<PAGE> 1
FILED PURSUANT TO RULE 424(B)(5)
REGISTRATION NO. 333-33078
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED APRIL 7, 2000)
LIVE INTERACTIVE ENTERTAINMENT [4-COLOR LOGO]
NTN COMMUNICATIONS, INC.
2,000,000 SHARES OF COMMON STOCK
$3.00 PER SHARE
We are offering 2,000,000 shares of our Common Stock through the
underwriters named below. We estimate that we will receive net proceeds from the
offering of approximately $5,185,000. We plan to use the net proceeds to market
our new game portal called "BUZZTIME.com(TM)," to convert our existing customer
base to our new Digital Interactive Television Network(TM) ("DITV"), and for
working capital and general corporate purposes.
Our Common Stock is listed on the American Stock Exchange under the symbol
"NTN." On April 13, 2000, the last reported sale price of our Common Stock on
the American Stock Exchange was $3.25 per share.
---------------------
Investing in our Common Stock involves a high degree of risk.
See "Risk Factors" on page S-4 of this Prospectus Supplement.
---------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IS TRUTHFUL AND COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
<TABLE>
<CAPTION>
OFFERING INFORMATION
----------------------
PER SHARE TOTAL
--------- ----------
<S> <C> <C>
Public offering price:..................... $ 3.00 $6,000,000
Underwriting discounts and commissions:.... $ 0.24 $ 480,000
Estimated offering expenses:............... $0.1675 $ 335,000
------- ----------
Net proceeds to NTN:....................... $2.5925 $5,185,000
======= ==========
</TABLE>
---------------------
The underwriters are offering our shares of Common Stock on a firm
commitment basis. The underwriters expect to deliver the shares of our Common
Stock in book-entry form only through the facilities of The Depository Trust
Company against payment in New York, New York on April 19, 2000.
<TABLE>
<S> <C>
STARR SECURITIES, INC. GUNNALLEN
FINANCIAL
</TABLE>
This Prospectus Supplement is dated April 14, 2000
<PAGE> 2
FORWARD-LOOKING STATEMENTS
We make statements in this Prospectus Supplement, the accompanying
Prospectus and the documents incorporated by reference that are considered
forward-looking statements under the federal securities laws. Sometimes these
statements will contain words such as "believes," "expects," "intends," "plans"
and other similar words. These statements are not guarantees of our future
performance and are subject to risks, uncertainties and other important factors
that could cause our actual performance or achievements to be materially
different from those we may project. These forward-looking statements represent
our estimates and assumptions only as of the date they were made. These risks,
uncertainties and other important factors include our history of significant
operating losses and our ability to raise additional capital, manage our growth,
protect our intellectual property assets, develop new products and technology
and successfully implement and execute our strategy to develop and promote our
newly-branded game portal called "BUZZTIME.com." See "Risk Factors" in this
Prospectus Supplement, and "Where You Can Find More Information,"
"Forward-Looking Statements" and "Risk Factors" in the accompanying Prospectus
and the documents incorporated by reference therein for other risks,
uncertainties and other important factors to consider.
In addition, as for forward-looking statements that relate to future
financial results and other projections, actual results will be different due to
the inherent nature of projections and may be better or worse than projected.
The forward-looking statements that relate to future financial results are not
financial statements, are not audited and are not prepared in accordance with
generally accepted accounting principles. These future financial results exclude
nonrecurring and unusual items that may have a positive or negative effect on
our projections. We expressly disclaim a duty to provide updates to these
forward-looking statements or the estimates and assumptions associated with
them, after the date they were made to reflect events or circumstances or
changes in expectations or the occurrence of anticipated events.
S-2
<PAGE> 3
OFFERING SUMMARY
The summary below highlights information contained elsewhere in this
Prospectus Supplement and the accompanying Prospectus. This summary is not
complete, and may not contain all of the information that you should consider
before investing in our Common Stock. You should read this Prospectus Supplement
and the accompanying Prospectus in their entirety before deciding whether to
invest in our Common Stock.
