuance of shares in
  connection with
  exercise of stock
  options...............      12,000        1,200                                                               11,160
Net loss applicable to
  common stockholders...
                          ----------   ----------   ------------    ------    -----------   ----------    ------------
Balances December 31,
  1997..................  14,614,611   $1,461,461         86,200     8,620             --   $       --    $ 48,140,596
                          ----------   ----------   ------------    ------    -----------   ----------    ------------
Issuance of shares in
  connection with
  financings............   6,458,332      645,833                                                            9,987,692
Issuance of Series B
  preferred stock.......                                                            5,018    2,805,961       2,527,723
Issuance of shares for
  services..............     373,592       37,359                                                              508,083
Issuance of shares in
  connection with
  exchange of preferred
  stock.................   5,857,406      585,741        (29,900)   (2,990)                                  2,535,660
Issuance of shares in
  connection with
  exercise of stock
  options...............   1,662,452      166,245                                                            2,282,323
Issuance of warrants and
  shares in connection
  with financing
  activities............     793,066       79,307                                                            5,086,153
Net loss applicable to
  common stockholders...
Preferred dividends.....
                          ==========   ==========   ============    ======    ===========   ==========    ============
Balances December 31,
  1998..................  29,759,459   $2,975,946         56,300    $5,630          5,018   $2,805,961    $ 71,068,230
                          ==========   ==========   ============    ======    ===========   ==========    ============
Issuance of common
  shares................   4,059,783      405,978                                                           18,503,996
Issuance of shares for
  services provided.....     931,294       93,129                                                           10,696,587
Issuance of shares in
  connection with
  exchange of preferred
  stock.................   1,061,690      106,169        (56,300)   (5,630)
Issuance of shares in
  connection with
  exercise of stock
  options, stock
  appreciation rights
  and warrants..........   6,355,771      635,577                                                           12,816,409
Preferred stock
  redemption............                                                           (5,018)  (2,805,961)     (2,392,380)
Net loss applicable to
  common stockholders...
Preferred stock
  dividends and
  accretion.............
                          ----------   ----------   ------------    ------    -----------   ----------    ------------
Balances December 31,
  1999..................  42,167,997   $4,216,800             --        --             --           --    $110,692,842
                          ==========   ==========   ============    ======    ===========   ==========    ============

<CAPTION>

                            DEFICIT
                          ------------
<S>                       <C>
Balances December 31,
  1996..................  $(40,665,512)
                          ------------
Issuance of shares in
  connection with
  financings............
Issuance of shares for
  services..............
Issuance of shares in
  connection with
  exchange of preferred
  stock.................
Issuance of shares in
  connection with
  exercise of stock
  options...............
Net loss applicable to
  common stockholders...   (10,358,683)
                          ------------
Balances December 31,
  1997..................  $(51,024,195)
                          ------------
Issuance of shares in
  connection with
  financings............
Issuance of Series B
  preferred stock.......
Issuance of shares for
  services..............
Issuance of shares in
  connection with
  exchange of preferred
  stock.................
Issuance of shares in
  connection with
  exercise of stock
  options...............
Issuance of warrants and
  shares in connection
  with financing
  activities............
Net loss applicable to
  common stockholders...   (20,389,151)
Preferred dividends.....      (479,173)
                          ============
Balances December 31,
  1998..................  $(71,892,519)
                          ============
Issuance of common
  shares................
Issuance of shares for
  services provided.....
Issuance of shares in
  connection with
  exchange of preferred
  stock.................
Issuance of shares in
  connection with
  exercise of stock
  options, stock
  appreciation rights
  and warrants..........
Preferred stock
  redemption............
Net loss applicable to
  common stockholders...   (22,883,180)
Preferred stock
  dividends and
  accretion.............      (494,431)
                          ------------
Balances December 31,
  1999..................  $(95,270,130)
                          ============
</TABLE>

                See Notes to Consolidated Financial Statements.

                                       27
<PAGE>
                          ACTV, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

    ORGANIZATION--ACTV, Inc. was incorporated on July 8, 1983. ACTV, Inc.,
including its subsidiaries (the "Company" or "ACTV"), is a digital media company
that has developed proprietary technologies, called Individualized Television
and HyperTV. Individualized Television enables television programmers and
advertisers to create individualized programming for digital television, and
HyperTV enhances regular television content with information and interactivity
available through the Internet.

    PRINCIPLES OF CONSOLIDATION--The Company's consolidated financial statements
include the balances of its operating subsidiaries that are more than 50% owned
and controlled. All significant intercompany transactions and account balances
are eliminated. Minority interest represents an outside stockholder's 49%
ownership of the common stock of Digital ADCO.

    PROPERTY AND EQUIPMENT--Property and equipment are recorded at cost and
depreciated on the straight-line method over their estimated useful lives
(generally five years). Depreciation expense for the years ended December 31,
1997, 1998, and 1999 aggregated $286,883, $762,581, and $929,765, respectively.

    EDUCATION EQUIPMENT--Education equipment consists of standard personal
computers adapted to provide individualized programming functionality,
videocassette recorders, television monitors and computer printers that the
Company holds in inventory. This inventory is carried on the Company's books at
the lower of first-in, first-out cost or market. In 1999, the inventory balance
of $110,405 was written-off due to a change of the Company's business.

    PATENTS AND PATENTS PENDING--The cost of patents, which for patents issued
represents the consideration paid for the assignment of patent rights to the
Company and for patents pending represents legal costs related directly to such
patents pending, is being amortized on a straight-line basis over the estimated
economic lives of the respective patents (averaging 10 years), which is less
than the statutory life of each patent. The balances at December 31, 1998 and
1999, are net of accumulated amortization of $186,485, and $391,236,
respectively.

    SOFTWARE DEVELOPMENT COSTS--The Company capitalizes costs incurred for the
development of software products where economic and technological feasibility of
such products has been established. Capitalized software costs are amortized on
a straight-line basis over the estimated useful lives of the respective products
(5 years). The balance at December 31, 1998 and 1999 is net of accumulated
amortization of $145,553, $249,662, respectively.

    CASH EQUIVALENTS--The Company considers all highly liquid debt instruments
purchased with an original maturity of three months or less to be cash
equivalents.

    REVENUE RECOGNITION--Sales are recorded as products are shipped or services
are rendered. During 1999, we recognized $300,000 in revenues for advertising
spots provided to the Company for services rendered.

    RESEARCH AND DEVELOPMENT--Research and development costs, which represent
primarily refinements to Individualized Programming, were $820,475 for the year
ended December 31, 1998, and $1,392,937 for the year ended December 31, 1999.

    EARNINGS PER SHARE--The Company adopted Statement of Financial Accounting
Standards, called SFAS, No. 128, EARNINGS PER SHARE, which establishes standards
for computing and presenting earnings

                                       28
<PAGE>
                          ACTV, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                 YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
per share, called EPS, and simplifies the standards for computing EPS currently
found in Accounting Principles Board, called APB, Opinion No. 15, "Earnings Per
Share". Common stock equivalents under APB No. 15 are no longer included in the
calculation of primary, or basic, EPS. Loss per common share equals net loss
divided by the weighted average number of shares of the Company's common stock
outstanding during the period. The Company did not consider the effect of stock
options or convertible preferred stock upon the calculation of the loss per
common share, as it would be anti-dilutive.

