BACKGROUND TO TRANSITION REPORT
On April 5, 1997, WebTV Networks, Inc. ("WNI" or the "Company") and three
principal shareholders of WNI entered into an Agreement and Plan of
Recapitalization with Microsoft Corporation ("Microsoft"), pursuant to which WNI
agreed to undergo a recapitalization (the "Recapitalization") that would cause
it to become a controlled subsidiary of Microsoft, subject to certain terms and
conditions thereof. The Recapitalization closed on August 1, 1997, and,
effective as of such date, WNI became a controlled subsidiary of Microsoft.
Effective August 13, 1997, WNI determined to change its fiscal year end from
March 31 to June 30, to conform to the June 30 fiscal year end of Microsoft.
This Transition Report covers WNI's April 1, 1997 to June 30, 1997 transition
period (the "Transition Period").
WNI offers an on-line service that enables consumers to experience the
Internet through their televisions.