Common Stock Offered.................... 2,000,000 shares
Public Offering Price Per Share......... $3.00
Estimated Net Proceeds to NTN........... $5,185,000
Use of Proceeds......................... - Marketing our new game portal
called "BUZZTIME.com"
- Converting our existing customer
base to our new DITV Network
- Working capital and general
corporate purposes
Common Stock to be Issued and
Outstanding After This Offering......... 33,514,000 shares (excluding
12,671,071 shares of Common Stock
underlying options, warrants and
other conversion rights and 42,000
shares of Common Stock underlying
the underwriter's warrants; see
"Description of Capital Stock" and
"Underwriting" in this Prospectus
Supplement.)
Current Dividend........................ None
Risk Factors............................ Investing in shares of our Common
Stock involves a high degree of
risk. See "Risk Factors" at page
S-4 of this Prospectus Supplement.
Dilution................................ Purchasers of Common Stock in this
offering will experience immediate
and substantial dilution. See
"Dilution" at page S-10 of this
Prospectus Supplement.
American Stock Exchange Symbol.......... NTN
S-3
<PAGE> 4
RISK FACTORS
The shares of Common Stock being offered involve a high degree of risk. You
should carefully consider the risk factors set forth beginning at page 2 of the
accompanying Prospectus, the following additional risk factors, and all other
information contained in this Prospectus Supplement and the accompanying
Prospectus before you buy shares of our Common Stock. The trading price of our
Common Stock could decline due to any of these risks, and you could lose all or
part of your investment.
We Incurred a Significant Net Loss During the First Quarter of 2000, and We
Expect to Incur Significant Net Losses in the Future. Based on our preliminary
estimates, we believe that we incurred a net loss during the quarter ended March
31, 2000, of approximately $400,000. The net loss for the first quarter would
have been approximately $2.2 million, except for a one-time reduction of
expenses during the quarter attributable to a reversal of a put right liability.
See "Recent Company Developments" below in this Prospectus Supplement. These
figures compare to a net loss for the first quarter of 1999 of $832,000. We
expect to incur significant and increasing operating and net losses for the
foreseeable future.
Our Limited Liquidity and Capital Resources May Constrain Our Ability to
Operate and Grow Our Business. We estimate that, at March 31, 2000, our current
assets exceeded our current liabilities by approximately $21,000. After
receiving the net proceeds from this offering, we presently intend to raise
additional equity or debt financing in an aggregate amount of $10 million as
early as the start of the third quarter of the current fiscal year to continue
the development and marketing of our new game portal called "BUZZTIME.com" and
for the continued expansion and improvement of our DITV Network. We cannot give
assurances that we will be able to raise capital, if at all, on terms that we
believe to be satisfactory. If we are unable to raise capital when needed, or if
our cash flows are less than we anticipate, or if we incur unanticipated
expenses, our ability to develop and market BUZZTIME.com and improve and expand
the DITV Network will be materially adversely affected. Any additional equity
financing may be done on terms which are dilutive to stockholders.
Lack of Compliance with American Stock Exchange Guidelines. The American
Stock Exchange (AMEX) has published a set of continued listing guidelines that
it follows to determine whether an AMEX-listed company should be allowed to
continue the trading or listing of its securities on the exchange. Under these
guidelines, the AMEX will consider suspending or "delisting" a company's
securities from the exchange:
- if it has stockholders' equity of less than $2,000,000 and has incurred
operating or net losses in two of its three most recent fiscal years;
- if it has stockholders' equity of less than $4,000,000 and has incurred
operating or net losses in three its four most recent fiscal years; or
- if it has sustained operating or net losses in its five most recent
fiscal years.
As we reported in our 1999 Annual Report on Form 10-K, we incurred a net
loss of $2,498,000 for the year ended December 31, 1999, representing our fifth
consecutive year of losses. Additionally, we reported stockholders' equity of
$2,221,000 as of December 31, 1999. As such, NTN is technically not in
compliance with the continued listing guidelines of the AMEX.
We have received correspondence from the AMEX indicating that, despite the
fact that NTN does not currently meet the guidelines, the AMEX will continue the
listing of NTN's Common Stock pending a review by the AMEX of NTN's 1999 Annual
Report on Form 10-K and certain other financial information that we have
supplied to the AMEX. The determination by the AMEX is subject to our making
favorable progress towards complying with the guidelines and to periodic review
by the AMEX of our filings with the SEC. We cannot assure investors that our
Common Stock will remain listed on the AMEX or any other exchange or quotation
system in the future. If our Common Stock is delisted from the AMEX, holders of
our Common Stock may experience decreased liquidity, and our stock price could
be adversely affected.