    INTANGIBLES--The excess of the purchase cost over the fair value of net
assets acquired in an acquisition (goodwill) is being amortized on a
straight-line basis over a period of 10 years. The Company evaluates the
realizability of goodwill based upon the expected undiscounted cash flows of the
acquired business. Impairments, if any, will be recognized through a charge to
operations, in the period in which the impairment is deemed to exist. Based on
such analysis, the Company does not believe that goodwill has been impaired.

    OTHER CURRENT ASSETS--The Company's consolidated balance sheets at
December 31, 1998, and December 31, 1999, reflect balances of $434,575, and $932
respectively, related to cash advances made to executive officers.

    LONG-LIVED ASSETS--In accordance with SFAS No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS TO BE DISPOSED OF, which establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to those assets to be held and used and for
long-lived assets and certain identifiable intangibles to be disposed of, the
Company reviews the carrying values of its long-lived assets and identifiable
intangibles for possible impairment whenever events or changes in circumstances
indicate that the carrying value of assets may not be recoverable. The Company
did not record impairment losses for the year ended December 31, 1999.

    STOCK-BASED COMPENSATION--Effective December 31, 1997, the Company adopted
SFAS No. 123, ACCOUNTING FOR STOCK BASED COMPENSATION("SFAS No. 123"). In
conjunction with the adoption, the Company will continue to apply the
intrinsic-value based method of accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees", with pro forma disclosure of net
loss and EPS as if the fair-value based method prescribed by SFAS No. 123 had
been applied.

    USE OF ESTIMATES--The preparation of financial statements in conformity with
general accepted accounting principles requires Management to make estimates and
assumptions that effect the reported amount of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.

    NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED--In June 1998, the FASB issued
SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. The
statement establishes accounting and reporting standards requiring that
derivative instruments (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at fair value. The statement requires that changes in a
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company formally document,
designate, and assess the effectiveness of

                                       29
<PAGE>
                          ACTV, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                 YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
transactions that receive hedge accounting. SFAS No. 133 is effective for fiscal
years beginning after June 15, 2000; however, it may be adopted earlier. It
cannot be applied retroactively to financial statements of prior periods. The
Company has not yet determined the impact, if any, the adoption of SFAS No. 133
will have on its financial statements.

    RECLASSIFICATIONS--Certain reclassifications have been made in the
December 31, 1997, and 1998 financial statements to conform to the December 31,
1999 presentation.

2. NATURE OF OPERATIONS

    The principal market for the Individualized Television is entertainment
programming distributed over digital television systems. The Company expects
Individualized Television to derive revenues from subscriber fees, advertising
sales, and software and services related to targeted advertising. The Company
derived all of its revenues for 1998 and 1999 from HyperTV, which is targeted at
the entertainment and education markets. The Company anticipates that the most
significant portion of future HyperTV revenues will be derived from the
entertainment market, for which the Company introduced a HyperTV application in
1999. The Company subsequently entered into HyperTV programming alliances for
this market with The Box Music Network, Showtime, New Line Television, and
Turner Entertainment Group. The Company expects the sources of revenue from the
entertainment market to be software licensing, data management services,
Internet advertising and commerce, content creation fees, and program hosting
fees. The Company expects to license third parties to perform much of the
program hosting and content creation business for HyperTV in the future.

    Individual customers accounted for more than 10% of the Company's revenues
during the years ended 1999, 1998, and 1997. For the year ended December 31,
1999, individual clients accounted for the following percentages of sales: 14%,
14%, 15%, and 17%. For the year ended December 31, 1998, individual customers
accounted for the following percentages of sales: 14% and 40%. For the year
ended December 31, 1997, an individual customer accounted for the following
percentage of sales: 24%.

3. ESTIMATES USED IN THE PREPARATION OF FINANCIAL STATEMENTS

    The preparation of the Company's financial statements in conformity with
generally accepted accounting principles required 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 financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.

                                       30
<PAGE>
                          ACTV, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                 YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999

4. PROPERTY AND EQUIPMENT--NET

    Property and equipment--net at December 31, 1997, 1998, and 1999 consisted
of the following (at cost):

<TABLE>
<CAPTION>
                                              1997         1998         1999
                                           ----------   ----------   ----------
<S>                                        <C>          <C>          <C>
Machinery and equipment..................  $2,931,682   $3,250,720   $4,748,831
Office furniture and fixtures............     501,435      713,968    1,172,067
                                           ----------   ----------   ----------
Total....................................   3,433,117    3,964,688    5,920,898

Less accumulated depreciation............     836,332    1,598,913    2,528,679
                                           ----------   ----------   ----------
Total....................................  $2,596,785   $2,365,775   $3,392,219
                                           ==========   ==========   ==========
</TABLE>

5. FINANCING ACTIVITIES

    COMMON STOCK FINANCING

    During the years ended December 31, 1998 and 1999, the Company raised
approximately $10.8 and $18.9 million from sales of common stock to private
institutional investors and from the exercise of stock options and warrants,
totaling approximately $2.4 and $12.0 million.

    PREFERRED STOCK FINANCING

    During 1996, the Company raised approximately $11.0 million net from the
proceeds of a private placement of common stock ($1.9 million in net proceeds)
and of 5% exchangeable preferred stock issued by the Company's wholly-owned
subsidiary ($9.1 million in net proceeds). This exchangeable preferred stock was
convertible into common stock of ACTV, Inc., beginning January 1, 1997, at
varying discounts to the market price of common stock. After September 1, 1997,
holders of the exchangeable preferred stock were able to use the lesser of
(i) the then current market price of the Company's common stock, or (ii) an
average market price during the month of August 1997 as the price to which the
discount was applied for conversions. In addition, the Company had the right to
redeem the exchangeable preferred stock at a price equal to $25 times the number
of shares being purchased, plus accrued and unpaid dividends (the "Redemption
Price"). This right was exercisable by the Company only if the closing price of
the Company's common stock was above $9.00 for thirty consecutive trading days
prior to redemption.

    The exchangeable preferred stock was convertible into shares of common stock
at a discounted conversion price. The discount ranged from 14% to a maximum of
30.375%. The extent of the beneficial conversion feature was approximately
$4.0 million, representing the maximum difference between the discounted
conversion price and the prevailing market price of the common stock. Preferred
stock accretion of $2.5 million was recorded and included as minority interest
for the year ended December 31, 1997. As of December 31, 1998, all of the
exchangeable preferred stock had been converted.

    In November 1998, ACTV issued 5,018 shares of Series B convertible preferred
stock ("Series B Stock"), common stock, and warrants to purchase approximately
1.95 million shares of common stock at $2.00 per share as a partial exchange for
approximately 179,000 shares of the subsidiary

                                       31
<PAGE>
                          ACTV, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                 YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999

5. FINANCING ACTIVITIES (CONTINUED)
exchangeable preferred stock. The excess of the fair value of this consideration
over the carrying value of the exchangeable preferred stock for which the
Series B Stock was issued is included in Minority Interest--Subsidiary Preferred
stock dividend and accretion in the accompanying statement of operations. The
Series B Stock had a liquidation preference $1,000 per share and paid a
dividend, in cash or accumulated and paid in common stock upon conversion, of
10% per annum.

    The Series B Stock was fully redeemable by ACTV at any time at a 10% premium
above face value plus accrued dividends. The holders of the Series B Stock were
prohibited from converting any shares into common stock through November 13,
1999. Beginning November 13, 1999, the number of shares issued upon conversion
was to be determined by dividing the liquidation value of $1,000 plus accrued
dividends by the conversion price of $2.00 per common share. Beginning
February 13, 2000, the number of shares issued upon conversion was to be
determined by dividing the liquidation value of $1,000 plus accrued dividends by
the conversion price of $1.33 per common share. The beneficial conversion
feature related to the possible conversion of the Series B Stock at $1.33 per
share, which equaled $2,527,723 at the issuance date, was attributed to
additional paid-in-capital and was being accounted for as a charge to net loss
applicable to common stockholders over the period from issuance through
February 13, 2000.

