<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
Commission file number 1-11460
NTN COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 31-1103425
(State of incorporation) (I.R.S. Employer Identification No.)
The Campus 5966 La Place Court, Carlsbad, California 92008
(Address of principal executive offices) (Zip Code)
(619) 438-7400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
filing requirements for the past 90 days.
YES X NO
------- --------
Number of shares outstanding of each of the registrant's classes of common
stock, as of November 1, 1995: 22,428,375 shares of common stock, $.005 par
value.
1
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PART I--FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
2
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NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1995 (Unaudited) and December 31, 1994
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1995 1994
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,942,000 2,429,000
Marketable securities - available for sale 0 1,000,000
Interest-bearing security deposits 1,500,000 1,225,000
Accounts receivable - trade, net 7,004,000 5,881,000
Accounts receivable - officers and directors 100,000 100,000
Accounts receivable - other 4,140,000 600,000
Notes receivable - officers and directors 3,343,000 3,262,000
Software development costs, net 1,557,000 1,212,000
Inventories 5,390,000 4,628,000
Prepaid expenses and other current assets 2,475,000 1,769,000
---------- ----------
Total current assets 29,451,000 22,106,000
Fixed assets, net 1,917,000 1,405,000
Interest-bearing security deposits 1,375,000 1,975,000
Software development costs, net 3,744,000 2,193,000
Other assets 6,170,000 3,560,000
---------- ----------
Total assets $ 42,657,000 31,239,000
---------- ----------
---------- ----------
</TABLE>
(Continued)
3
<PAGE>
NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
September 30, 1995 (Unaudited) and December 31, 1994
<TABLE>
<CAPTION>
September 30, December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 1995 1994
---- ----
<S> <C> <C>
Current liabilities:
Accounts payable and accrued liabilities $ 4,773,000 2,744,000
Current portion of long-term debt 2,628,000 468,000
Deferred revenue 1,285,000 740,000
Customer deposits 1,361,000 1,006,000
----------- ------------
Total current liabilities 10,047,000 4,958,000
Deferred revenue 1,073,000 816,000
Long-term debt, excluding current portion 9,000 8,000
----------- ------------
Total liabilities 11,129,000 5,782,000
----------- ------------
Shareholders' equity:
10% Cumulative convertible preferred stock, $.005 par value,
10,000,000 shares authorized; issued and outstanding 162,612 in 1995
and 197,612 in 1994 1,000 1,000
Common stock, $.005 par value, 50,000,000 shares authorized; shares
issued and outstanding 21,053,325 in 1995 and 19,178,060 in 1994 105,000 96,000
Additional paid-in capital 51,528,000 44,599,000
Accumulated deficit (20,106,000) (19,239,000)
----------- ------------
Total shareholders' equity 31,528,000 25,457,000
----------- ------------
Total liabilities and shareholders' equity $ 42,657,000 31,239,000
----------- ------------
----------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Three Months and Nine Months Ended September 30, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
September 30, September 30, September 30, September 30,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Broadcast and production services $ 4,416,000 3,324,000 12,150,000 8,291,000
Product sales 801,000 1,110,000 1,940,000 2,681,000
Equipment sales 2,459,000 1,381,000 5,043,000 3,088,000
License fees and royalties 1,065,000 931,000 1,346,000 1,769,000
Other revenue, net (1,000) 242,000 232,000 901,000
---------- ---------- ---------- ----------
Total revenues 8,740,000 6,988,000 20,711,000 16,730,000
---------- ---------- ---------- ----------
Cost of services - broadcast and production services 2,311,000 1,371,000 5,840,000 3,517,000
Cost of sales - product sales 385,000 233,000 879,000 633,000
Cost of sales - equipment 1,571,000 893,000 3,130,000 2,004,000
---------- ---------- ---------- ----------
Total cost of sales 4,267,000 2,497,000 9,849,000 6,154,000
---------- ---------- ---------- ----------
Gross profit 4,473,000 4,491,000 10,862,000 10,576,000
---------- ---------- ---------- ----------
Operating expenses:
Selling, general and administrative 3,006,000 3,925,000 9,016,000 8,582,000
Legal and professional services 104,000 100,000 1,509,000 354,000
