<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 June 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 August 7, 1995: 19,920,554 shares of common stock, $.005 par value.
<PAGE>
PART I--FINANCIAL INFORMATION
-----------------------------
Item 1. FINANCIAL STATEMENTS.
2
<PAGE>
NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 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 $ 2,185,000 2,429,000
Marketable securities - available for sale 370,000 1,000,000
Interest-bearing security deposits 1,388,000 1,225,000
Accounts receivable - trade, net 4,703,000 5,881,000
Accounts receivable - officers and directors 100,000 100,000
Accounts receivable - other 1,850,000 600,000
Notes receivable - officers and directors 3,318,000 3,262,000
Software development costs, net 1,312,000 1,212,000
Inventories 5,555,000 4,628,000
Prepaid expenses and other current assets 3,025,000 1,769,000
----------- ----------
Total current assets 23,806,000 22,106,000
Fixed assets, net 1,763,000 1,405,000
Interest-bearing security deposits 1,875,000 1,975,000
Software development costs, net 3,262,000 2,193,000
Other assets 4,863,000 3,560,000
----------- ----------
Total assets $35,569,000 31,239,000
=========== ==========
(Continued)
</TABLE>
3
<PAGE>
NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
June 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 3,556,000 2,744,000
Current portion of long-term debt 2,582,000 468,000
Deferred revenue 983,000 740,000
Customer deposits 1,161,000 1,006,000
----------- -----------
Total current liabilities 8,282,000 4,958,000
Deferred revenue 886,000 816,000
Long-term debt, excluding current portion 11,000 8,000
----------- -----------
Total liabilities 9,179,000 5,782,000
----------- -----------
Shareholders' equity (notes 7, 8 and 9):
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 19,878,554 in 1995 and
19,178,060 in 1994 99,000 96,000
Additional paid-in capital 47,301,000 44,599,000
Accumulated deficit (21,011,000) (19,239,000)
----------- -----------
Total shareholders' equity 26,390,000 25,457,000
----------- -----------
Total liabilities and
shareholders' equity $35,569,000 31,239,000
=========== ===========
See Accompanying Notes to Unaudited Consolidated Financial Statements.
</TABLE>
4
<PAGE>
NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Three Months and Six Months Ended June 30, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
------------- ------------ ----------- ----------
June 30, June 30, June 30, June 30,
------------- ------------ ----------- ----------
1995 1994 1995 1994
------------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Broadcast and production services $3,782,000 2,543,000 7,734,000 4,821,000
Product sales 626,000 982,000 1,139,000 1,571,000
Equipment sales 1,528,000 1,041,000 2,584,000 1,707,000
License fees and royalties 88,000 554,000 281,000 838,000
Other revenue 209,000 216,000 233,000 688,000
---------- ---------- ---------- ----------
Total revenues 6,233,000 5,336,000 11,971,000 9,625,000
---------- ---------- ---------- ----------
Cost of services - broadcast and
production services 1,861,000 1,210,000 3,529,000 2,146,000
Cost of sales - product sales 241,000 261,000 494,000 400,000
Cost of sales - equipment 924,000 686,000 1,559,000 1,111,000
---------- ---------- ---------- ----------
Total cost of sales 3,026,000 2,157,000 5,582,000 3,657,000
---------- ---------- ---------- ----------
Gross profit 3,207,000 3,179,000 6,389,000 5,968,000
---------- ---------- ---------- ----------
Operating expenses:
Selling, general and administrative 2,473,000 2,454,000 6,010,000 4,540,000
Legal and professional services 201,000 54,000 1,405,000 254,000
Research and development 341,000 305,000 735,000 564,000
---------- ---------- ---------- ----------
Total operating expenses 3,015,000 2,813,000 8,150,000 5,358,000
---------- ---------- ---------- ----------
Operating income (loss) 192,000 366,000 (1,761,000) 610,000
Interest income (expense), net (67,000) 102,000 (11,000) 250,000
---------- ---------- ---------- ----------
Earnings (loss) before income taxes 125,000 468,000 (1,772,000) 860,000
Income taxes 0 64,000 0 67,000
---------- ---------- ---------- ----------
Net earnings (loss) $ 125,000 404,000 (1,772,000) 793,000
========== ========== ========== ==========
Net earnings (loss) per share $ 0.01 0.02 (0.09) 0.04
========== ========== ========== ==========
Weighted average number of shares
outstanding 20,949,026 20,640,486 19,458,938 21,073,906
========== ========== ========== ==========
See Accompanying Notes to Unadited Consolidated Financial Statements.