    During May 1999, ACTV redeemed all of the outstanding Series B Stock for a
total of approximately $5.8 million. The Series B Stock had been convertible
into common stock at $2.00 per share beginning in November 1998. ACTV
effectively redeemed the Series B Stock at an equivalent of $2.20 per common
stock share, a price significantly less than the market price at the time of the
redemption. The redemption avoided the possible future issuance of more than
2.8 million shares of common stock.

    DEBT FINANCING

    In January 1998, the ACTV subsidiaries, ACTV Entertainment, Inc. and The
Texas Individualized Television Network, Inc. ("Texas Network") entered into a
note purchase agreement, dated as of January 13, 1998 with certain private
investors. Pursuant to the agreement, the investors purchased $5.0 million
aggregate principal amount notes from the Company's subsidiaries. The notes bear
interest at a rate of 13.0% per annum, payable semi-annually, with principal
repayment in one installment on June 30, 2003. During the term of the notes, the
Company may pay any four semi-annual interest payments in kind rather than in
cash, with an increase in the rate applicable to such payments in kind to 13.75%
per annum. The Company chose to make the first two semi-annual interest payments
(June 30, 1998 and December 31, 1998) in kind. The note is secured by the assets
of the Texas Network, and is guaranteed by ACTV, Inc.

    In connection with the purchase of such note, the investors received on
January 14, 1998 a common stock purchase warrant (The "Warrant") of Texas
Network that granted the investors either the right to purchase up to 17.5% of
the fully-diluted shares of common stock of Texas Network or, through July 14,
1999, to exchange the Warrant for such number of shares of the Company's common
stock, at the time of and giving effect to such exchange, that were equal to
5.5% of the fully diluted number of shares of common stock outstanding.

                                       32
<PAGE>
                          ACTV, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                 YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999

5. FINANCING ACTIVITIES (CONTINUED)
    For accounting purposes, the Company allocated approximately $1.4 million to
the value of the Warrant, based on the market value of the Company's common
stock into which the Warrant was convertible at issuance. The Warrant was
included outside of Consolidated Stockholders' Equity (Deficiency) due to its
cash put feature and the notes were recorded at a value of proceeds received
less the value attributed to the Warrant. The difference between the recorded
value of the notes and their principal value was being amortized as additional
interest expense over the life of the notes. The Warrant was exchanged and
exercised for the Company's common stock during the first quarter of 1999.

    The Company intends to repay the debt in full during the second quarter of
2000.

6. STOCKHOLDERS' EQUITY (DEFICIENCY)

    At December 31, 1999, the Company had reserved shares of Common Stock for
issuance as follows:

<TABLE>
<S>                                                           <C>
1989 Qualified Stock Option Plan............................      11,183
1989 Non-Qualified Stock Option Plan........................       9,750
1996 Qualified Stock Option Plan............................     302,483
1998 Qualified Stock Option Plan............................     743,334
1999 Qualified Stock Option Plan............................   1,399,500
Options granted outside of formal plans.....................  14,166,588
                                                              ----------
  Total.....................................................  16,632,838
                                                              ==========
</TABLE>

    CONVERTIBLE PREFERRED STOCK

    At December 31, 1999, the Company was authorized to issue 1,000,000 shares
of blank check preferred stock, par value $0.10 per share, of which 120,000
shares were designated Series A Convertible Preferred Stock and 6,110 shares
were designated Series B Stock. There were 86,200 and 56,300 shares of Series A
Preferred outstanding at December 31, 1997 and 1998, respectively. Prior to
December 31, 1999, the holders converted all of the outstanding shares of
Series A preferred stock and the Company cancelled the Series A designation.
There were 0 and 5,018 shares of Series B Stock issued and outstanding as of
December 31, 1997 and 1998, respectively. The Company redeemed all of the
Series B Stock in May 1999 and cancelled the Series B Stock designation.

7. STOCK OPTIONS

    During 1989, the Board of Directors approved an employee incentive stock
option plan. This plan provides for the granting to key employees of options to
purchase up to 100,000 shares of common stock. The plan stipulates that the
option price be not less than fair market value on the date of grant. Options
granted will have an expiration date not to exceed ten years from the date of
grant. At December 31, 1999, 96,500 options had been granted under this plan
(net of cancellations), of which 85,317 had been exercised.

                                       33
<PAGE>
                          ACTV, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                 YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999

7. STOCK OPTIONS (CONTINUED)
    In addition, in August 1989, the Board of Directors approved a Non-Qualified
Stock Option Plan (the "Non-Qualified Plan"), to be administered by the Board of
Directors or a committee appointed by the Board. The Non-Qualified Plan provides
for the granting to employees, officers, directors, consultants and independent
contractors of options to purchase up to 100,000 shares of common stock. The
Non-Qualified Plan stipulates that the option price be not less than fair market
value at the date of grant, or such other price as the Board may determine.
Options granted under this Plan expire on a date determined by the committee but
in no event later than three months after the termination of employment or
retainer. At December 31, 1999, 91,500 options had been granted under this plan
(net of cancellations), of which 81,750 had been exercised.

    During 1996, the Board of Directors approved the Company's 1996 Stock Option
Plan (the "1996 Option Plan"). The 1996 Option Plan provides for grants to
employees and others who provide significant services to the Company of options
to purchase up to 500,000 shares of common stock. As of December 31, 1999, the
Company had granted 483,484 options under the plan (net of cancellations), of
which 181,001 had been exercised.

    During 1998, the Board of Directors approved the Company's 1998 Stock Option
Plan (the "1998 Option Plan"). The 1998 Option Plan provides for grants to
employees and others who provide significant services to us of options to
purchase up to 900,000 shares of common stock. As of December 31, 1999, the
Company had issued 830,501 options under the plan (net of cancellations), of
which 87,167 had been exercised.

    During 1999, the Board of Directors approved the Company's 1999 Stock Option
Plan (the "1999 Option Plan"). The 1999 Option Plan provides for grants to
employees and others who provide a significant service to the Company of options
to purchase up to 1,500,000 shares of common stock. In addition, the 1999 Option
Plan allows for options already issued to be consolidated under the Option Plan.
As of December 31, 1999, the Company had issued 1,451,500 options under the 1999
Option Plan (net of cancellation), of which 218,000 were consolidated into the
plan from stock appreciation rights plans. As of December 31, 1999, 10,000
options had been exercised under the 1999 Option Plan.

    At December 31, 1998, the Company also had outstanding options and warrants
not issued pursuant to a formal plan that were issued to directors, certain
employees, and consultants and pursuant to financing transactions for the
purchase of 14,166,588 shares of common stock. The prices of these options and
warrants range from $1.50 to $15.00 per share; they have expiration dates in the
years 2000 through 2007. The options and warrants granted are not part of the
stock option plans discussed above.