Research and development 534,000 288,000 1,269,000 852,000
---------- ---------- ---------- ----------
Total operating expenses 3,644,000 4,313,000 11,794,000 9,788,000
---------- ---------- ---------- ----------
Operating income (loss) 829,000 178,000 (932,000) 788,000
Interest income (expense), net 76,000 165,000 65,000 415,000
---------- ---------- ---------- ----------
Earnings (loss) before income taxes 905,000 343,000 (867,000) 1,203,000
Income taxes 0 10,000 0 77,000
---------- ---------- ---------- ----------
Net earnings (loss) $ 905,000 333,000 (867,000) 1,126,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net earnings (loss) per share $ 0.04 0.02 (0.04) 0.05
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average number of shares outstanding 21,269,571 21,184,990 19,618,419 21,121,975
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three Months and Nine Months Ended September 30, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
September 30, September 30, September 30, September 30,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from (used for) operating activities:
Net earnings (loss) $ 905,000 333,000 (867,000) 1,126,000
Adjustments to reconcile net earnings (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization, net (123,000) (52,000) (367,000) (126,000)
Provision for doubtful accounts 118,000 11,000 238,000 118,000
Gain on sale and leaseback transactions (396,000) (264,000) (791,000) (572,000)
(Increase) decrease in:
Accounts receivable (4,709,000) (977,000) (4,901,000) (2,671,000)
Software development costs, net (603,000) 392,000 263,000 (160,000)
Inventories, net 165,000 (533,000) (762,000) (712,000)
Prepaid expenses and other assets (757,000) (2,649,000) (3,316,000) (3,946,000)
Increase (decrease) in:
Accounts payable and accrued liabilities 1,217,000 1,063,000 2,029,000 824,000
Deferred revenue 151,000 100,000 250,000 13,000
Customer deposits 200,000 209,000 355,000 335,000
---------- ---------- ---------- ----------
Net cash used for operating activities (3,832,000) (2,367,000) (7,869,000) (5,771,000)
---------- ---------- ---------- ----------
Cash flows from (used for) investing activities:
Capital expenditures (262,000) (283,000) (832,000) (667,000)
Software development costs, net (124,000) 708,000 (2,159,000) (191,000)
Notes receivable - officers and directors (25,000) 380,000 (81,000) (420,000)
Proceeds from marketable securities - available
for sale
370,000 0 1,000,000 2,554,000
Proceeds from lease transactions 2,250,000 1,500,000 4,500,000 3,250,000
Deposits related to lease transactions 388,000 (400,000) 325,000 (1,100,000)
---------- ---------- ---------- ----------
Net cash provided by investing 2,597,000 1,905,000 2,753,000 3,426,000
activities ---------- ---------- ---------- ----------
(Continued)
</TABLE>
6
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NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
Three Months and Nine Months Ended September 30, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
September 30, September 30, September 30, September 30,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from (used for) financing activities:
Principal payments on debt $ (104,000) (10,000) (111,000) (218,000)
Proceeds from issuance of debt 148,000 620,000 2,272,000 620,000
Purchase of equipment related to sale and
leaseback transactions (1,285,000) (800,000) (2,470,000) (1,645,000)
Proceeds from issuance of common stock, less
issuance costs paid in cash 4,233,000 1,049,000 6,938,000 1,109,000
--------- --------- --------- ---------
Net cash provided by (used for)
financing activities 2,992,000 859,000 6,629,000 (134,000)
--------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents 1,757,000 397,000 1,513,000 (2,479,000)
Cash and cash equivalents at beginning of period 2,185,000 4,332,000 2,429,000 7,208,000
---------- ---------- ---------- ----------
Cash and cash equivalents at end of period $ 3,942,000 4,729,000 3,942,000 4,729,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 7,000 12,000 73,000 38,000
--------- --------- --------- ----------
--------- --------- --------- ----------
Income taxes $ 0 0 0 392,000
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Financial Statements
(Unaudited)
1. GENERAL.
Management has elected to omit substantially all notes to the Company's
financial statements. Reference should be made to the Company's Form 10-K filed
for the year ended December 31, 1994, which report incorporated the notes to the
Company's year-end financial statements.