S-4
<PAGE> 5
RECENT COMPANY DEVELOPMENTS
Preliminary Operating Results for Quarter Ended March 31, 2000. Based on
our preliminary estimates, we believe that our revenues for the first quarter
ended March 31, 2000, were approximately $5.9 million, and that we incurred a
net loss during the quarter of approximately $400,000. The net loss is
determined after taking into account a reversal of a put right liability of
approximately $1,793,000 as of December 31, 1999, which reduced expenses in the
first quarter. See "Recent Development" at page 9 of the Prospectus accompanying
this Prospectus Supplement. Without the reduction in expenses attributable to
the reversal of the put right liability, our net loss for the first quarter of
2000 would have been approximately $2.2 million.
Recent Developments Pertaining to DITV Network. In 1999, we introduced a
new Digital Interactive Television Network ("DITV Network") with a Windows-based
platform and 900 MHz Playmakers to replace our original NTN Network, which is
DOS-based with 49 MHz Playmakers. The DITV Network contains many new features,
such as full-motion video capabilities and high-resolution graphics, to allow
more compelling content and better advertising opportunities. In addition, the
new, more consumer friendly Playmakers have increased transmission range and
have a longer battery life. They feature a much larger, eight line LCD screen
that displays sports scores and other ticker information. They also enable
electronic, text-based chat between patrons.
NTN has experienced higher operating costs with the DITV Network. The
increased costs associated with transmitting the larger data files associated
with full-motion advertisements and new programming content have been partially
offset by lower costs for technical service and equipment repairs. NTN is
testing alternative data transmission methods and file compression technologies
to reduce these costs, but we cannot give assurances that we will be able to do
so.
As of December 31, 1999, approximately 1,500 DITV systems were installed,
representing 52% of the total network. During the first quarter of 2000, NTN
installed an additional 382 DITV systems, 223 of which were conversions and 159
of which were installed in new sites. NTN plans to continue to convert the
remaining DOS-based systems to DITV by fall of 2000. We estimate that NTN will
convert 75% of the 1,000 systems remaining on the original NTN Network to the
DITV Network and that service will be terminated as to the remainder of the
systems in accordance with existing contract terms with our customers. We expect
that NTN will require approximately $2.5 million in capital expenditures and
will incur approximately $350,000 in one time costs to convert the additional
750 systems.
Agreement with the National Football League. We have had a 15-year
relationship with the National Football League as a licensee for the hospitality
version of our "QB1" predict-the-play interactive game. On April 3, 2000, we
extended the hospitality platform provisions of our existing License Agreement
with National Football League Properties, Inc. through April 15, 2000, while we
continue our negotiations with the NFL for a new agreement. We are also seeking
to renew an online license with the NFL that brought QB1 to the Internet at
websites QB1.com and NFL.com last season. We are continuing our negotiations
with the NFL, although we cannot give assurances that we will ultimately be able
to reach agreement with the NFL on these matters.
Settlement of Class-Action Lawsuit. On April 3, 2000, the U.S. District
Court for the Southern District entered a final judgment and order of dismissal
in the class-action lawsuit entitled Eliot Miller and Jay Iyer, stockholders on
behalf of themselves and all others similarly situated vs. NTN Communications,
Inc., Patrick J. Downs, Daniel C. Downs, Donald C. Klosterman, Ronald E. Hogan,
Gerald P. McLaughlin and KPMG LLP. The settlement becomes final upon the
expiration of the time for filing a notice of appeal, which is thirty days after
entry of judgment, or May 3, 2000.
Warrant Exercise. On March 27, 2000, each of the two holders of the common
stock purchase warrants issued pursuant to the Exchange Agreement, dated October
5, 1998, by and between NTN and the holders of the Series B Preferred Stock,
provided notice of the election of each holder to exercise the warrants to
purchase 500,000 shares of Common Stock. Each holder elected to utilize the
cashless exercise option as provided by the warrants. The purchase price of the
warrants in effect at the time of exercise was $0.005 per share based upon the
provisions of the warrants. On March 29, 2000, we issued 499,548 shares of
Common
S-5
<PAGE> 6
Stock to each holder. See "Description of Capital Stock -- Series B Preferred
Stock" in this Prospectus Supplement.