                                       34
<PAGE>
                          ACTV, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                 YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999

7. STOCK OPTIONS (CONTINUED)

    A summary of the status of the Company's stock options as of December 31,
1999, 1998 and 1997 is as follows:

<TABLE>
<CAPTION>
                                                               1999                   1998                   1997
                                                              WGTD.                  WGTD.                  WGTD.
                                                               AVG.                   AVG.                   AVG.
                                                   1999        EXER       1998        EXER       1997        EXER
                                                  SHARES      PRICE      SHARES      PRICE      SHARES      PRICE
                                                ----------   --------   ---------   --------   ---------   --------
<S>                                             <C>          <C>        <C>         <C>        <C>         <C>
Outstanding at beginning Of period............   7,850,007              3,539,218              3,328,718
Options and warrants granted..................  14,759,501    $8.20     6,376,073    $1.91       339,683    $1.91
Options and warrants exercised................   5,801,670    $1.98     1,844,951    $1.64        17,000    $0.73
Options and warrants terminated...............     175,000    $4.00       220,333    $2.86       112,183    $4.06
Outstanding at end Of period..................  16,632,838    $7.44     7,850,007    $1.90     3,539,218    $1.81
Options and warrants exercisable at end of
  period......................................   9,369,330    $9.08     5,782,275    $1.99     2,363,134    $1.87
</TABLE>

    The following table summarizes information about stock options outstanding
at December 31, 1999:

<TABLE>
<CAPTION>
                                                            WEIGHTED
                                                             AVERAGE     WEIGHTED                 WEIGHTED
                                              NUMBER        REMAINING    AVERAGE      NUMBER      AVERAGE
                                          OUTSTANDING AT   CONTRACTUAL   EXERCISE   EXERCISABLE   EXERCISE
RANGE OF EXERCISE PRICES                     12/31/99         LIFE        PRICE     AT 12/31/99    PRICE
------------------------                  --------------   -----------   --------   -----------   --------
<S>                                       <C>              <C>           <C>        <C>           <C>
$0 to 4.00..............................    6,638,338      5.2 Years      $ 1.65     3,427,269     $ 1.69
$4.01 to 8.00...........................    3,082,500      1.2 Years      $ 7.65     2,500,000     $ 8.00
$8.01 to 12.00..........................    1,842,500      3.7 Years      $ 9.78       675,000     $10.85
$12.01 to 15.00.........................    5,033,500      2.8 Years      $14.00     5,000,000     $14.00
$15.01 to 25.00.........................       36,000      4.9 Years      $20.26             0        N/A
</TABLE>

    The weighted average fair value of options granted during 1998 and 1999 was
$.97 and $5.85 per share, respectively, excluding the value of options granted
and terminated within the year. In the case of each issuance, options were
issued at an exercise price that was higher than the fair market value of the
Company's common stock on the date of grant. The Company applies APB No. 25 and
related Interpretations in accounting for its stock option and purchase plans.
Accordingly, no compensation cost has been recognized for option issuances. Had
compensation cost for the Company's option issuances been determined based on
the fair value at the grant dates consistent with the method of FASB Statement
123, the Company's net loss and loss per basic and diluted share for the years
ended

                                       35
<PAGE>
                          ACTV, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                 YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999

7. STOCK OPTIONS (CONTINUED)
December 31, 1997, 1998, and 1999 would have been increased to the pro forma
amounts indicated below:

<TABLE>
<CAPTION>
                                                           1997          1998          1999
                                                        -----------   -----------   -----------
<S>                                                     <C>           <C>           <C>
NET LOSS TO COMMON STOCKHOLDERS
  As reported.........................................  $10,358,683   $20,552,359   $23,377,611
  Pro forma...........................................  $10,574,807   $21,987,835   $25,780,428

NET LOSS PER BASIC AND DILUTED COMMON SHARE
  As reported.........................................  $      0.80   $      0.96   $      0.61
  Pro forma...........................................  $      0.82   $      1.02   $      0.67
</TABLE>

    The Company estimated the fair value of options issued during 1997, 1998,
and 1999 on the date of each grant using the Black-Scholes option-pricing model
with the following weighted-average assumptions: no dividend yield, expected
volatility for 1997, 1998, 1999 of 57.3%, 49.5%, and 94.4%, respectively, and a
risk free interest rate of 6% for all years.

8. STOCK APPRECIATION RIGHTS PLANS

    The Company's 1992 Stock Appreciation Rights Plan ("SARs Plan") was approved
by the Company's stockholders in December 1992. Subject to adjustment as set
forth in the 1992 SARs Plan, the aggregate number of stock appreciation rights
to be granted could not exceed 900,000.

    The Company's 1996 SARs Plan was adopted by the Board of Directors in
April 1996 and approved by the stockholders in July 1996. Subject to adjustment
as set forth in the 1996 SARs Plan, the aggregate number of SARs to be granted
pursuant to the 1996 SARs plan could not exceed 500,000; provided, however, that
at no time could there be more than an aggregate of 900,000 outstanding,
unexercised SARs granted pursuant to both the 1996 SARs Plan and the 1992 SARs
Plan. The 1996 SARs Plan imposed no limit on the number of recipients to whom
awards could be made. Both the 1992 and 1996 SARs Plans were administered by the
Stock Appreciation Rights Committee of the Company's Board of Directors.

    SARs could not be exercised until six months from the date of grant. SARs
issued pursuant to the 1992 SARs Plan vested in five equal annual installments
beginning twelve months from the date of grant. SARs issued pursuant to the 1996
SARs Plan vested either in a lump sum or in such installments, which did not
need to be equal, as the Committee determined. If a holder of SARs ceased to be
an employee, director or consultant of the Company, or a subsidiary or
affiliate, other than by reason of the holder's death or disability, any SARs
that had not vested became void. Exercise of SARs also were subject to such
further restrictions (including limits on the time of exercise) as were
necessary to satisfy the requirements of Rule 16b-3 promulgated by the
Securities and Exchange Commission and any other applicable law or regulation
(including, without limitation, federal and state securities laws and
regulations). SARs were not transferable except by will or under the laws of
descent and distribution or pursuant to a domestic relations order as defined in
the Internal Revenue Code of 1986, as amended.

                                       36
<PAGE>
                          ACTV, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                 YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999

8. STOCK APPRECIATION RIGHTS PLANS (CONTINUED)
    Upon exercise of SARs the holder received for each share for which a stock
appreciation right was exercised, as determined by the SARs Committee in its
discretion, (a) shares of the Company's common stock, (b) cash, or (c) cash and
shares of common stock, equal to the difference between (i) the fair market
value per share of the common stock on the date of exercise of the stock
appreciation right and (ii) the exercise price of a stock appreciation right,
which amount could be no less than the fair market value per share of common
stock on the date of grant of the SARs.

    Under the 1992 SARs Plan, as of December 31, 1998, the Company had granted
516,000 outstanding SARs (with an exercise price of $1.50 per share) to ten
employees. The SARs expired between 2001 and 2006. Under the 1996 SARs Plan, as
of December 31, 1998, the Company had granted 380,000 outstanding SARs (with an
exercise price of $1.50 per share) to six employees. The SARs expired between
2002 and 2006. During 1998, no SARs were exercised.

