<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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)
(760) 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 21, 1997: 23,672,000 shares of common stock, $.005 par
value.
1
<PAGE>
PART I--FINANCIAL INFORMATION
-----------------------------
Item 1. FINANCIAL STATEMENTS.
2
<PAGE>
NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 1997 (Unaudited) and December 31, 1996
<TABLE>
<CAPTION>
March 31, December 31,
Assets 1997 1996
------ ------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,466,000 6,579,000
Accounts receivable - trade, net of allowance for
doubtful accounts 2,283,000 2,031,000
Accounts receivable - officers and directors -- 199,000
Prepaid expenses and other current assets 3,894,000 1,846,000
----------- -----------
Total current assets 9,643,000 10,655,000
Broadcast equipment and fixed assets, net 9,929,000 10,103,000
Software development costs, net 4,288,000 4,400,000
Retirement plan assets -- 2,527,000
Other assets 707,000 819,000
----------- -----------
Total assets 24,567,000 28,504,000
=========== ===========
</TABLE>
(Continued)
3
<PAGE>
NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
March 31, 1997 (Unaudited) and December 31, 1996
<TABLE>
<CAPTION>
March 31, December 31,
Liabilities and Shareholders' Equity 1997 1996
------------------------------------ ------------ ------------
<S> <C> <C>
Current liabilities:
Accounts payable and accrued liabilities $ 5,238,000 6,182,000
Short-term borrowings 5,215,000 5,060,000
Deferred revenue 469,000 254,000
Customer deposits 1,161,000 1,279,000
------------ ------------
Total current liabilities 12,083,000 12,775,000
Deferred revenue - long term 740,000 1,000,000
Accrual for settlement warrants 1,347,000 1,291,000
Other long-term liabilities 4,425,000 3,216,000
------------ ------------
Total liabilities 18,595,000 18,282,000
------------ ------------
Shareholders' equity:
10% Cumulative convertible preferred stock, $.005 par value, 10,000,000
shares authorized; issued and outstanding 161,000 in 1997 and 1996 1,000 1,000
Common stock, $.005 par value, 50,000,000 shares authorized; shares
issued and outstanding 23,314,000 in 1997 and 23,177,000 in 1996 116,000 116,000
Treasury stock, 782,000 shares in 1997 and 1996 at cost (3,339,000) (3,339,000)
Additional paid-in capital 61,680,000 59,583,000
Accumulated deficit (52,486,000) (46,139,000)
------------ ------------
Total shareholders' equity 5,972,000 10,222,000
Total liabilities and shareholders' equity $ 24,567,000 28,504,000
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE>
NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Three Months Ended March 31, 1997and 1996
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
March 31, March 31,
1997 1996
------------ ------------
<S> <C> <C>
Network services $ 4,969,000 4,868,000
Online/Internet services 848,000 234,000
Advertising revenues 245,000 237,000
Equipment sales, net 187,000 488,000
License and royalty fees and other revenue 291,000 249,000
------------ ------------
Total revenues 6,540,000 6,076,000
Operating expenses:
Operating costs 2,209,000 1,356,000
Selling, general and administrative 8,675,000 5,128,000
Litigation, legal and professional fees 344,000 323,000
Equipment lease expense 234,000 1,152,000
Depreciation 876,000 152,000
Research and development 400,000 863,000
------------ ------------
Total operating expenses 12,738,000 8,974,000
Operating loss (6,198,000) (2,898,000)
Other income (expense)
Interest income 62,000 120,000
Interest expense (211,000) (48,000)
------------ ------------
(149,000) 72,000
Loss from continuing operations before income
taxes (6,347,000) (2,826,000)
Provision for income taxes -- --
------------ ------------
Loss from continuing operations (6,347,000) (2,826,000)
Earnings from discontinued operations -- 29,000
------------ ------------
Net loss $ (6,347,000) (2,797,000)
============ ============
Net loss per share:
Continuing operations $ (0.27) (0.12)
Discontinued operations -- --
============ ============
Net loss $ (0.27) (0.12)
============ ============
Weighted average number of shares outstanding 23,239,000 22,924,000
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1997 and 1996
(Unaudited)
Three Months Three Months
March 31, March 31,
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from (used for) operating activities:
Net loss $(6,347,000) (2,797,000)
Adjustments:
Depreciation and amortization 1,253,000 359,000