Conversion of Senior Convertible Subordinated Notes. On March 16, 2000, the
holders of the 7% Senior Convertible Subordinated Notes due February 2001
provided notice of each holder's election to convert $100,000 of principal
amount of the Notes plus accrued interest into shares of Common Stock. On March
16, 2000, in accordance with the provisions of the Notes, we issued 79,575
shares of Common Stock to each of the two holders.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our Common Stock is listed on the American Stock Exchange under the symbol
"NTN." Set forth below are the high and low sales prices for our Common Stock as
reported by the American Stock Exchange for the two most recently completed
fiscal years, and for the period from January 1 through April 13, 2000:
<TABLE>
<CAPTION>
COMMON STOCK
-----------------
LOW HIGH
------- -------
<S> <C> <C>
2000
First Quarter............................................... $2.3130 $7.7500
Second Quarter (through April 13, 2000)..................... $2.5000 $4.7500
1999
First Quarter............................................... $0.5625 $2.0000
Second Quarter.............................................. $0.6250 $1.0000
Third Quarter............................................... $1.0625 $1.3750
Fourth Quarter.............................................. $1.1875 $4.7500
1998
First Quarter............................................... $0.3125 $1.0625
Second Quarter.............................................. $0.6875 $2.6250
Third Quarter............................................... $0.6250 $1.2500
Fourth Quarter.............................................. $0.3125 $0.8125
</TABLE>
To date, we have not declared or paid any cash dividends with respect to
our Common Stock, and the current policy of our Board of Directors is to retain
earnings, if any, after payment of dividends on our outstanding preferred stock
to provide for NTN's growth. Consequently, we do not expect to pay any cash
dividends on the Common Stock in the foreseeable future. Pursuant to the terms
of our line of credit, we may not pay or declare dividends without the prior
written consent of our lender.
As of April 10, 2000, there were approximately 1,821 holders of our Common
Stock.
S-6
<PAGE> 7
SELECTED HISTORICAL FINANCIAL INFORMATION
We are providing the following financial information to aid you in
analyzing the financial aspects of this offering. The information was derived
from our audited financial statements for the years ended December 31, 1995
through 1999. This information is only a summary and you should read it in
conjunction with NTN's historical financial statements and related notes,
together with management's discussion and analysis thereof, contained in our
annual reports and other information we have filed with the SEC. See "Where You
Can Find More Information" in the accompanying Prospectus.
STATEMENT OF OPERATIONS DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------
1999 1998 1997 1996 1995
------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Total revenue.............................. $23,748 $24,194 $ 25,861 $ 25,711 $20,082
Total operating expenses................... 27,549 27,641 38,668 51,566 25,508
------- ------- -------- -------- -------
Operating income (loss).................... (3,801) (3,447) (12,807) (25,855) (5,426)
Other income, net.......................... 1,303 1,654 350 1 1,409
------- ------- -------- -------- -------
Net loss from continuing operations........ (2,498) (1,793) (12,457) (25,854) (4,017)
Net income (loss) from discontinued
operations............................... -- -- -- (1,317) 69
Gain on sale of discontinued operations.... -- -- -- 4,219 --
Income taxes............................... -- -- -- -- --
------- ------- -------- -------- -------
Net loss................................... $(2,498) $(1,793) $(12,457) $(22,952) $(3,948)
======= ======= ======== ======== =======
Accretion of beneficial conversion feature
of preferred stock....................... -- (758) -- -- --
------- ------- -------- -------- -------
Net loss available to common
stockholders............................. $(2,498) $(2,551) $(12,457) $(22,952) $(3,948)
======= ======= ======== ======== =======
Basic and diluted net loss per common
share:
Continuing operations.................... $ (.09) $ (.10) $ (0.55) $ (1.15) $ (0.19)
Discontinued operations.................. -- -- -- 0.13 --
------- ------- -------- -------- -------
Net loss......................... $ (.09) $ (.10) $ (0.55) $ (1.02) $ (0.19)
======= ======= ======== ======== =======
Weighted-average shares outstanding........ 28,470 26,078 22,696 22,568 20,301
======= ======= ======== ======== =======
</TABLE>
BALANCE SHEET DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Total current assets......................... $ 6,387 $ 8,131 $ 8,390 $10,655 $26,009
Total assets................................. 17,287 16,767 20,271 28,504 41,221
Total current liabilities.................... 5,466 5,731 8,373 12,775 6,541
Total liabilities............................ 15,066 8,442 11,545 18,282 7,770
Stockholders' equity......................... 2,221 8,325 8,726 10,222 33,451
</TABLE>
S-7
<PAGE> 8
USE OF PROCEEDS
We estimate that our net proceeds from the offering (after deducting
underwriting discounts and estimated offering expenses) will be approximately
$5.185 million. We intend to use the net proceeds from the offering for the
following purposes:
- Marketing of our new game portal called "BUZZTIME.com";
- Conversion of our existing customer base to our new DITV Network; and
- Working capital and general corporate purposes.