    The Company's balance sheets at December 31, 1999 and December 31, 1998,
reflect expense accruals of $0 and $2.0 million, respectively, related to the
Company's SARs plan. No SARs were exercised for cash during the first three
quarters of 1999. In May 1999, Messrs. Samuels, Reese and Crowley agreed to
retroactively exercise their vested SARs for unregistered shares of common
stock, based upon the closing market price of $3 15/16 on January 4, 1999. As a
result, the SARs expense for the first three months of 1999 was approximately
$3.2 million less than it would have been otherwise. In September 1999, all
remaining SARs were converted into options that became part of the Company's
1999 Option Plan. This conversion resulted in a current period expense of
$1.3 million with an additional charge of $381,000 to future periods when the
corresponding options vest. In September 1999, the Company exchanged all of the
outstanding SAR for stock options with the same exercise prices and vesting
dates and cancelled its SAR plans. To account for this exchange, for the year
ended December 31, 1999, the Company simultaneously incurred non-cash
compensation expense of $1,254,000 as a component of selling and administrative
expense and non-cash income of $2.6 million from the elimination of the SAR
liability related. Additionally, the Company incurred a $381,000 non-cash charge
to deferred expenses for rights that had not vested as of December 31, 1999.

9. INCOME TAXES

    The Company accounts for income taxes in accordance with the provisions of
SFAS No. 109, ACCOUNTING FOR INCOME TAXES.

    Deferred income taxes reflect the net tax effects at an effective tax rate
of 35.33% of (a) temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for income
tax purposes, and (b) operating loss and tax credit

                                       37
<PAGE>
                          ACTV, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                 YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999

9. INCOME TAXES (CONTINUED)
carryforwards. The tax effects of significant items comprising the Company's net
deferred tax asset as of December 31, 1997, December 31, 1998, and December 31,
1999 are as follows:

<TABLE>
<CAPTION>
                                          1997           1998           1999
                                      ------------   ------------   ------------
<S>                                   <C>            <C>            <C>
Deferred tax assets:
Operating loss carryforwards........  $ 16,131,213   $ 20,254,782   $ 27,388,791
Differences between book and tax
  basis of property.................        56,148        852,587      1,561,275
                                      ------------   ------------   ------------
                                        16,187,361     21,107,369     28,950,066
Deferred tax liabilities:
Differences between book and tax
  basis of property.................      (181,104)      (454,618)      (305,561)
                                      ------------   ------------   ------------
                                        16,000,257     20,652,751     28,644,505
                                      ------------   ------------   ------------

Valuation Allowance.................   (16,000,257)   (20,652,751)   (28,644,505)
                                      ------------   ------------   ------------
Net deferred tax asset..............  $          0   $          0   $          0
                                      ============   ============   ============
</TABLE>

    The increase in the valuation allowance for the year ended December 31, 1998
and 1999, was approximately $4.7 and $8.0 million, respectively. There was no
provision or benefit for federal income taxes as a result of the net operating
loss in the current year.

    Section 382 of the Internal Revenue Code of 1986, as amended, limits the
ability of a corporation that undergoes an "ownership change" to use its net
operating losses to reduce its tax liability. The February 2000 follow on
offering of our common stock may have triggered such an ownership change. In
that event, we would not be able use our pre-ownership-change net operating
losses in excess of the limitation imposed by Section 382. This limitation
generally would be calculated by multiplying the value of our stock immediately
before the ownership change by a specified rate, which was 5.72% for ownership
changes that took place during January 2000.

    At December 31, 1998 and 1999, the Company has Federal net operating loss
carryovers of approximately $57.3 and $77.5 million, respectively. These
carryovers will expire between the years 1999 and 2014.

10. RETIREMENT PLAN

    The Company sponsors a 401(k) savings plan for employees who have completed
at least one full year of service. The Company has a policy of matching employee
401(k) deferrals dollar for dollar up to the first 5% of each participating
employee's annual compensation.

    Percentage vesting of the matching contributions is based on an employee's
term of service with the Company, starting at 20% for employees with more than
two years of service, and increasing ratably to 100% for employees with more
than six years of service.

    To date, the Company has made all such contributions in the form of its
common stock. For the 401(k) plan years 1997, 1998 and 1999, the Company
contributed the common stock equivalent of $86,192, $132,162, and $154,565
respectively.

                                       38
<PAGE>
                          ACTV, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                 YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999

11. COMMITMENTS

    At December 31, 1999, future aggregate minimum lease commitments under
non-cancelable operating leases, which expire in 2000, 2001, 2005 and 2015, were
approximately $13,180,000. The leases contain customary escalation clauses,
based principally on real estate taxes. Rent expense related to these leases for
the years ended December 31, 1997, 1998, and 1999 aggregated $330,430, $422,729,
and $518,882 respectively.

    The Company has employment agreements with certain key employees. These
agreements extend for a period of a maximum of five years and contain
non-competition provisions, which extend one year after termination of
employment with the Company. The Company is committed to expend a total of
approximately $2.3 per year under these agreements.

12. CONCENTRATION OF CREDIT RISK

    Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash investments
and receivables. The Company attempts to mitigate cash investment risks by
placing such investments in insured depository accounts and with financial
institutions that have high credit ratings. Concentrations of risk with respect
to trade receivables exist because of the relatively few companies or other
organizations (primarily educational or government bodies) with which the
Company currently does business. The Company attempts to limit these risks by
closely monitoring the credit of those to whom it is contemplating providing its
products, and continuing such credit monitoring activities and other collection
activities throughout the payment period. In certain instances, the Company will
further minimize concentrations of credit risks by requiring partial advance
payments for the products provided.

13. FAIR VALUE OF FINANCIAL INSTRUMENTS

    For financial instruments, including cash and cash equivalents, accounts
receivable and payable, and accruals, the carrying amounts approximated fair
value because of their short maturity. The Notes Payable of the Texas
Individualized Television Network, Inc. were issued in 1998 and management
believes that its carrying value is representative of its fair value.

14. SEGMENT REPORTING

    ACTV, Inc., develops and markets proprietary technologies for individualized
television programming ("Individualized Programming") and for
television/Internet convergence ("HyperTV"). Since its inception, the Company
has been engaged in the development of Individualized Programming, the
production of programs that use Individualized Programming and marketing and
sales of the various products and services incorporating Individualized
Programming. During 1996, the Company conceptualized and developed HyperTV for
the television/Internet convergence market. In 1997, the Company introduced to
the education market eSchool-Registered Trademark- Online, which was the first
commercial application of HyperTV.

                                       39
<PAGE>
                          ACTV, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                 YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999

14. SEGMENT REPORTING (CONTINUED)
    Information concerning the Company's business segments in 1997, 1998, and
1999 is as follows:

<TABLE>
<CAPTION>
                                           1997          1998          1999
                                        -----------   -----------   -----------
<S>                                     <C>           <C>           <C>
REVENUES
Individualized Television.............  $        --   $        --   $        --
HyperTV...............................    1,650,955     1,405,838     2,117,938
Unallocated corporate.................           --            --            --
                                        -----------   -----------   -----------
Total.................................  $ 1,650,955   $ 1,405,838   $ 2,117,938
                                        -----------   -----------   -----------
DEPRECIATION & AMORTIZATION
Individualized Television.............  $   172,123   $   763,241   $   891,729
HyperTV...............................       29,622       206,338       450,406
Unallocated Corporate.................      552,309       563,151       660,901
                                        -----------   -----------   -----------
Total.................................  $   754,054   $ 1,532,730   $ 2,003,036
                                        -----------   -----------   -----------
INTEREST EXPENSE (INCOME)
Individualized Television.............  $    (9,391)  $   850,770   $ 1,014,617
HyperTV...............................       (8,128)       (8,405)        1,211
Unallocated corporate.................      (99,351)       94,403      (420,358)
                                        -----------   -----------   -----------
Total.................................  $  (116,870)  $   936,768   $   595,470
                                        -----------   -----------   -----------
NET LOSS
Individualized Television.............  $ 2,678,832   $ 5,273,173   $ 6,203,020
HyperTV...............................    1,771,671     2,020,228     4,421,230
Unallocated corporate.................    5,908,180    13,574,923    12,753,361
                                        -----------   -----------   -----------
Total.................................  $10,358,683   $20,868,324   $23,377,611
                                        -----------   -----------   -----------
CAPITAL EXPENDITURES
Individualized Television.............  $   139,897   $   947,710   $ 2,030,469
HyperTV...............................      273,778       361,716     2,768,824
Unallocated corporate.................    2,482,128       618,495     6,110,909
                                        -----------   -----------   -----------
Total.................................  $ 2,895,803   $ 1,927,921   $10,910,202
                                        -----------   -----------   -----------
CURRENT ASSETS
Individualized Television.............  $   290,421   $ 1,449,763   $ 1,857,450
HyperTV...............................      775,855       844,683     1,334,634
Unallocated corporate.................      337,255     4,280,110     8,373,750
                                        -----------   -----------   -----------
Total.................................  $ 1,403,531   $ 6,574,556   $11,565,834
                                        -----------   -----------   -----------
TOTAL ASSETS
Individualized Television.............  $ 3,105,174   $ 4,708,444   $ 6,244,009
HyperTV...............................    1,023,170     1,250,825     4,712,644
Unallocated corporate.................    3,773,575     7,646,773    17,195,405
                                        -----------   -----------   -----------
Total.................................  $ 7,901,918   $13,606,042   $28,152,058
                                        -----------   -----------   -----------
</TABLE>

                                       40
<PAGE>
                          ACTV, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                 YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999

15. INVESTMENT AND ADJUSTMENTS

    In January 1995, the Company invested $274,325 in the common stock
(approximately 15% of ownership interest) of a company, which had licensed the
Company's Individualized Programming for commercialization in special-purpose
theaters.

    The Company also performed executive production services for this company on
a fee basis. During 1996, the Company recorded license fee and production
service revenue from the company of $16,789 and $199,666, respectively. At
December 31, 1996, the Company had unpaid receivables pursuant to such revenues
of $82,746.

    During 1997, the company filed for liquidation under United States
Bankruptcy laws. In anticipation of such filing, at December 31, 1996 the
Company provided a reserve for the full amount of the receivables outstanding of
$82,746 and a valuation allowance for its full investment in the Licensee of
$274,325.

16. INCENTIVE COMPENSATION PROVISIONS

    For the year ended December 31, 1999, the Company incurred executive
compensation expense of $4.4 million. Approximately $1.3 million of the yearly
total was non-cash compensation attributable to the exchange of stock options
for stock appreciation rights, as described above. An additional component of
total compensation expense was approximately $3.1 million for the year, related
to an incentive compensation provision that is based on changes in the market
value of the Company's common stock during the twelve-month period ended
March 31, 1999. The Company is accruing the total value of the award in four
equal quarterly amounts, beginning March 31, 1999, since it is payable in
quarterly installments that are contingent on continued employment of the
executive receiving this compensation. The Company paid approximately 55% of the
award, in the form of unregistered common stock.

17. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

    The consolidated financial statements at December 31, 1998 and 1999, reflect
non-cash activity during the years ended December 31, 1998 and 1999, that relate
to stock appreciation rights, notes and stock issued in lieu of cash
compensation, subsidiary preferred stock dividends and accretions, and preferred
stock dividends payable. The non-cash stock appreciation rights activity for the
years ended December 31, 1998 and 1999, increased by $2.0 million for both
years. The stock issued in lieu of cash compensation for the years ended
December 31, 1998 and 1999 was $2.0 million and $6.4 million, respectively. The
notes issued in lieu of cash compensation for the years ended December 31, 1998
was $686,641. During the term of the notes issued in January 1998 by ACTV
subsidiaries, ACTV Entertainment, Inc. and the Texas Network, the Company may
pay any four semi-annual interest payments in kind rather than in cash. The
Company chose to make the first two semi-annual interest payments in kind
through issuance of notes (June 30, 1998 and December 31, 1998). The subsidiary
preferred stock dividends and accretions for the years ended December 31, 1998
was $5.7 million and the preferred stock dividends payable for the years ended
December 31, 1998 and 1999 increased by $162,595 and $115,660, respectively.

    The Company made no cash payments of interest or income taxes during the
years ended December 31, 1997 and 1998. During the year ended December 31, 1999,
the Company made cash

                                       41
<PAGE>
                          ACTV, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                 YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999

17. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (CONTINUED)
interest payments of $739,263, related to the $5.0 million original fair value
note, and no cash payments of income tax.

18. MINORITY INTEREST

    In November 1999, the Company formed a company with Motorola Broadband
Communications Sector, formerly General Instrument Corporation, to develop
applications for the delivery of addressable advertising to cable subscribers
regardless of whether they have subscribed to an individualized television
service. The applications developed through this company, Digital ADCO, would
permit advertisers to deliver targeted messages to individual viewers based on
32 demographic information stored in their digital set-top boxes. The Digital
ADCO system would allow different advertisements to go to different households
watching the same television show. Under the terms of our agreement with
Motorola Broadband, the Company licensed five of the Company's patents to
Digital ADCO in exchange for 51% of the common stock of Digital ADCO. Motorola
Broadband has licensed six of its patents, and made a $5.0 million capital
commitment for 49% of Digital ADCO's common stock. Any capital contribution
after Motorola Broadband has fulfilled its initial $5.0 million commitment will
be made pro rata based on ownership interests. In November, the first
$2.0 million of $5.0 million was contributed to the company by General
Instruments with $3.0 million to follow in the next twelve months.

19. SUBSEQUENT EVENTS

    In February 2000, the Company completed a follow-on offering of 4.0 million
common shares as well as 0.6 million common shares to cover the over-allotments
of the Company's underwriters, Credit Suisse First Boston, Bear Stearns &
Co. Inc., Lehman Brothers, and Salomon Smith Barney. The total common shares of
4.6 million were priced to the public at $30 per share or $138 million.
Underwriting discounts and commissions of $1.80 per share or $8.28 million were
deducted resulting in net proceeds of $28.70 per share or $129.7 million. The
Company intends to use the net proceeds from our sale of shares in the offering
to repay approximately $5.9 million of outstanding indebtedness; and for general
corporate purposes, including working capital requirements, potential minority
investments in strategic alliances and potential acquisition.

(A)2. FINANCIAL STATEMENT SCHEDULE

    The following Financial Statement Schedule for the years ended December 31,
1999, December 31, 1998, and December 31, 1997 is filed as part of this Annual
Report.

                                       42
<PAGE>
                          ACTV, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                 YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999

19. SUBSEQUENT EVENTS (CONTINUED)
    SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

<TABLE>
<CAPTION>
                                            COLUMN B           COLUMN C            COLUMN D     COLUMN E
                                           ----------   -----------------------   ----------   ----------
                                           BALANCE AT   CHARGED TO   CHARGED TO                BALANCE AT
                                           BEGINNING    COSTS AND      OTHER                      END
DESCRIPTION                                OF PERIOD     EXPENSES     ACCOUNTS    DEDUCTIONS   OF PERIOD
-----------                                ----------   ----------   ----------   ----------   ----------
<S>                                        <C>          <C>          <C>          <C>          <C>
Year ended 12/31/97:

Accounts receivable allowance for
  doubtful accounts......................   $ 82,746      $43,188           --      $82,746      $43,188
Reserve for investment losses............   $274,325           --     $274,325           --           --

Year ended 12/31/98:

Accounts receivable allowance for
  doubtful accounts......................   $ 43,188           --           --      $43,188           --
Reserve for investment losses............         --           --           --           --           --

Year ended 12/31/99:

Accounts receivable allowance for
  doubtful accounts......................   $     --           --           --           --           --
Reserve for investment losses............         --           --           --           --           --
</TABLE>

    During 1997, the balances of $82,746 of accounts receivable and $274,325 of
investments were written off as uncollectable or unrecoverable, respectively.
During 1998, there were no changes to either the accounts receivable allowance
or investment loss reserve. Uncollectable accounts receivables in the amount of
$43,188 were written off in 1999.