</TABLE>
5
<PAGE>
NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three Months and Six Months Ended June 30, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
June 30, June 30, June 30, June 30,
1995 1994 1995 1994
------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Cash flows from (used for)
operating activities:
Net earnings (loss) $ 125,000 404,000 (1,772,000) 793,000
Adjustments to reconcile net
earnings (loss) to net cash
provided by (used in) operating
activities:
Depreciation and
amortization, net (342,000) (141,000) (244,000) (74,000)
Provision for doubtful
accounts 67,000 45,000 120,000 107,000
Gain on sale and
leaseback transactions (463,000) (176,000) (639,000) (308,000)
(Increase) decrease in:
Accounts receivable 1,351,000 (2,128,000) (192,000) (1,694,000)
Software
development costs,
net 1,054,000 (320,000) 866,000 (552,000)
Inventories, net (304,000) 171,000 (927,000) (179,000)
Prepaid expenses
and other assets (3,395,000) (1,093,000) (2,559,000) (1,297,000)
Increase (decrease) in:
Accounts payable
and accrued
liabilities 443,000 457,000 812,000 (239,000)
Deferred revenue 165,000 12,000 343,000 (87,000)
Customer deposits 84,000 43,000 155,000 126,000
---------- ---------- ---------- ----------
Net cash used for
operating
activities (1,215,000) (2,726,000) (4,037,000) (3,404,000)
---------- ---------- ---------- ----------
Cash flows from (used for)
investing activities:
Capital expenditures (316,000) (212,000) (570,000) (384,000)
Software development costs, net (1,453,000) (414,000) (2,035,000) (899,000)
Notes receivable - officers and
directors (175,000) (720,000) (56,000) (800,000)
Proceeds from marketable securities
- available for sale 130,000 2,554,000 630,000 2,554,000
Proceeds from lease transactions 1,250,000 1,762,000 2,250,000 1,750,000
Deposits related to lease
transactions 187,000 (64,000) (63,000) (700,000)
---------- ---------- ---------- ----------
Net cash provided by
investing activities (377,000) 2,906,000 156,000 1,,521,000
---------- ---------- ---------- ----------
</TABLE>
(Continued)
6
<PAGE>
NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
Three Months and Six Months Ended Juner 30, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
June 30, June 30, June 30, June 30,
1995 1994 1995 1994
------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Cash flows from (used for)
financing activities:
Principal payments on debt $ 442,000 (736,000) (7,000) (208,000)
Proceeds from issuance of debt 879,000 (750,000) 2,124,000 0
Purchase of equipment related to
sale and leaseback transactions (675,000) (447,000) (1,185,000) (845,000)
Proceeds from issuance of common
stock, less issuance costs paid
in cash 2,376,000 37,000 2,705,000 60,000
---------- ---------- ---------- ----------
Net cash provided by
(used for) financing
activities 3,022,000 (1,896,000) 3,637,000 (993,000)
---------- ---------- ---------- ----------
Net increase (decrease) in cash
and cash equivalents 1,430,000 (1,716,000) (244,000) (2,876,000)
Cash and cash equivalents at
beginning of period 755,000 6,048,000 2,429,000 7,208,000
---------- ---------- ---------- ----------
Cash and cash equivalents at end
of period $2,185,000 4,332,000 2,185,000 4,332,000
========== ========== ========== ==========
Supplemental disclosures of cash
flow information:
Cash paid during the period for:
Interest $ 44,000 13,000 66,000 25,000
========== ========== ========== ==========
Income taxes $ 0 154,000 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 June 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 June 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 six months ended June
30, 1995 and 1994 and as of June 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 June 30,
1995
----
Revenue $ 5,460,000 773,000 6,233,000
Operating Income (Loss) 223,000 (31,000) 192,000
Net Earnings (Loss) 349,000 (224,000) 125,000
1994
----
Revenue $ 4,250,000 1,086,000 5,336,000
Operating Income 89,000 277,000 366,000
Net Earnings 189,000 215,000 404,000
Six months ended June 30,
1995
----
Revenue $10,492,000 1,479,000 11,971,000
Operating Income (Loss) (1,239,000) (522,000) (1,761,000)