2. UNAUDITED INFORMATION.
The September 30, 1995 and 1994 information furnished herein was taken from
the books and records of the Company without audit. However, such information
reflects all adjustments (consisting only of normal recurring adjustments) that
are, in the opinion of management, necessary to reflect properly results of the
interim periods presented. The results of operations for the period ended
September 30, 1995 are not necessarily indicative of the results to be expected
for the fiscal year ending December 31, 1995.
3. BUSINESS SEGMENT DATA.
The Company operates primarily in the interactive television entertainment
and software development and distribution industries. Business segment
information for the three and nine months ended September 30, 1995 and 1994 and
as of September 30, 1995 and December 31, 1994 is as follows:
<TABLE>
<CAPTION>
Software
Interactive Development
Television and
Entertainment Distribution Total
------------- ------------ -----
<S> <C> <C> <C>
THREE MONTHS ENDED SEPTEMBER 30,
1995
----
Revenue $ 6,874,000 1,866,000 8,740,000
Operating Income 22,000 807,000 829,000
Net Earnings 114,000 791,000 905,000
1994
----
Revenue $ 5,747,000 1,241,000 6,988,000
Operating Income 127,000 51,000 178,000
Net Earnings 285,000 48,000 333,000
NINE MONTHS ENDED SEPTEMBER 30,
1995
----
Revenue $ 17,425,000 3,286,000 20,711,000
Operating Income (Loss) (1,044,000) 112,000 (932,000)
Net Earnings (Loss) (943,000) 76,000 (867,000)
1994
----
Revenue $ 13,541,000 3,189,000 16,730,000
Operating Income 454,000 334,000 788,000
Net Earnings 859,000 267,000 1,126,000
September 30, 1995
------------------
Total Assets $ 36,992,000 5,665,000 42,657,000
Current Assets 24,762,000 4,689,000 29,451,000
Total Liabilities 9,763,000 1,366,000 11,129,000
December 31, 1994
-----------------
Total Assets $ 26,383,000 4,856,000 31,239,000
Current Assets 19,101,000 3,005,000 22,106,000
Total Liabilities 4,552,000 1,230,000 5,782,000
</TABLE>
8
<PAGE>
4. EARNINGS PER SHARE.
Earnings per share amounts are computed by dividing net earnings
increased by preferred dividends resulting from the assumed exercise of
stock options and warrants and the assumed conversion of convertible
preferred shares, and the resulting assumed reduction of outstanding
indebtedness, by the weighted average number of common and common
equivalent shares outstanding during the period. Common stock equivalents
represent the dilutive effect of the assumed exercise of certain
outstanding options and warrants and preferred stock.
Earnings per-share amounts are based on 19,618,419 common shares for
the nine months ended September 30, 1995. The impact of the common stock
equivalents would have had an antidilutive effect for the nine months
ended September 30, 1995 due to the reported loss and accordingly have not
been included in the computation.
Earnings per-share amounts are based on 21,184,990 and 21,121,975
common and common equivalent shares for the three and nine months ended
September 30, 1994 respectively and 21,269,571 for the three months ended
September 30, 1995. These amounts include the dilutive effect of common
stock equivalents.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL
The Company uses existing technology to broadcast two-way interactive
live events. The Company's principal sources of revenue from broadcast
activities are derived from (a) broadcast fees in the United States; (b)
advertising fees in the Unites States, (c) broadcast fees from foreign
licensees; (d) sales of interactive equipment; (e) licensing fees from
foreign licensees; (f) royalties and sale of equipment to educational
institutions and (g) the licensing of the Company's technology and
interactive equipment sales to other users.