                                       43
<PAGE>
(a)3. EXHIBITS (inapplicable items omitted):

<TABLE>
<S>        <C>
3.1.a      Restated Certificate of Incorporation of ACTV, Inc. *

3.1.b      Amendment to Certificate of Incorporation of ACTV, Inc. **

3.1.c      Deleted.

3.2        By-Laws of ACTV, Inc. *

9.1        Deleted.

9.2        Deleted.

10.1       First Amendment dated January 13, 1997 to Lease dated
           January 23, 1996 by and between ACTV, Inc., as the Tenant,
           and Rockefeller Center Properties, as the Landlord. ****

10.2       Form of 1989 Employee Incentive Stock Option Plan. *

10.3       Form of Amendment No. 1 to 1989 Employee Incentive Stock
           Option Plan. *

10.4       Form of 1989 Employee Non-qualified Stock Option Plan. *

10.5       Form of Amendment No. 1 to 1989 Employee Non-qualified Stock
           Option Plan. *

10.8       1996 Non-qualified Stock Option Plan. ****

10.9       1992 Stock Appreciation Rights Plan. ****

10.10      1996 Stock Appreciation Rights Plan. ****

10.11      Deleted--replaced by 10.40.

10.12      Deleted--replaced by 10.41.

10.13      Deleted--replaced by 10.42.

10.14      Master Programming License Agreement dated December 2, 1996,
           by and between ACTV, Inc. and Liberty/Fox Sports, LLC. ****

10.15      Enhancement License Agreement dated December 4, 1996, by and
           between ACTV, Inc. and Prime Ticket Networks, L.P., d/b/a
           Fox Sports West. ++, ****

10.16      Enhancement License Agreement dated February 28, 1997, by
           and between ACTV, Inc. and ARC Holding, Ltd., d/b/a Fox
           Sports Southwest. ++, ****

10.17      Agreement dated March 30, 1995 between General Instrument
           Corporation and ACTV, Inc.***

10.18      Technical Services Agreement dated May 1995 between the
           David Sarnoff Research Center, Inc. and ACTV, Inc. ***

10.19      Deleted.

10.21(a)   Deleted.

10.21(b)   Deleted.

10.21(c)   Option Agreement dated September 29, 1995 between ACTV, Inc.
           and Richard H. Bennett. ***

10.21(d)   Assignment dated September 29, 1995 between ACTV, Inc. and
           Richard H. Bennett. ***
</TABLE>

                                       44
<PAGE>
<TABLE>
<S>        <C>
10.21(e)   Deleted--replaced by 10.44(a).

10.21(f)   Deleted.

10.21(h)   Deleted--replaced by 10.44(b).

10.21(j)   Deleted--replaced by 10.44(c).

10.22      Deleted--expired.

10.23(a)   Deleted--replaced by 10.43(a).

10.23(b)   Deleted--replaced by 10.43(b).

10.23(c)   Deleted--replaced by 10.43(c).

10.23(d)   Deleted.

10.23(e)   Deleted.

10.23(f)   Deleted.

10.23(g)   Deleted.

10.24(a)   Stock Option Agreement, dated March 14, 1997, by and between
           HyperTV Networks, Inc. and William C. Samuels. +

10.24(b)   Stock Option Agreement, dated March 14, 1997, by and between
           HyperTV Networks, Inc. and Bruce Crowley. +

10.24(c)   Stock Option Agreement, dated October 1, 1997, by and
           between HyperTV Networks, Inc. and William Samuels. +

10.24(d)   Stock Option Agreement, dated October 1, 1997, by and
           between HyperTV Networks, Inc. and Bruce Crowley. +

10.24(e)   Stock Option Agreement, dated March 14, 1997, between
           HyperTV Networks, Inc. and David Reese. ++++

10.25(a)   Stock Option Agreement by and between ACTV Entertainment,
           Inc. and William Samuels dated March 14, 1997 and amended
           January 14, 1998. +

10.25(b)   Stock Option Agreement by and between ACTV Entertainment,
           Inc. and David Reese dated March 14, 1997 and amended
           January 14, 1998. +

10.25(c)   Stock Option Agreement, dated March 14, 1997, between ACTV
           Entertainment, Inc. and Bruce Crowley. ++++

10.26(a)   Stock Option Agreement by and between Florida Individualized
           Television Network, Inc. and William Samuels dated June 3,
           1997 and amended January 14, 1998. +

10.26(b)   Stock Option Agreement by and between Northwest
           Individualized Television Network, Inc. and William Samuels
           dated June 3, 1997 and amended January 14, 1998. +

10.26(c)   Stock Option Agreement by and between New York
           Individualized Television Network, Inc. and William Samuels
           dated June 3, 1997 and amended January 14, 1998. +

10.26(d)   Stock Option Agreement by and between San Francisco
           Individualized Television Network, Inc. and William Samuels
           dated June 3, 1997 and amended January 14, 1998. +

10.26(e)   Stock Option Agreement by and between Los Angeles
           Individualized Television Network, Inc. and William Samuels
           dated March 14, 1997 and amended January 14, 1998. +
</TABLE>

                                       45
<PAGE>
<TABLE>
<S>        <C>
10.26(f)   Deleted--superceded by 10.26(f)1.

10.26(f)1  Stock option agreement dated as of March 14, 1997, and
           amended on January 14, 1998 and January 4, 1999, among Texas
           Individualized Television Network, Inc., ACTV, Inc. and
           William Samuels. ++++

10.26(g)   Stock Option Agreement by and between Florida Individualized
           Television Network, Inc. and David Reese dated June 3, 1997
           and amended January 14, 1998. +

10.26(h)   Stock Option Agreement by and between Northwest
           Individualized Television Network, Inc. and David Reese
           dated June 3, 1997 and amended January 14, 1998. +

10.26(i)   Stock Option Agreement between New York Individualized
           Television Network, Inc. and David Reese dated June 3, 1997
           and amended January 14, 1998. +

10.26(j)   Stock Option Agreement between San Francisco Individualized
           Television Network, Inc. and David Reese dated June 3, 1997
           and amended January 14, 1998. +

10.26(k)   Stock Option Agreement between Los Angeles Individualized
           Television Network, Inc. and David Reese dated March 14,
           1997 and amended January 14, 1998. +

10.26(l)   Deleted--superceded by 10.26(l)1.