Provision for doubtful accounts 225,000 97,000
Accrual for issuance of warrants 1,883,000 597,000
Accrual for settlement warrants 56,000 --
(Gain) loss on sale and leaseback
transactions -- (154,000)
Amortization of deferred gain on sale and
leaseback transactions 62,000 (210,000)
Changes in assets and liabilities:
Accounts receivable - trade (278,000) (198,000)
Inventory -- (561,000)
Prepaid expenses and other assets 591,000 (41,000)
Accounts payable and accrued liabilities 265,000 (790,000)
Deferred revenue (107,000) (75,000)
Customer deposits (118,000) (48,000)
----------- -----------
Net cash used for operating
activities (2,515,000) (3,821,000)
----------- -----------
Cash flows from (used for) investing activities:
Capital expenditures (658,000) (290,000)
Notes receivable - related parties -- 1,064,000
Software development costs (309,000) (471,000)
Proceeds from sale and leaseback transactions -- 875,000
Deposits related to sale and leaseback
transactions -- 375,000
----------- -----------
Net cash provided by (used for)
investing activities (967,000) 1,553,000
----------- -----------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
Three Months Ended March 31, 1997 and 1996
(Unaudited)
Three Months Three Months
March 31, March 31,
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from (used for) financing activities:
Principal payments on debt $ -- (6,000)
Proceeds from issuance of debt 155,000 1,772,000
Purchase of equipment related to sale and
leaseback transactions -- (507,000)
Proceeds from issuance of common stock, less
issuance costs paid in cash 214,000 (15,000)
Payments for purchase of treasury stock -- (2,330,000)
----------- -----------
Net cash provided by (used
for) financing activities 369,000 (1,086,000)
----------- -----------
Net decrease in cash and cash equivalents (3,113,000) (3,354,000)
Cash and cash equivalents at beginning of period 6,579,000 6,475,000
----------- -----------
Cash and cash equivalents at end of period $ 3,466,000 3,121,000
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ -- 20,000
=========== ===========
Income taxes $ -- --
=========== ===========
</TABLE>
See accompanying notes to unaudited 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, 1996, which report incorporated the notes to the
Company's year-end financial statements.
2. Unaudited Information.
---------------------
The March 31, 1997 and 1996 information furnished herein was taken from
the books and records of the Company without audit. However, such information
reflects all 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, 1997 are not necessarily indicative of
the results to be expected for the fiscal year ending December 31, 1997.
Certain items in the prior year consolidated financial statements have
been reclassified to conform to the format used for the current periods
presented.
3. Management Reorganization.
-------------------------
On March 5, 1997, the Company announced a reorganization of its
executive management personnel in which Patrick J. Downs resigned as Chief
Executive Officer and Chairman of the Board, and Daniel C. Downs resigned as
President. In connection with the reorganization ("Reorganization"), other
personnel changes include the resignation of Mr. Ronald Hogan, as Senior Vice
President, and the terminations of Mr. Gerald McLaughlin, formerly Executive
Vice President, and Mr. Michael Downs, formerly President and CEO of LearnStar.
The Company has entered into separate agreements ("Agreements") with each of the
former officers setting out the terms on which their existing employment
contracts with NTN will be settled. In compliance with the Agreements, NTN will
continue to pay the former executives their current annual salaries and other
benefits for the remaining terms of their employment agreements with NTN, which
expire on or before December 31, 1999. Charges for severance and other costs
associated with the Reorganization recorded in 1996 were $5,092,000. Charges for
severance and other costs associated with the Reorganization recorded as an
expense and liability in the first quarter of 1997 including accreted interest
expense was $5,206,000. Contractual payments for employment contracts related to
the Agreements will be $1,711,000 in 1997, $1,350,000 in 1998 and $1,269,000 in
1999. The Company expects that such amounts will be funded from its on-going
operations. The Company has recorded the charges in 1996 and 1997 in accordance
with Emerging Issues Task Force Issues No. 94 - 3.