Our management will retain discretion in the allocation of the net proceeds
of this offering among such purposes. The amounts we spend will depend on a
number of factors, including the amount of our future revenues and cash flows.
Pending these uses, the net proceeds from the offering will be invested in
short-term, interest-bearing, investment grade securities.
We presently intend to raise additional equity or debt financing in an
aggregate amount of $10 million as early as the start of the third quarter of
the current fiscal year to continue the development and marketing of
"BUZZTIME.com" and for the continued expansion and improvement of our DITV
Network. We cannot assure investors that we will be able to raise capital, if at
all, on terms that we believe to be satisfactory. If we are unable to raise
capital when needed, or if our cash flows are less than we anticipate, or if we
incur unanticipated expenses, our ability to develop and market BUZZTIME.com and
improve and expand the DITV Network will be materially adversely affected. Any
additional equity financing may be done on terms that are dilutive to
stockholders.
S-8
<PAGE> 9
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
- On an actual basis; and
- On an adjusted basis to reflect:
- our receipt of the estimated net proceeds of $5.185 million from the
sale of the shares of Common Stock in this offering;
- the issuance of 999,096 shares of Common Stock on March 29, 2000,
following the cashless exercise of outstanding warrants to purchase
Common Stock, which warrants had been issued under the Exchange
Agreement dated October 5, 1998 (see "Recent Company Developments" and
"Description of Capital Stock - Series B Preferred Stock" in this
Prospectus Supplement);
- the issuance of 165,124 shares of Common Stock for an aggregate of
$148,469 pursuant to the exercise of various Common Stock purchase
warrants from January 1, 2000 through March 31, 2000;
- the issuance of 250,761 shares of Common Stock for an aggregate of
$343,279 pursuant to the exercise of stock options from January 1, 2000
through March 31, 2000;
- the issuance of 25,880 shares of Common Stock in payment of interest on
the outstanding 7% Senior Convertible Subordinated Notes on March 31,
2000; and
- the issuance of 159,150 shares of Common Stock on March 16, 2000 upon
conversion of $200,000 in aggregate principal amount of outstanding 7%
Senior Convertible Subordinated Notes (see "Recent Company Developments"
in this Prospectus Supplement).
You should read this capitalization table together with the section of this
Prospectus Supplement entitled "Selected Historical Financial Information" and
the consolidated financial statements and related notes, together with
management's discussion and analysis thereof, contained in our annual reports
and other information that we have filed with the SEC. See "Where You Can Find
More Information" in the accompanying Prospectus.