Net Earnings (Loss) (1,057,000) (715,000) (1,772,000)
1994
----
Revenue $ 7,677,000 1,948,000 9,625,000
Operating Income 327,000 283,000 610,000
Net Earnings 574,000 219,000 793,000
June 30, 1995
-------------
Total Assets 31,331,000 4,238,000 35,569,000
Current Assets 20,426,000 3,380,000 23,806,000
Total Liabilities 8,080,000 1,099,000 9,179,000
December 31, 1994
-----------------
Total Assets 26,383,000 4,856,000 31,239,000
Current Assets 17,820,000 4,286,000 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 19,458,938 common shares
for the six months ended June 30, 1995. The impact of the common stock
equivalents would have had an antidilutive effect for the six months
ended June 30, 1995 due to the reported loss and accordingly have not
been included in the computation.
Earnings per-share amounts are based on 20,640,486 and 21,073,906
common and common equivalent shares for the three and six months ended
June 30, 1994 respectively and 20,949,026 for the three months ended
June 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 June 30, 1995 and June 30, 1994
The Company recognized net earnings of $125,000 for the three
months ended June 30, 1995 compared to $404,000 for the three months
ended June 30, 1994. The decline in total net earnings in 1995 is
attributed to an increase in legal expenses, additional costs of
developing new products and services, and increased marketing
expenditures. For the current quarter, total revenues increased 17%
from $5,336,000 to $6,233,000. This increase is the result of growth
in many of the Company's principal revenue activities.
The most significant increase resulted from a 49% growth in
Broadcast and Production Services from $2,543,000 to $3,782,000. 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 47% from $1,041,000 to $1,528,000.
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 subscribers. As of June 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 36%
from $982,000 to $626,000. Sales of video and computer game products
are typically seasonal and will vary with the number of products
released in any period.
License Fees decreased 84% from $554,000 in 1994 to $88,000 in
1995. In 1994 the Company issued a license for the development and
broadcast of interactive programs in South Africa for $450,000. There
was no similar item in 1995. Licensing arrangements are not dependent
upon seasonal forces and will vary from period to period.
Cost of Services-Broadcast and Production Services, which
increased 54% from $1,210,000 in the prior year's quarter to
$1,861,000, in the current year's quarter, reflects increased costs for
equipment leases and increased sales commissions due to the rise in the
number of subscribers. Cost of Sales - Product Sales relates to the
Company's video game products decreased from $261,000 to $241,000 in
the current quarter or 8%. These costs vary depending upon the timing
of products released, the volume of products sold, the complexity of
the games and the underlying costs associated with each product. The
gross margin on product sales decreased from 73% to 62% as the result
of amortizing deferred development costs related to specific products
sold in the current quarter. The increase in Cost of Sales-Equipment
from $686,000 to $924,000, an increase of 35%, is due to the increase
in equipment sales, which can vary from period to period. The
Company's gross margin on equipment sales rose from 34% to 40%,
primarily due to decreases in the cost of certain equipment. Overall,
the gross profit margin decreased from 60% to 51% 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 $2,813,000 in the prior years quarter
to $3,015,000 in the current years quarter, an increase of 7%. Legal
and Professional Services increased 272% from $54,000 to $201,000 due
to legal expenses incurred relative to litigation and other legal
matters. Selling, General and Administrative expenses increased
slightly from $2,454,000 to $2,473,000 due to management's efforts to
control operating expenses. Research and Development expense increased
from $305,000 to
10
<PAGE>
$341,000, or 12% as the Company continued its exploration of new
technical platforms and interactive services.