10.26(l)1  Stock option agreement dated as of August 18, 1999 among
           ACTV, David Reese and Texas Individualized Television
           Network, Inc. ++++

10.27      ACTV Entertainment Shareholder Agreement dated March 14,
           1997 and amended January 14, 1998. +

10.28      HyperTV Networks Shareholder Agreement dated March 14, 1997.
           +

10.29      HyperTV Networks Additional Shareholder Agreement dated
           October 1, 1997. +

10.30      Deleted--replaced by 10.45

10.31      Deleted--replaced by 10.46

10.32      The Los Angeles Individualized Television Network, Inc.
           Sublicense Agreement dated March 14, 1997 between ACTV
           Entertainment and The Los Angeles Individualized Television
           Network, Inc. +

10.33      The San Francisco Individualized Television Network, Inc.
           Sublicense Agreement dated January 1, 1989 between ACTV
           Entertainment and The San Francisco Individualized
           Television Network, Inc. +

10.34      The Texas Individualized Television Network, Inc. Sublicense
           Agreement dated March 14, 1997 between ACTV Entertainment
           and The Texas Individualized Television Network, Inc. +

10.35      The Los Angeles Individualized Television Network, Inc.
           Service Agreement dated March 14, 1997 between ACTV, Inc.,
           ACTV Entertainment and The Los Angeles Individualized
           Television Network, Inc. +

10.36      The San Francisco Individualized Television Network, Inc.
           Service Agreement dated January 1, 1998 between ACTV, Inc.,
           ACTV Entertainment and The San Francisco Individualized
           Television Network, Inc. +

10.37      The Texas Individualized Television Network, Inc. Service
           Agreement dated March 14, 1997 between ACTV, Inc., ACTV
           Entertainment and The Texas Individualized Television
           Network, Inc. +
</TABLE>

                                       46
<PAGE>
<TABLE>
<S>        <C>
10.38      Form of Note Purchase Agreement of the Texas Individualized
           Television Network dated as of January 13, 1998 *****

10.39      Deleted.

10.40      Deleted--superceded by 10.40.1.

10.40.1    Amended employment agreement dated as of August 1, 1995
           between ACTV, Inc. and William Samuels. ++++

10.41      Deleted--superceded by 10.41.1.

10.41.1    Employment agreement dated as of August 1, 1995, as amended
           October 6, 1999, between ACTV, Inc. and David Reese. ++++

10.42      Deleted--superceded by 10.42.1.

10.42.1    Employment agreement dated as of August 1, 1995, as amended
           October 6, 1999, between ACTV, Inc. and Bruce Crowley. ++++

10.43(a)   Deleted--superceded by 10.51.

10.43(b)   Deleted--superceded by 10.52.

10.43(c)   Deleted--superceded by 10.53.

10.44(a)   Deleted--superceded by 10.44(a)1.

10.44(a)1  Amended stock option agreement dated December 1, 1995
           between ACTV, Inc. and William Samuels. ++++

10.44(b)   Deleted--superceded by 10.44(b)1.

10.44(b)1  Amended stock option agreement dated December 1, 1995
           between ACTV, Inc. and David Reese. ++++

10.44(c)   Deleted--superceded by 10.44(c)1.

10.44(c)1  Amended stock option agreement dated December 1, 1995
           between ACTV, Inc. and Bruce Crowley. ++++

10.45      Amended license agreement dated March 8, 1999, between ACTV,
           Inc. and ACTV Entertainment, Inc., amending and restating in
           full the agreement dated March 14, 1997. +++

10.46      Amended license agreement dated March 8, 1999, between ACTV,
           Inc. and HyperTV Networks, Inc., amending and restating in
           full the agreement dated March 13, 1997. +++

10.47      Patent assignment and license agreement between ACTV, Inc.
           and Earthweb, Inc. dated December 1, 1997. +++

10.48      Deleted--superceded by 10.48.1.

10.48.1    Employment agreement dated January 1, 1999, as amended as of
           January 1, 2000, between ACTV, Inc. and Christopher Cline.
           ++++

10.49      Amendment dated as of December 4, 1999 to HyperTV Networks,
           Inc. Option Agreements, between HyperTV Networks, Inc. and
           various officers and employees thereof, including William
           Samuels, David Reese and Bruce Crowley. ++++
</TABLE>

                                       47
<PAGE>
<TABLE>
<S>        <C>
10.50      Amendment dated as of December 4, 1999 to ACTV
           Entertainment, Inc. Option Agreements, between ACTV
           Entertainment, Inc. and various officers and employees
           thereof, including William Samuels, David Reese and Bruce
           Crowley. ++++

10.51      Amended stock option agreement dated February 21, 1998
           between ACTV, Inc. and William C. Samuels. ++++

10.52      Amended stock option agreement dated February 21, 1998
           between ACTV, Inc. and Bruce Crowley. ++++

10.53      Amended stock option agreement dated February 21, 1998
           between ACTV, Inc. and David Reese. ++++

10.54      Lease dated as of December 1, 1999 between 225 Fourth, LLC,
           as landlord, and ACTV, Inc., as tenant. ++++

21         Subsidiaries of the Registrant

27         Financial Data Schedule
</TABLE>

<TABLE>
<C>        <S>
        *  Incorporated by reference from Form S-1 Registration
           Statement (File No. 33-34618)

       **  Incorporated by reference to ACTV, Inc.'s Form 10-K for the
           year ended December 31, 1993.

      ***  Incorporated by reference from Form S-1 Registration
           Statement (File No. 33-63879) which became effective on
           February 12, 1996.

     ****  Incorporated by reference to ACTV, Inc.'s Form 10-K for the
           year ended December 31, 1996.

    *****  Incorporated by reference from the Exhibits to Schedule 13D
           filed by Value Partners, Ltd. on January 23, 1998.

   ******  Incorporated by reference from Form S-3 Registration
           Statement filed on December 30, 1998.

        +  Incorporated by reference to ACTV, Inc.'s Form 10-K for the
           year ended December 31, 1997.

       ++  Certain information contained in this exhibit has been
           omitted and filed separately with the Commission along with
           an application for non-disclosure of information pursuant to
           Rule 24b-2 of the Securities Act of 1933, as amended.

      +++  Incorporated by reference to ACTV, Inc.'s Form 10-K for the
           year ended December 31, 1998.

     ++++  Filed herewith.
</TABLE>

                                       48
<PAGE>
                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned thereunto duly authorized in the City of New York
and State of New York on the 17th day of March 2000.

<TABLE>
<S>                                                 <C>  <C>
                                                                   ACTV, Inc.

                                                    By:  /s/ WILLIAM C. SAMUELS
                                                         ---------------------------------
                                                         William C. Samuels
                                                         Chairman and Chief Executive Officer
</TABLE>

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

<TABLE>
<CAPTION>
       SIGNATURE                              TITLE                            DATE
       ---------                              -----                            ----
<C>                       <S>                                             <C>
 /s/ WILLIAM C. SAMUELS   Chairman of the Board, Chief Executive          March 17, 2000
------------------------  Officer, President and Director
   William C. Samuels

    /s/ DAVID REESE       President, Chief Operating Officer,             March 17, 2000
------------------------  President--ACTV Entertainment, Inc.,
      David Reese         and Director

   /s/ BRUCE CROWLEY      Executive Vice President,                       March 17, 2000
------------------------  President--HyperTV Networks, Inc.
     Bruce Crowley        and Director

   /s/ CHRISTOPHER C.     Senior Vice President, Chief                    March 17, 2000
         CLINE            Financial Officer
------------------------  and Secretary
  Christopher C. Cline

   /s/ WILLIAM FRANK      Director                                        March 17, 2000
------------------------
     William Frank

  /s/ MELVYN N. KLEIN     Director                                        March 17, 2000
------------------------
    Melvyn N. Klein

 /s/ STEVEN W. SCHUSTER   Director                                        March 17, 2000
------------------------
   Steven W. Schuster
</TABLE>

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