<TABLE>
<CAPTION>
ACTUAL AS ADJUSTED
------------ ------------
<S> <C> <C>
LONG-TERM DEBT:
Obligations under capital leases....................... $ 475,000 $ 475,000
Revolving line of credit............................... 2,486,000 2,486,000
7% Senior Convertible Subordinated Notes............... 4,705,000 4,705,000
STOCKHOLDERS' EQUITY:
Series A 10% cumulative convertible preferred stock,
$.005 par value, 5,000,000 shares authorized;
161,000 shares issued and outstanding............... 1,000 1,000
Common Stock, $.005 par value, 50,000,000 shares
authorized actual and as adjusted; 29,914,000 shares
issued and outstanding actual; 33,514,000 shares
issued and outstanding as adjusted.................. 149,000 167,000
Additional paid-in capital............................. 66,548,000 72,496,000
Accumulated deficit.................................... (63,645,000) (63,645,000)
Accumulated other comprehensive loss................... (360,000) (360,000)
Treasury stock, at cost, 111,000 shares................ (472,000) (472,000)
------------ ------------
Total stockholders' equity............................. 2,221,000 8,187,000
------------ ------------
Total capitalization........................... $ 9,887,000 $ 15,853,000
============ ============
</TABLE>
S-9
<PAGE> 10
The number of shares of Common Stock to be outstanding after this offering
is based on the number of shares outstanding as of December 31, 1999. It does
not include:
- 8,916,327 shares of Common Stock issuable upon the exercise of options
and warrants outstanding as of December 31, 1999 at a weighted average
exercise price of $1.70 per share. 4,263,420 of these options and
warrants were exercisable at December 31, 1999.
- 3,694,053 shares of Common Stock issuable upon conversion of the 7%
Senior Convertible Subordinated Notes outstanding as of December 31, 1999
at a conversion price of $1.275.
- 60,691 shares of Common Stock issuable upon the conversion of the
outstanding Series A Preferred Stock.
- 42,000 shares of Common Stock issuable upon the exercise of the
underwriter's warrants.
DILUTION
Purchasers of the Common Stock in this offering will experience immediate
and substantial dilution in the net tangible book value of the Common Stock. Net
tangible book value per share represents the amount of our total tangible assets
reduced by the amount of our total liabilities, divided by the number of shares
of Common Stock outstanding. As of December 31, 1999, our net tangible book
value was $16.6 million, or $0.55 per share. As of December 31, 1999, our net
tangible book value, as adjusted for the sale of the 2,000,000 shares offered by
us in this offering and application of the estimated net proceeds to us of
$5.185 million, would have been approximately $0.68 per share. This represents
an immediate increase in net tangible book value of $0.13 per share to existing
stockholders and an immediate and substantial dilution of $2.32 per share to new
investors purchasing Common Stock in this offering. The following table
illustrates this per share dilution as of December 31, 1999:
<TABLE>
<CAPTION>
<S> <C> <C>
Public offering price....................................... $3.00
Net tangible book value..................................... $0.55
Increase attributable to new investors...................... 0.13
-----
Net tangible book value after the offering.................. 0.68
-----
Dilution to new investors................................... $2.32
</TABLE>
The following table summarizes as of December 31, 1999 the differences
between existing stockholders and the new investors with respect to the number
of shares purchased from us, the total consideration paid and the average price
per share paid before deducting the underwriting discounts, commissions and our
estimated offering expenses.
<TABLE>
<CAPTION>
AVERAGE PRICE
SHARES PURCHASED TOTAL CONSIDERATION PER SHARE
-------------------- --------------------- -------------
NUMBER PERCENT AMOUNT PERCENT
---------- ------- ----------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................. 29,914,000 93.7% $54,746,738 90.1% $1.83
New investors.......................... 2,000,000 6.3% 6,000,000 9.9% $3.00
---------- ----- ----------- -----
Total.................................. 31,914,000 100.0% $60,746,738 100.0%
========== ===== =========== =====
</TABLE>
The above discussion and tables assume no exercise of any stock options,
warrants or other convertible securities outstanding as of December 31, 1999. As
of December 31, 1999, there were options, warrants and other convertible
securities outstanding to purchase a total of 14,246,106 shares of Common Stock
at a weighted average exercise price of $1.54 per share, of which 9,562,043 were
exercisable as of December 31, 1999. If these options, warrants and other
convertible securities are exercised in the future, it will be further dilutive
to investors who purchase shares in this offering.
S-10
<PAGE> 11
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 70,000,000 shares of Common Stock,
par value $.005 per share, and 10,000,000 shares of preferred stock, par value
$.005 per share.
The following description of our capital stock is a summary of material
terms. It is not complete and is subject in all respects to applicable Delaware
law and to the provisions of our Amended and Restated Certificate of
Incorporation and Bylaws, copies of which have been incorporated by reference as
exhibits to the Registration Statement of which this Prospectus Supplement is a
part.