Net Interest Income decreased from $102,000 to $(67,000) as a
result of decreased interest-bearing investments and the addition of
new debt. Income Tax expense decreased from $64,000 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.
Six month periods ended June 30, 1995 and June 30, 1994
The Company recognized a net loss of $1,772,000 for the six months
ended June 30, 1995 compared to net earnings of $793,000 for the three
months ended June 30, 1994. The loss in 1995 is attributed to a
substantial increase in legal expenses, additional costs of developing
new products and services, and increased marketing expenditures. Total
revenues increased 24% from $9,625,000 to $11,971,000. This increase
is the result of growth in many of the Company's principal revenue
activities.
The most significant increase resulted from a 60% growth in
Broadcast and Production Services from $4,821,000 to $7,734,000. The
increase in broadcast revenue is due to an equivalent expansion in the
number of subscriber locations contracting for broadcast services from
the Company.
Equipment Sales increased 51% from $1,707,000 to $2,584,000.
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 June 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 27%
from $1,571,000 to $1,139,000. Sales of video and computer game
products are typically seasonal and will vary with the number of
products released in any period.
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 66%
from $838,000 in 1994 to $281,000 in 1995. In 1994 the Company issued
a license for the development and broadcast of interactive programs in
South Africa for $450,000. There was no similar item in 1995.
Licensing arrangements are not dependent upon seasonal forces and will
vary from period to period.
Other Revenue decreased from $688,000 to $233,000 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 54% from $2,146,000 in the prior year's period to $3,529,000,
in the current year's period, reflects increased costs for equipment
leases and increased sales commissions due to the rise in the number of
subscribers. Cost of Sales - Product Sales relates to the Company's
video game products increased from $400,000 to $494,000 year to date or
24%. These costs vary depending upon the timing of products released,
the volume of products sold, the complexity of the games and the
underlying costs associated with each product. The gross margin on
product sales decreased from 75% to 57% as the result of amortizing
deferred development costs related to specific products sold in the
current period. The increase in Cost of Sales-Equipment from
$1,111,000 to $1,559,000, an increase of 40%, is due to the increase in
equipment
11
<PAGE>
sales, which can vary from period to period. The Company's gross margin
on equipment sales rose from 35% to 40%, primarily due to decreases in
the cost of certain equipment. Overall, the gross profit margin
decreased from 62% to 53% 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 $5,358,000 in the prior year period
to $8,150,000 in the current year period, an increase of 52%. Legal
and Professional Services increased 453% from $254,000 to $1,405,000
due to substantial legal expenses incurred relative to litigation and
other legal matters. Selling, General and Administrative expenses
increased 32% from $4,540,000 to $6,010,000 due to a large increase in
the number of employees hired to develop and produce new products and
services and a considerable increase in marketing activities. Research
and Development expense increased from $564,000 to $735,000, or 30% as
the Company continued its exploration of new technical platforms and
interactive services.
Net Interest Income decreased from $250,000 to $(11,000) 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 June 30, 1995 to the prior year-end
audited balance sheet dated December 31, 1994.
Total assets increased 14% from $31,239,000 to $35,569,000 from
December 31, 1994 to June 30, 1995. Cash and Marketable Securities -
Available for Sale decreased from $3,429,000 to $2,555,000 at June 30,
1995. The decrease reflects the use of cash to fund operations and to
invest in the development of future products and services for the NTN
Network and video game products.