The Company also develops and publishes interactive entertainment
software and video games for general consumer use on a variety of home
personal computers and console entertainment systems. The principal
sources of revenue from software and video game activities are derived
from (a) domestic retail sales sold through mass merchants, warehouse
clubs, general retailers and mail order catalogues; and (b) license fees
and royalties from international licensees who translate and publish in
over a dozen countries around the world.
The Company has capitalized qualifying software development costs in
accordance with generally accepted accounting principles. However,
through 1992, the Company expensed all of its development costs, charging
such expenses as they were incurred. These significant charges represent
the technology and know-how that the Company has developed and put into
use in its daily operations and may well be its most valuable asset.
However, the significant costs of developing the Company's key
technological assets are not fully presented on the Company's balance
sheet as an asset.
9
<PAGE>
MATERIAL CHANGES IN RESULTS OF OPERATIONS
THREE MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1994
The Company recognized net earnings of $905,000 for the three months
ended September 30, 1995 compared to $333,000 for the three months ended
September 30, 1994. The increase in total net earnings in 1995 is
attributed to a reduction in total operating expenses and increased
revenues. For the current quarter, total revenues increased 25% from
$6,988,000 to $8,740,000. This increase is the result of growth in many
of the Company's principal revenue activities.
Broadcast and Production Services increased 33% from $3,324,000 to
$4,416,000. The increase in broadcast revenue is primarily due to an
equivalent expansion in the number of subscriber locations contracting for
broadcast services from the Company.
Equipment Sales increased 78% from $1,381,000 to $2,459,000.
Equipment sales in the current quarter include both sale and leaseback
transactions and direct sales to the Company's customers. Equipment sales
have been highly volatile in the past and are expected to remain so, as
they are dependent on the Company's ability to engage in lease financing,
the timing of expansion plans of the Company's foreign licensees and its
educational customers. As of September 30, 1995, the Company had sold and
leased back subscriber systems in place at a majority of the United States
subscriber locations. The Company's ability to make more such sales will
be dependent on increases in the number of subscriber locations, as to
which there can be no assurance.
Product Sales related to video and computer games decreased 28% from
$1,110,000 to $801,000. Sales of video and computer game products are
typically seasonal and will vary with the number of new products released
in any period.
License Fees increased 14% from $931,000 in 1994 to $1,065,000 in
1995. Included in 1994 is a license issued for the development and
broadcast of interactive programs in South Africa. In August 1995, the
Company entered into a license agreement for New World products in Europe.
Licensing arrangements are not dependent upon seasonal forces and will
vary in type and amount from period to period.
Cost of Services-Broadcast and Production Services, which increased
69% from $1,371,000 in the prior year's quarter to $2,311,000 in the
current year's quarter, reflects increased costs of equipment leases and
other costs associated with the expansion in the number of subscribers
contracting for broadcast services. Cost of Sales - Product Sales which
relates to the Company's video game products increased from $233,000 to
$385,000 in the current quarter or 65%. These costs vary depending upon
the timing of products released, the volume of products sold, the
complexity of the games and the development costs associated with each
product. The gross margin on product sales decreased from 79% to 52% as
the result of amortizing deferred development costs related to specific
products sold in 1995. The increase in Cost of Sales-Equipment from
$893,000 to $1,571,000, an increase of 76%, is due to the increase in
equipment sales, which can vary from period to period. The Company's
gross margin on equipment sales rose slightly from 35% to 36%. Overall,
the gross profit margin decreased from 64% to 51% as a result of higher
costs associated with broadcast services and product sales.
Operating Expenses declined from $4,313,000 in the prior years
quarter to $3,644,000 in the current years quarter, a decrease of 16%.
Selling, General and Administrative expenses declined from $3,925,000 to
$3,006,000 due to management's efforts to control operating expenses and
inordinate costs incurred in 1994 relating to the formation of new
ventures. Research and Development expense expanded from $288,000 to
$534,000, or 85% as the Company stepped-up its exploration of new
technical platforms and interactive services.