COMMON STOCK
As of April 10, 2000, approximately 31,530,862 shares of Common Stock were
outstanding and held of record by approximately 1,821 holders.
Subject to the rights of the holder of any preferred stock which may be
outstanding, each holder of Common Stock on the applicable record date is
entitled to receive such dividends as may be declared by our Board of Directors
out of funds legally available therefor and, in the event of our liquidation,
dissolution or winding up, to share pro rata in any distribution of our assets
after the payment or providing for the payment of liabilities and the
liquidation preference of any outstanding preferred stock. Each holder of Common
Stock is entitled to one vote for each share held of record on the applicable
record date on all matters presented to a vote of stockholders. There are no
preemptive, subscription, conversion or redemption rights pertaining to shares
of our Common Stock.
On April 10, 2000, there were 8,874,602 shares of Common Stock underlying
options, warrants and other conversion rights exercisable within 60 days of that
date.
We have not declared or paid any cash dividends on our Common Stock since
we became a public company in 1984, and we do not anticipate paying dividends in
the foreseeable future. In addition, our outstanding revolving line of credit
prohibits us from paying cash dividends without obtaining prior approval from
the lender. All of the outstanding shares of Common Stock are fully paid and
nonassessable, and the shares of Common Stock issued in this offering will be
fully paid and nonassessable when issued.
PREFERRED STOCK
We are authorized to issue 10,000,000 shares of preferred stock, $.005 par
value per share. Our Board of Directors has the authority to issue preferred
stock in one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, conversion rights, voting
rights, terms of redemption, redemption prices, liquidation preferences and the
number of shares constituting any series, or the designation of such series,
without any vote or action by the stockholders. The issuance of preferred stock
may have the effect of delaying, deferring or preventing a change in control of
our company and may adversely affect the voting and other rights of the holders
of Common Stock. At present, we have 161,000 shares of preferred stock
outstanding.
SERIES A PREFERRED STOCK
As of April 10, 2000, there were 161,000 shares of Series A Preferred Stock
outstanding. The holders of the Series A Preferred Stock are entitled to an
annual dividend of 10% of the original issue price of $1.00 per share, payable
semi-annually on December 1 and June 1 of each year in cash or, at our option,
by means of the issuance of shares of Common Stock, which are to be valued for
this purpose at the fair market value of the Common Stock. We are current in the
payment of all dividends on the Series A Preferred Stock. Upon our liquidation,
dissolution or winding up, each holder of the Series A Preferred Stock will be
entitled to receive $1.00 per share before any payment shall be made with
respect to the outstanding shares of Common Stock. Each share of the Series A
Preferred Stock currently is convertible into approximately 0.2908 shares of
Common Stock at any time at the option of the holders of the Series A Preferred
Stock. The rate of conversion is subject to certain anti-dilution provisions.
The holders of the Series A Preferred Stock do not have any voting, preemptive,
subscription or redemption rights.
S-11
<PAGE> 12
SERIES B PREFERRED STOCK
We previously designated a series of 85,000 shares of Series B Preferred
Stock. In October 1997, we sold and issued an aggregate of 70,000 shares of
Series B Preferred Stock at a purchase price of $100 per share, of which 56,000
shares remained outstanding as of October 5, 1998. As of October 5, 1998, the
holders of the outstanding Series B Preferred Stock entered into an exchange
agreement with us under which they agreed to exchange their remaining $5,600,000
of Series B Preferred Stock (and accrued dividends) for 7% Senior Convertible
Subordinated Notes due February 1, 2001, with a fixed conversion price of $1.275
per common share. On January 11, 1999, the exchange was completed and notes were
issued in an aggregate principal amount of approximately $5,913,000. On November
20, 1999, $1,000,000 of principal plus accrued interest was converted into
approximately 793,000 shares of Common Stock.
As additional consideration for the debt-for-stock exchange, we issued to
the preferred stockholders warrants expiring February 1, 2001 to purchase an
aggregate of 1,000,000 shares of Common Stock. The warrants were recently
exercised in full at an exercise price of $0.005 per share. See "Recent Company
Developments" in this Prospectus Supplement.