Accounts Receivable - Trade decreased 20% from $5,881,000 to
$4,703,000 at June 30, 1995, as the Company stepped up its collection
efforts. Accounts Receivable - Other increased from $600,000 to
$1,850,000, the result of an equipment sale transaction late in the
quarter. The increase in Inventory from $4,628,000 to $5,555,000 is
primarily the result of purchasing inventory assets in anticipation of
higher sales later in the year. Software Development Costs increased a
total of $1,169,000 as the Company continued expansion of programs and
new products. Other Assets increased from $3,560,000 to $4,863,000 as
a result of investments made in pension assets and in a partnership
that acquired the headquarters of the Company.
The increase in Accounts Payable and Accrued Liabilities from
$2,744,000 to $3,556,000 reflects the overall growth of the Company.
The increase in aggregate Deferred Revenue (long-term and current) from
$1,556,000 to $1,869,000 reflects additional deferred gains on the sale
of the assets involved in lease transactions. Deferred gains are
amortized to revenue over three-year periods. Long-term Debt (long-
term and current) increased from $476,000 to $2,593,000 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 decreased $1,624,000 from
December 31, 1994 to June 30, 1995, primarily as a result 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 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.
12
<PAGE>
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 second quarter, the
Company issued approximately 700,000 shares of equity securities
including the exercise of warrants and options for net proceeds of
$2,705,000. 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 under the caption "Legal Proceedings", is incorporated herein by
reference. An update of events subsequent to that Report follows.
On April 18, 1995, a class action lawsuit was filed in the United
States District Court for the Southern District of California. The
lawsuit seeks unspecified damages and alleges violations of securities
laws based upon the Company's projections for the fourth quarter of
1994 and for fiscal year 1994, and further alleges that certain
insiders sold stock on information not generally known to the public.
The Company has denied liability based upon the allegations
contained in the complaint which does not contain any statement or
demand for a specific amount of damages. At this time, the Company
intends to vigorously contest the matter.
On July 3, 1995, a separate action was filed by a single
shareholder in the United States District Court for the Northern
District of Texas, based upon substantially the same allegations as
those set forth in the April, 1995 class action suit against the
Company. The Company has just recently filed its response and
counterclaim to the action and intends to vigorously defend against
this claim.
In May of 1994, Interactive Network filed a lawsuit in the United
States District Court for the Northern District of California claiming
that the Company's proprietary interactive boxing game, "Uppercut"
infringed upon its patent. The Court granted summary judgment in favor
of the Company, and the Company was successful in recovering
approximately $57,000 in attorneys' fees from IN. IN voluntarily
dismissed its appeal of the Court's ruling.
Item 6. EXHIBITS AND REPORTS ON REPORT 8-K.
None.
13
<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: August 10, 1995 By: /s/RONALD E. HOGAN
--------------------
Ronald E. Hogan,
Chief Financial Officer
14
<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 Company's Form 10-Q and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 2,185,000
<SECURITIES> 370,000
<RECEIVABLES> 11,877,000
<ALLOWANCES> (518,000)
<INVENTORY> 5,555,000
<CURRENT-ASSETS> 23,806,000
<PP&E> 3,098,000
<DEPRECIATION> (1,335,000)
<TOTAL-ASSETS> 35,569,000
<CURRENT-LIABILITIES> 8,282,000
<BONDS> 0
<COMMON> 99,000
0
1,000
<OTHER-SE> 26,290
<TOTAL-LIABILITY-AND-EQUITY> 35,569,000
<SALES> 11,971,000
<TOTAL-REVENUES> 11,971,000
<CGS> 5,582,000
<TOTAL-COSTS> 5,582,000
<OTHER-EXPENSES> 8,150,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,000
<INCOME-PRETAX> (1,772,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,772,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,772,000)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