10
<PAGE>
Net Interest Income decreased from $165,000 to $76,000 as a result of
a decrease in interest-bearing investments and the increase in short-term
borrowings. Income Tax Expense decreased from $10,000 to zero in 1995 due
to year-to-date operating losses. The Company currently has available
approximately $12,000,000 of net operating loss carryovers for federal tax
purposes.
NINE MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1994
The Company recognized a net loss of $867,000 for the nine months
ended September 30, 1995 compared to net earnings of $1,126,000 for the
nine months ended September 30, 1994. The loss in 1995 is attributed to a
substantial increase in legal expenses, increased costs of developing and
providing products and services, and increased marketing expenditures.
Total revenues increased 24% from $16,730,000 to $20,711,000. This
increase is the result of growth in many of the Company's principal
revenue activities.
Broadcast and Production Services increased 47% from $8,291,000 to
$12,150,000. The increase in broadcast revenue is primarily due to an
equivalent expansion in the number of subscriber locations contracting for
broadcast services from the Company.
Equipment Sales increased 63% from $3,088,000 to $5,043,000.
Equipment sales include both sale and leaseback transactions and direct
sales to the Company's customers. Equipment sales have been highly
volatile in the past and are expected to remain so, as they are dependent
on the Company's ability to engage in lease financing, the timing of
expansion plans of the Company's foreign licensees and, its educational
subscribers. As of September 30, 1995, the Company had sold and leased
back subscriber systems in place at a majority of the United States
subscriber locations. The Company's ability to make more such sales will
be dependent on increases in the number of subscriber locations, as to
which there can be no assurance.
Product Sales related to video and computer games decreased 28% from
$2,681,000 to $1,940,000. Sales of video and computer game products are
typically seasonal and will vary with the number of new products released
in any period. New product releases in 1995 will predominantly occur in
the fourth quarter whereas in 1994 the Company had several new product
releases earlier in the year.
License Fees and Royalties relate to both the interactive television
entertainment segment as well as the software development and distribution
segment. License Fees and Royalties decreased 24% from $1,769,000 in 1994
to $1,346,000 in 1995. License Fees in 1994 includes licenses issued for
the development and broadcast of interactive programs in South Africa and
Australia as well as domestic licenses for gaming applications. In August
1995, the Company entered into a license agreement for New World products
in Europe. Licensing arrangements are not dependent upon seasonal forces
and will vary in type and amount from period to period.
Other Revenue decreased from $901,000 to $232,000 in the current
year's period. Other Revenue in 1994 primarily consisted of inventory
transferred to the Company by its United Kingdom licensee in exchange for
release from a license agreement. Other Revenue has historically varied
widely.
Cost of Services-Broadcast and Production Services, which increased
66% from $3,517,000 in the prior year's period to $5,840,000 in the
current year's period, reflects increased costs of equipment leases and
other costs associated with the expansion in the number of subscribers
contracting for broadcast services. Cost of Sales - Product Sales relates
to the Company's video game products increased from $633,000 to $879,000
year to date or 39%. These costs vary depending upon the timing of
products released, the volume of products sold, the complexity of the
games and the development costs associated with each product. The gross
margin on product sales decreased from 76% to 55% as the result of
amortizing deferred development costs related to specific products sold in
1995. The increase in Cost of Sales-Equipment from $2,004,000 to
$3,130,000, an increase of 56%, is due to the increase in equipment sales,
which can vary from period to period. The Company's gross margin on
equipment
11
<PAGE>
sales rose from 35% to 38%, primarily due to decreases in the cost of
certain equipment. Overall, the gross profit margin decreased from 63% to
52% as a result of the lower license fees and royalty revenues and higher
costs associated with broadcast services and product sales.
Operating Expenses rose from $9,788,000 in the prior year period to
$11,794,000 in the current year period, an increase of 20%. Legal and
Professional Services increased 326% from $354,000 to $1,509,000 due to
substantial legal expenses incurred relating to litigation and other legal
matters. Selling, General and Administrative expenses increased 5% from
$8,582,000 to $9,016,000 due to an increase in the number of employees
hired to develop and produce new products and services and continued
increases in marketing activities. Research and Development expense
increased from $852,000 to $1,269,000, or 49% as the Company expanded its
exploration of new technical platforms and interactive services.