4. Certain Transactions.
--------------------
8
<PAGE>
In December 1995, the Company entered into an agreement to sell a 45%
interest in LearnStar subsidiary to an unaffiliated company for a $2,500,000
note receivable. No gain on the sale was recognized in 1995 as the Company had
not received any payments on the note. In late 1996, the parties agreed to
rescind the agreement. A gain was recorded in the first quarter of 1996 based on
payments received to date. The Company has revised amounts previously reported
as gain in the March 31, 1996 financial statements.
In December 1995, the Company entered into a sale, purchase agreement
and investment agreement ("Agreement") with Symphony LLC ("Symphony"), an
unaffiliated company, whereby Symphony agreed to purchase a 10% interest in IWN,
Inc. for $350,000 and would make capital contributions totaling $2,650,000 to
IWN L.P., a limited partnership of which IWN Inc. is the general partner.
The Agreement includes a provision whereby Symphony has the option to
put ("IWN Put Option") its partnership interest and its shares of IWN Inc. to
NTN during the period from April 1, 1997 through December 1, 1997 for certain
consideration. Accordingly, the Company has included the accounts and results of
operations of. IWN L.P. in the Company's consolidated financial statements.
5. Discontinued Operations - Sale of New World Computing.
-----------------------------------------------------
On June 30, 1996 the Company sold all of the assets and business of its
New World Computing subsidiary to The 3DO Company. The disposal of the New World
has been accounted for as a discontinued operation. Accordingly, the
consolidated financial statements for the quarter ended March 31, 1996 has been
reclassified to report separately operating results of the discontinued
business.
6. 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
9
<PAGE>
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 23,239,000 and 22,924,000 common
shares for the three months ended March 31, 1997 and 1996, respectively. The
impact of the common stock equivalents would have had an antidilutive effect for
these periods and accordingly have not been included in the computation.
Earnings per share for 1996 has been amended to reflect the amended results of
operations for the period ended March 31,1996. Previously reported earnings per
share was $0.01 compared to the revised amount of $(0.12).
10
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
General
- -------
The Company uses existing technology to develop, produce and distribute
two-way multi-player interactive live events and also produces and distributes
its own original interactive programs. The Company's principal sources of
revenue from distribution activities are derived from (a) service distribution
fees in the United States; (b) advertising fees, (c) sales of equipment to
foreign licensees; (d) service distribution fees and royalties from foreign
licensees; and (e) licensing fees from foreign and domestic licensees.
On October 25, 1996, the Company reported that it was advised on
September 9, 1996 by the United States Federal Communications Commission that
its PlaymakerAE keypad had not received FCC approval. The Company immediately
suspended shipment of the Playmakers(R) to new NTN Network Locations pending
approval by the FCC. Upon notification, the Company commenced testing its
equipment and submitted its application to the FCC. There was no interruption of
the Company's services to existing NTN Network customers, nor were any of the
Company's Online/Internet Services ever affected. The Company received approval
on January 15, 1997 and immediately began shipments to new Locations, including
approximately 290 new customers which were previously awaiting installation. The
installation of the Locations was completed in January and February 1997. The
Company will also implement a corrective action program to be approved by the
FCC.
The Playmakers(R) are handheld radio frequency devices that contain
rechargeable batteries. Recently manufactured Playmakers(R) have experienced
problems related to noise sensitivity and recharging performance. The Company
has modified the circuit board to address the problems, and is in the process of
upgrading the approximately 14,000 affected Playmakers(R). The Company believes
the modifications will be completed by August 1997. These problems have
negatively affected the number of new Network Services customers sign up by the
Company and have caused an increase in the number of "disconnects" - customers
terminating service and an increase in accounts receivable from dissatisfied
customers.
