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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q/A
AMENDMENT NO. 1
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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
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Number of shares outstanding of each of the registrant's classes of common
stock, as of May 13, 1996: 23,309,645 shares of common stock, $.005 par value.
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PART I -- FINANCIAL INFORMATION
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Item 1. FINANCIAL STATEMENTS.
2
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NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 1996 (Unaudited) and December 31, 1995
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 1996 1995
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,121,000 6,485,000
Interest-bearing security deposits 1,450,000 1,575,000
Accounts receivable - trade, net of allowance for returns and doubtful
accounts 2,869,000 2,668,000
Accounts receivable - officers and directors -- 100,000
Accounts receivable - other 875,000 1,750,000
Notes receivable - related parties 680,000 1,030,000
Inventories, net 6,179,000 5,618,000
Prepaid expenses and other current assets 2,528,000 2,223,000
Net assets of discontinued operations 5,290,000 4,560,000
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Total current assets 22,992,000 26,009,000
Fixed assets, net 2,150,000 2,023,000
Interest-bearing security deposits 1,950,000 2,200,000
Software development costs, net of accumulated amortization 3,427,000 3,152,000
Notes receivable, related parties 3,462,000 3,438,000
Deposits and other assets 3,542,000 4,399,000
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Total assets $ 37,523,000 41,221,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 2,062,000 2,877,000
Short-term borrowings and current portion of long-term debt 3,137,000 1,356,000
Deferred revenue 1,148,000 1,024,000
Customer deposits 1,236,000 1,284,000
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Total current liabilities 7,583,000 6,541,000
Deferred revenue 1,034,000 1,229,000
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Total liabilities 8,617,000 7,770,000
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Shareholders' equity:
10% Cumulative convertible preferred stock, $.005 par value, 10,000,000
shares authorized; issued and outstanding 162,612 in 1996 and 1995 1,000 1,000
Common stock, $.005 par value, 50,000,000 shares authorized;
shares issued and outstanding 23,904,145 in 1996 and 22,502,707 in 1995 113,000 112,000
Additional paid-in capital 57,328,000 56,747,000
Accumulated deficit (25,984,000) (23,187,000)
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31,458,000 33,673,000
Less 594,500 shares in 1996 and 50,000 shares in 1995 of treasury stock, at cost (2,552,000) (222,000)
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Total shareholders' equity 28,906,000 33,451,000
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Total liabilities and shareholders' equity $ 37,523,000 41,221,000
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</TABLE>
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See accompanying notes to unaudited consolidated financial statements.
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NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Three Months Ended March 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
THREE THREE
MONTHS MONTHS
MARCH 31, MARCH 30,
1996 1995
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<S> <C> <C>
Distribution and production services $ 5,339,000 3,952,000
Equipment sales, net 488,000 421,000
License fees and other revenue 249,000 24,000
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Total revenues 6,076,000 4,397,000
Cost of distribution and production services 2,508,000 1,668,000
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Gross profit 3,568,000 2,729,000
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Operating expenses:
Selling, general and administrative 5,280,000 2,613,000
Legal and professional fees 323,000 1,184,000
Research and development 863,000 394,000
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Total operating expenses 6,466,000 4,191,000
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Operating loss (2,898,000) (1,462,000)
Investment income, net of interest expense 72,000 56,000
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Loss before minority interest and income taxes (2,826,000) (1,406,000)
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Loss before income taxes (2,826,000) (1,406,000)
Income taxes -- --
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Earnings (loss) from discontinued operations 29,000 (491,000)
Net loss $ (2,797,000) (1,897,000)
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Net earnings (loss) per share $ (0.12) (0.10)
============ ============
Weighted average number of shares outstanding 22,924,000 19,217,000