Net Interest Income decreased from $415,000 to $65,000 as a result of
decreased interest-bearing investments and the addition of new debt.
Income Tax expense decreased from $67,000 to zero in 1995 due to year to
date operating results. The Company currently has available approximately
$12,000,000 of net operating loss carryovers for federal tax purposes.
MATERIAL CHANGES IN FINANCIAL CONDITION
The following analysis compares information as of the most recent
unaudited balance sheet date of September 30, 1995 to the prior year-end
audited balance sheet dated December 31, 1994.
Total assets increased 37% from $31,239,000 to $42,657,000 from
December 31, 1994 to September 30, 1995. Cash and Marketable Securities -
Available for Sale increased from $3,429,000 to $3,942,000 at September
30, 1995. The change reflects additional cash proceeds from debt and
equity fundings net of cash used to fund operations and invest in the
development of future products and services for the NTN Network and video
game products.
The 19% increase in Accounts Receivable - Trade from $5,881,000 to
$7,004,000 at September 30, 1995, reflects an increase in the number of
subscribers receiving the Company's services and sales of products and
license agreements late in the third quarter. Accounts Receivable - Other
increased from $600,000 to $4,140,000, primarily the result of equipment
sale transactions late in the quarter. The increase in Inventory from
$4,628,000 to $5,390,000 is primarily the result of purchasing inventory
assets in anticipation of higher sales late in the year. Prepaid Expenses
increased from $1,769,000 to $2,475,000 from December 31, 1994 to
September 30, 1995 primarily due to increased prepaid expenses, deferred
funding costs, and security deposits held by the Company.
Net Fixed Assets increased 36% primarily due to the move to the new
headquarters and expansion of the NTN Broadcast Center. Software
Development Costs increased a total of $1,896,000 as the Company continued
development of new programs and products. Other Assets increased from
$3,560,000 to $6,170,000 primarily as a result of investments made in
interest-bearing assets and in a partnership that acquired the
headquarters of the Company.
Total liabilities increased 92% from $5,782,000 to $11,129,000 from
December 31, 1994 to September 30, 1995. The increase in Accounts Payable
and Accrued Liabilities from $2,744,000 to $4,773,000 reflects the overall
growth of the Company and the timing of payments. Customer Deposits
increased from $1,006,000 to $1,361,000 from December 31, 1994 to
September 30, 1995 due to deposits received from new customers throughout
the year.
The increase in aggregate Deferred Revenue (long-term and current)
from $1,556,000 to $2,358,000 reflects additional deferred gains on the
sale of the equipment involved in lease transactions. Deferred gains are
amortized to revenue over three-year periods. Long-term Debt (long-term
and
12
<PAGE>
current) increased from $476,000 to $2,637,000 as a result of additional
borrowings to augment working capital needed for operational expenses, new
software and product development, marketing of services and purchase of
broadcast-related equipment.
Overall, the Company's working capital increased $2,256,000 from
December 31, 1994 to September 30, 1995, primarily as a result of equity
and debt proceeds received net of cash used to fund operations and develop
new products and services. The Company may continue to require additional
working capital for operating expenses, new services development,
marketing of services and purchase of the hardware components used in the
reception of its services. There can be no assurance that the Company's
currently available resources will be sufficient to allow the Company to
support its operations until such time, if any, as its internally
generated cash flow is able to sustain the Company.
In the past, the Company has been able to fund its operations and
improve its working capital position by sales of Common Stock upon
exercise of warrants and options, by leasing transactions for equipment in
use at subscriber locations, and by licensing its technology to foreign
licensees. The Company is exploring additional alternative capital
financing possibilities which may include (i) licensing and related
royalties of the Company's technology and products; (ii) borrowing
arrangements under fixed and revolving credit agreements; or (iii) sale of
additional equity securities. In the third quarter, the Company issued
approximately 1,173,000 shares of equity securities including the exercise
of warrants and options for net proceeds of $4,233,000. The Company will
continue to negotiate for additional lease and debt financing and
additional foreign licensing, however, the extent to which any of the
foregoing may be effected cannot be predicted at this time.