New locations signed up by the Company during the suspension of
Playmakers(R) shipments were granted up to one day of credit by the Company
against future billings for each day the sites could not utilize the NTN system.
The Company estimated the temporary suspension of Playmaker(R) shipments and the
credits extended by the Company to backlogged locations will result in reduced
cash flow of approximately $350,000 during the first half of 1997 from all
affected locations.
In addition, the Company has discovered that the "basestation" - a
device used in conjunction with Playmakers(R) - has not been performing
satisfactorily. The Company recently decided to recall all poorly performing
basestations and replace all such equipment with a recently upgraded and
improved model in customer locations, which process will commence in the second
quarter. The Company recorded a charge of $650,000 in the quarter ended March
31, 1997 related to Playmaker(R) and basestation equipment.
On March 5, 1997, the Company announced a reorganization of its executive
management personnel in which Patrick J. Downs resigned as Chief Executive
Officer and Chairman of the Board, and Daniel C. Downs resigned as President. In
addition, three other officers resigned or were terminated in connection with
the reorganization. The Company recorded substantial charges related to the
management reorganization ("Reorganization") and other items more fully
described below.
Material Changes in Results of Operations
- -----------------------------------------
Three month periods ended March 31, 1997 and March 31, 1996
11
<PAGE>
On March 5, 1997, the Company announced a reorganization of its
executive management personnel in which Patrick J. Downs resigned as Chief
Executive Officer and Chairman of the Board, and Daniel C. Downs resigned as
President. Other personnel changes include the resignation of Mr. Ronald Hogan,
as Senior Vice President, and the terminations of Mr. Gerald McLaughlin,
formerly Executive Vice President, and Mr. Michael Downs, formerly President and
CEO of LearnStar, in connection with the reorganization ("Reorganization"). The
Company has entered into separate agreements ("Agreements") with each of the
former officers setting out the terms on which their existing employment
contracts with NTN will be settled. In compliance with the Agreements, NTN will
continue to pay the former executives their current annual salaries and other
benefits for the remaining terms of their employment agreements with NTN, which
expire on or before December 31, 1999. Charges for severance and other costs
associated with the Reorganization recorded in 1996 amounted to $5,092,000.
Charges for severance and other costs associated with the Reorganization
recorded as an expense and liability in the first quarter of 1997 including
accreted interest expense was $5,206,000. Contractual payments for employment
contracts related to the Agreements are $1,711,000 in 1997, $1,350,000 in 1998
and $1,269,000 in 1999. The Company expects that such amounts will be funded
from its on-going operations. The Company has recorded the charges in 1996 and
1997 in accordance with Emerging Issues Task Force Issues No. 94 - 3.
The Company incurred a net loss of $6,347,000 for the three months
ended March 31, 1997 compared to a net loss of $2,797,000 for the three months
ended March 31, 1996. 1996 results have been adjusted to reflect the sale of New
World in 1996 as a discontinued operation. The 1997 results include significant
charges totaling $5,206,000 related to the Reorganization and a $650,000 charge
related to defective equipment.
For the current quarter, total revenues increased 8% from $6,076,000 to
$6,540,000, primarily as a result of increased Online/Internet Services revenues
and to a lesser extent an increase in Network Services revenues which were
offset somewhat by a decline in equipment sales.
Network Services increased 2% from $4,868,000 to $4,969,000. The
increase is primarily due to an expansion in the number of subscriber locations
contracting for services. Online/Internet Services increased 262% from $234,000
to $848,000 due to increasing number of on-line customers and increasing
participation by the ultimate consumers. In addition, the Company has increased
the number of programs
12
<PAGE>
available on various distribution platforms. Advertising revenues increased 3%
from $237,000 to $245,000 due to increased number of commercial spots sold.
Equipment Sales, net of cost of sales decreased 62% from $488,000 to
$187,000. Equipment sales are predominantly due to sales to foreign licensees
which are subject to outside influences and can occur at random times throughout
the year. Equipment sales have been highly volatile in the past and are expected
to remain so, as they are dependent on the timing of expansion plans of the
Company's foreign licensees and its educational customers.