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
THREE THREE
MONTHS MONTHS
MARCH 31, MARCH 30,
1996 1995
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<S> <C> <C>
Cash flows from (used for) operating activities:
Net loss $(2,797,000) (1,897,000)
Adjustments:
Depreciation and amortization 359,000 98,000
Provision for doubtful accounts 97,000 53,000
Accrual for issuance of warrants 597,000 --
Gain on sale and leaseback transactions (154,000) (176,000)
Loss on sale of marketable securities available for sale -- 39,000
Amortization of deferred gain on sale and leaseback transactions (210,000) --
Change in assets and liabilities:
Accounts receivable - trade (198,000) (1,543,000)
Software development costs, net -- (188,000)
Inventories, net (561,000) (623,000)
Prepaid expenses and other assets (41,000) 836,000
Accounts payable and accrued liabilities (790,000) 369,000
Deferred revenue (75,000) 178,000
Customer deposits (48,000) 71,000
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Net cash used for operating activities (3,821,000) (2,783,000)
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Cash flows from (used for) investing activities:
Capital expenditures (290,000) (254,000)
Notes receivable - officers and directors 1,064,000 119,000
Software development costs (471,000) (582,000)
Proceeds from sales of marketable securities available for sale -- 461,000
Proceeds from sale and leaseback transactions 875,000 1,000,000
Deposits related to sale and leaseback transactions 375,000 (250,000)
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Net cash provided by (used for) investing activities 1,553,000 494,000
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Cash flows from (used for) financing activities:
Principal payments on debt $ (6,000) (449,000)
Proceeds from issuance of debt 1,772,000 1,245,000
Purchase of equipment related to sale and leaseback transactions (507,000) (510,000)
Proceeds from issuance of common stock, less issuance costs paid in cash (15,000) 329,000
Payments for purchase of treasury stock (2,330,000) --
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Net cash provided by (used for) financing activities (1,086,000) 615,000
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Net increase (decrease) in cash and cash equivalents (3,354,000) (1,674,000)
Cash and cash equivalents at beginning of period 6,475,000 2,429,000
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Cash and cash equivalents at end of period $ 3,121,000 755,000
=========== ===========
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest $ 20,000 22,000
Income taxes $ -- --
</TABLE>
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See accompanying notes to unaudited consolidated financial statements.
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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, 1995, which report incorporated the
notes to the Company's year-end financial statements.
(2) UNAUDITED INFORMATION
The March 31, 1996 and 1995 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 March 31, 1996 are not necessarily
indicative of the results to be expected for the fiscal year ending
December 31, 1996.
(3) 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 22,924,000 and 19,217,000 common
shares for the three months ended March 31, 1996 and 1995, respectively.
The impact of the common stock equivalents would have had an antidilutive
effect due to the reported losses and accordingly have not been included
in the computation.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
General
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The Company uses existing technology to distribute two-way interactive live
events. The Company's principal sources of revenue from distribution activities
are derived from (a) distribution fees in the United States; (b) advertising
fees in the Unites States, (c) distribution 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 financial statements as of and for the quarter ended March 31, 1996 has been
amended to be consistent with the method of accounting for the consolidation of
the accounts and activity related to IWN L.P. and stock-based compensation
pursuant to SFAS 123 as reported in the Annual Report on Form 10-K for the year
ended December 31, 1996.
Material Changes in Results of Operations
- -----------------------------------------
Three month periods ended March 31, 1996 and March 31, 1995
The Company recognized a net loss of $2,797,000 for the three months ended March
31, 1996 compared to a net loss of $1,897,000 for the three months ended March
31, 1995. The loss in 1996 is attributed to losses generated by the Company's
IWN subsidiary of $2,131,000 and charges for stock-based compensation of
$597,000. The loss in 1995 was largely attributable to significant accruals
related to litigation and other legal matters.
For the current quarter, total revenues increased 38% from $4,397,000 to
$6,076,000. This increase is the result of growth in many of the Company's
principal revenue activities.