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
The description of certain legal proceedings contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1994,
as revised in the Form 10-Q for the quarterly period ended June 30, 1995,
under the caption "Legal Proceedings", are hereby incorporated herein by
reference. An update of events subsequent to the Form 10-Q for the period
ended September 30, 1995, follows.
On September 15, 1995, the Court granted Interactive Network's ("IN")
request for attorneys' fees in the amount of $342,000, plus $17,000 for
interest accrued, despite the fact that the same Court had previously
determined that IN was not entitled to all of it's claimed attorneys' fees
and costs in connection with the patent litigation filed on June 11, 1992
by the Company, in the United States District Court for the Northern
District of California. The judgment is not yet final. The Company
intends to challenge the ruling since it was inconsistent with the Court's
prior order.
With respect to the Company's action against IN in the Superior Court
for the County of Santa Clara, California, filed on April 28, 1993, the
prior stay of proceedings has been lifted and the Company has commenced
discovery. The complaint alleges that IN made certain untrue and
defamatory statements regarding the Company, and seek damages in
connection therewith, along with a declaration of the Company's rights
with respect to the broadcast of "QB1" to certain media platforms.
The Company's prior complaint filed against IN in connection with the
Company's exclusive license from the Canadian Football League has been
dismissed without prejudice based upon the fact that IN has announced that
it will severely curtail its program offerings and, therefore, it does not
appear that IN will be offering an interactive football game that will
violate the Company's rights.
On April 6, 1995, the Company filed an action against the Insurance
Company of North America ("INA") for breach of contract, and for the
tortious breach of the implied covenant of good faith and fair dealing
based upon INA's prior refusal to defend the Company in connection with
the 1992
13
<PAGE>
patent litigation between the Company and IN. On June 21, 1995, the Court
granted the Company's motion for summary adjudication, finding that
pursuant to the insurance policy, INA was required to defend the Company
in connection with two litigation matters between the Company and IN. The
parties are near completion of the discovery phase, with a trial date
scheduled for mid-January, 1996. The only issues that will be addressed
at the time of trial will be based upon the amount of damages the Company
will be entitled to recover, except if INA proves that an exclusion in the
policy does not afford coverage.
Item 6. EXHIBITS AND REPORTS ON REPORT 8-K.
(a) Reports on From 8-K.
On July 5, 1995, the Company filed a report on Form 8-K
reporting that the Company and Patrick J. Downs, its Chief
Executive Officer, and Jon Van Caneghem, the President of
its New World Computing subsidiary, had been named in a
lawsuit filed in U.S. Federal District Court in the Northern
District of Texas.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
NTN COMMUNICATIONS, INC.
Date: November 3, 1995 By: /s/RONALD E. HOGAN
--------------------
Ronald E. Hogan,
Chief Financial Officer
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet and consolidated statement of operations found on
pages 3, 4, and 5 of the Companys Form 10-Q and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 3,942,000
<SECURITIES> 0
<RECEIVABLES> 16,760,000
<ALLOWANCES> (673,000)
<INVENTORY> 5,390,000
<CURRENT-ASSETS> 29,451,000
<PP&E> 3,367,000
<DEPRECIATION> (1,450,000)
<TOTAL-ASSETS> 42,657,000
<CURRENT-LIABILITIES> 10,047,000
<BONDS> 1,082,000
<COMMON> 105,000
0
1,000
<OTHER-SE> 31,422,000
<TOTAL-LIABILITY-AND-EQUITY> 42,657,000
<SALES> 20,711,000
<TOTAL-REVENUES> 20,711,000
<CGS> 9,849,000
<TOTAL-COSTS> 9,849,000
<OTHER-EXPENSES> 11,794,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 65,000
<INCOME-PRETAX> (867,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (867,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (867,000)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