Operating Expenses related to Network Services and Online/Internet
Services rose from $1,356,000 in the prior years quarter to $2,209,000 in the
current years quarter, an increase of 63%. The increase is largely attributable
to a charge of $650,000 for the replacement and repair of defective equipment
and to a slight expansion in the number of subscribers and online services
contracting for services. Selling, General and Administrative Expenses increased
50% from $4,531,000 to $6,792,000. Included in Selling, General and
Administrative Expenses are charges for the Reorganization totaling $3,277,000.
Also included are stock-based compensation charges made pursuant to SFAS 123
which were $1,883,000 in 1997 compared to $597,000 in 1996. Stock-based
compensation charges result from the issuance of warrants or options to non-
employees and will vary from period to period. Charges in 1997 include
$1,450,000 which resulted from extension of the exercise period of warrants
owned by certain former officers pursuant to the Reorganization. Exclusive of
these specific charges, Selling, General and Administrative Expenses decreased
17% over the previous years quarter largely due to personnel cutbacks. Research
and Development Expense decreased 54% from $863,000 to $400,000. Research and
development in 1996 related largely to development of gaming applications at the
Company's IWN subsidiary.
Deprecation Expense increased 476% from $152,000 to $876,000 due to the
buyout of equipment lease commitments late in 1996 resulting in the Company
owning most of its Broadcast equipment.
Interest Income decreased 48% from $120,000 to $62,000 due to lower
balances in interest bearing accounts. Interest Expense increased 340% from
$48,000 to $211,000 largely due to interest charges related to the IWN Put
Option, and accretion of interest for the settlement warrant liability and the
liability for the Reorganization that was discounted when recorded.
Material Changes in Financial Condition
- ---------------------------------------
The following analysis compares information as of the most recent
unaudited balance sheet date of March 31, 1997 to the prior year-end audited
balance sheet dated December 31, 1996.
Total assets decreased 14% from $28,504,000 to $24,567,000 from December
31, 1996 to March 31, 1997. The decrease in assets is primarily due to the
significant charges related to the Reorganization. Cash decreased from
$6,579,000 to $3,466,000 at March 31, 1997 due primarily to $2,515,000 in cash
needed to fund operations. The decrease was attributable, in part, to
approximately $813,000 used for initial payments related to the Reorganization
and $522,000 paid to former officers under an existing deferred compensation
plan.
Accounts Receivable - Trade increased 12% from $2,031,000 to $2,283,000
at March 31, 1997, reflecting the growth of the Company's Network Services and
the marketing program put into place in late 1996 related to the suspension of
shipments for the FCC issue. Prepaid expenses and other current assets increased
from $1,846,000 to $3,894,000 due to reclassification of the retirement plan
assets which will be liquidated during the second quarter as a result of the
Reorganization.
Broadcast Equipment decreased from $10,103,000 to $9,643,000 as the
result of depreciation of assets, a charge to replace and repair certain
equipment of $650,000, net of additions for new Network Services subscribers.
13
<PAGE>
Total liabilities increased 2% from $18,282,000 to $18,595,000 from
December 31, 1996 to March 31, 1997. The decrease in Accounts Payable and
Accrued Liabilities from $6,182,000 to $5,238,000 reflects the use of cash to
pay down liabilities following year end. Short term borrowings increased from
$5,060,000 to $5,215,000 due to additional amounts payable pursuant to the IWN
Put Option. Other long-term liabilities increased 38% from $3,216,000 to
$4,425,000 due to the long-term liabilities related to the Reorganization.
Overall, the Company's working capital deficit increased $320,000 from
December 31, 1996 to March 31, 1997, primarily the result of the use of cash to
fund operations and charges and activity related to the Reorganization.
Management has implemented an organizational and strategic restructuring
aimed at reducing overhead expenses by 20% and focusing on the Company's core
business units. This involved a workforce reduction, including five senior
officers, the buyout of many high-rate lease commitments, and restructuring its
management personnel and responsibilities. Management believes that these
factors will contribute toward achieving profitability and improving cash flow.