Distribution and Production Services increased 35% from $3,952,000 to
$5,339,000. The increase in distribution revenue is primarily due to an
expansion in the number of subscriber locations and on-line customers
contracting for services from the Company.
Equipment Sales increased 16% from $421,000 to $488,000. Equipment sales include
both leasing 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 March 31, 1996, 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.
License Fees and other revenue increased from $24,000 in 1995 to $249,000 in
1996. Licensing arrangements are not dependent upon seasonal forces and will
vary in type and amount from period to period.
Cost of Services-Distribution and Production Services, which increased 50% from
$1,668,000 in the prior year's quarter to $2,508,000 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 distribution
services. Operating Expenses increased from $4,191,000 in 1995 to $6,466,000 in
1996, an increase of 54%. Selling, General and Administrative expenses increased
from $2,613,000 to $5,280,000. The increase is primarily attributable to costs
associated with the IWN subsidiary and charges for stock-based
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compensation pursuant to SFAS 123. Research and Development expense expanded
from $394,000 to $863,000, related largely to development of gaming applications
at the Company's IWN subsidiary.
Net Investment Income increased from $56,000 to $72,000 as a result of increased
interest-bearing investments. Income Tax Expense remained flat at zero due to
prior year operating losses and the nature of revenues and expenses in each
period. The Company currently has available approximately $27,000,000 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 March 31, 1996 to the prior year-end audited balance sheet
dated December 31, 1995.
Total assets decreased 9% from $41,221,000 to $37,523,000 from December 31, 1995
to March 31, 1996. The decrease in assets is primarily the result of the Company
purchase of treasury shares totaling $2,330,000. Cash and Marketable Securities
- - Available for Sale decreased from $6,485,000 to $3,121,000 at March 31, 1996.
The change reflects the use of cash related to treasury stock purchases, cash
used to fund operations and invest in the development of future products and
services for the NTN Network.
The 8% increase in Accounts Receivable - Trade from $2,668,000 to $2,869,000 at
March 31, 1996, reflects an increase in the number of subscribers receiving the
Company's services, net of amounts collected. Accounts Receivable - Other
decreased from $1,750,000 to $875,000, the result of the smaller leasing
transaction in the first quarter. The increase in Inventory from $5,618,000 to
$6,179,000 is primarily the result of purchasing inventory assets in
anticipation of higher sales late in the year. Prepaid Expenses increased from
$2,223,000 to $2,528,000 from December 31, 1995 to March 31, 1996 primarily due
to increases in prepaid expenses and security deposits held by the Company.
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Net Fixed Assets increased 6% primarily due to continued expansion of the NTN
Broadcast Center. Software Development Costs increased $275,000 as the Company
continued its development of programs and products.
Total liabilities increased 11% from $7,770,000 to $8,617,000 from December 31,
1995 to March 31, 1996. The decrease in Accounts Payable and Accrued Liabilities
from $2,877,000 to $2,062,000 reflects the timing of payments of accounts
payable and accrued liabilities. Customer Deposits remained steady from
$1,284,000 to $1,236,000 from December 31, 1995 to March 31, 1996 due to steady
receipts and application of deposits received from new customers throughout the
period. The decrease in aggregate Deferred Revenue (long-term and current) from
$2,253,000 to $2,182,000 reflects the amounts deferred for the leasing
transactions in the first quarter, net of amortization. Deferred gains are
amortized to revenue over three-year periods.
Overall, the Company's working capital decreased $4,059,000 from December 31,
1995 to March 31, 1996, primarily the result of funding the operations of IWN
and the use of cash to purchase treasury shares. 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. 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.
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PART II -- OTHER INFORMATION
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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, 1995 under the caption
"Legal Proceedings", is incorporated herein by reference.
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Item 6. EXHIBITS AND REPORTS ON REPORT 8-K.
None.
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SIGNATURES
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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: May 15, 1997 By: /s/ GERALD SOKOL, JR.
- ------------------------------
Gerald Sokol, Jr.
President
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