The Company has $3,466,000 of cash available at March 31, 1997. In 1996,
the Company completed a plan to repurchase equipment related to certain lease
obligations. This transaction has resulted in improved cash flow due to the
elimination of the lease payments. Further, following the Reorganization, the
Company implemented an organization and strategic restructuring plan aimed at
reducing overhead expenses, which included a workforce reduction and re-focusing
on immediate goals designed to generate immediate results.
The Company has both short-term and long-term needs for cash outside of
its normal operating needs. In recent months, the Company has experienced
technical problems related to its Playmaker/R/ device. Further, the Company has
also experienced a high rate of customers discontinuing service. A task force
has been assembled to review the issue and to make recommendations to improve
Playmaker/R/ performance. Based on preliminary data, the Company believes that
any required changes can be effected within the next year. The costs are
estimated to be less than $1 million and are expected to be funded through
current operational cash flow. The Company anticipates that the number of
customers discontinuing service due to technical problems may decrease once the
Playmaker/R/ performance has been improved, although no assurances can be given
that a solution can be reached without undue delay or cost. If the technical
problems persist for an extended period of time, it may negatively impact the
Company's cash flow from operations.
As noted earlier, the Company completed a reorganization of its
management team that will require the payment to former officers over the next
three years. These payments include contractual amounts under employment
agreements and payment for unused vacation leave. Further, payments in 1997
include amounts due for previously deferred compensation of approximately
$500,000. The Company has specific assets identified that were liquidated to
pay-off the deferred compensation obligation; therefore, no current cash assets
were utilized for that portion of the obligation. All other obligations owing to
former officers are expected to be funded through operations through 1999.
The Company has several lawsuits pending. In 1996, the Company settled
one lawsuit by establishing a settlement fund consisting of $400,000 in cash
and 565,000 warrants to purchase the common stock of the Company. This
settlement minimizes the amount of cash used and provides for possible future
inflow of cash if the warrants are exercised. The Company is currently
attempting to settle other lawsuits and may settle these using a similar format
of minimal cash and equity instruments.
As part of the Reorganization, the Company terminated the pension and
deferred compensation plan that benefited only former officers. The termination
of these plans generated approximately $500,000 in cash, after payment of
related loans against these assets.
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 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 may negotiate for additional
lease and debt financing and additional foreign licensing, however, the extent
to which any of the foregoing may be accomplished, if at all, cannot be
predicted at this time.
The Company has certain lawsuits pending as previously described in
"Legal Proceedings". The Company believes, based in part on the advice of
outside, independent counsel, that there is no basis to claimants allegations,
but to avoid the expense and disruption of protracted litigation has settled
certain cases and may continue to attempt to settle others. The Company provided
a charge against its current earnings for such possible actions, There can be no
assurances that the Company will be successful in settling or defending such
actions or that any or all actions would be decided in favor of the Company or
that the continued cost of defending and prosecuting these actions will not have
a material adverse effect on the Company's financial position or results of
operations.
14
<PAGE>
PART II OTHER INFORMATION
-----------------
Item 1. LEGAL PROCEEDINGS.
A description of certain legal proceedings is contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996 under
the caption "Legal Proceedings".
In May 1997, a shareholder's derivative complaint was filed in the
Superior Court of California, North County Branch. The complaint, which seeks
injunctive relief and an unspecified amount of damages, was brought by a current
shareholder against NTN and certain officers and directors and alleges that the
Company was injured by a lack of independence and breach of business judgment by
virtue of certain agreements entered into in connection with a recent
Reorganization. The Company believes that the lawsuit is without merit and
intends to vigorously defend against the action. The Company has not formally
responded due to the fact that the action was only recently filed.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
Item 6. EXHIBITS AND REPORTS ON REPORT 8-K.
Form 8-K filed March 5,1997 reporting the resignation and
termination of officers.
15
<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 21, 1997 By: /s/GERALD SOKOL, JR.
----------------------
Gerald Sokol, Jr.,
President and Chief Executive Officer
16