As a result of the exchange, there are no longer any shares of Series B
Preferred Stock outstanding. We will record interest expense, at an effective
interest rate of 11% per annum, throughout the terms of the notes, which began
in the first quarter of 1999. The convertible notes and warrants were issued to
the two institutional holders of the outstanding Series B Preferred Stock in
reliance on the exemption from registration under Section 4(2) of the Securities
Act of 1933, as amended, for transactions not involving a public offering.
POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS
Certain provisions of our Amended and Restated Certificate of Incorporation
may have anti-takeover effects and may delay, defer or prevent a tender offer or
takeover attempt that a stockholder might consider to be in such stockholder's
best interest, including those attempts that might result in a premium over the
market price for the shares held by stockholders. The following is a brief
summary of these anti-takeover provisions:
- A supermajority vote of at least 80% of the total voting power, voting
together as a single class, is required to amend certain provisions of
the Amended and Restated Certificate of Incorporation, including those
provisions relating to the number, election and term of directors, the
removal of directors and the filling of vacancies, and the provisions
imposing supermajority voting requirements. Our Bylaws may be amended
only by our Board of Directors or by a supermajority vote of at least 80%
of the total voting power, voting together as a single class. These
voting requirements may have the effect of making more difficult an
amendment by stockholders of our Amended and Restated Certificate of
Incorporation or Bylaws, even if a majority of our stockholders believes
that such amendment would be in their best interests.
- Our Board of Directors is divided into three classes, each class to be
nearly equal in number as possible and to serve staggered three-year
terms. Approximately one-third of our directors are subject to
re-election at each annual meeting of stockholders. This classification
of directors, together with other provisions that limit the ability of
stockholders to increase the size of our Board of Directors without a
supermajority vote or to remove directors, may have the effect of making
it more difficult for stockholders to change the composition of our Board
of Directors. As a result, at least two annual meetings of stockholders
may be required for stockholders to change a majority of the directors,
whether or not a change in our Board of Directors would be beneficial to
us and our stockholders and whether or not a majority of our stockholders
believes that such a change would be desirable.
- Our Amended and Restated Certificate of Incorporation requires that
stockholder action be taken at an annual meeting or special meeting of
stockholders called pursuant to a resolution adopted by a majority of our
Board of Directors and prohibits stockholder action by written consent.
S-12
<PAGE> 13
CERTAIN PROVISIONS OF DELAWARE LAW
We are a Delaware corporation and are subject to Section 203 of the
Delaware General Corporation Law. In general, Section 203 prevents an
"interested stockholder" (defined generally as a person owning 15% or more of a
corporation's outstanding voting stock) from engaging in a "business
combination" (as defined therein) with a Delaware corporation for three years
following the date such person became an interested stockholder, unless:
- before such person became an interested stockholder, the Board of
Directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder or approved the
business combination;
- upon consummation of the transaction that resulted in the interested
stockholder becoming an interested stockholder, the interested
stockholder owns at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding shares owned
by persons who are both officers and directors of the corporation and
shares held by certain employee stock ownership plans); or
- following the transaction in which such person became an interested
stockholder, the business combination is approved by the Board of
Directors of the corporation and authorized at a meeting of stockholders
by the affirmative vote of the holders of at least two-thirds of the
outstanding voting stock of the corporation not owned by the interested
stockholder.
TRANSFER AGENT
The Transfer Agent for our Common Stock is American Stock Transfer & Trust
Company, New York, New York.
UNDERWRITING
The underwriters have severally agreed, subject to the terms and conditions
contained in the underwriting agreement relating to this offering, to purchase
from NTN the number of shares of our Common Stock set forth opposite their names
below:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
---- ----------------
<S> <C>
Starr Securities, Inc. ..................................... 1,475,000
GunnAllen Financial, Inc. .................................. 525,000
---------
Total............................................. 2,000,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters are subject to approval of certain legal matters by counsel and to
various other conditions. The nature of the underwriters' obligations is such
that they are committed to purchase and pay for all of the shares of our Common
Stock if any are purchased.
The underwriters have advised us that they propose to offer the shares of
our Common Stock to the public at the public offering price set forth on the
cover page of this Prospectus Supplement. The underwriters may allow certain
dealers who are members of the NASD concessions, not in excess of $.10 per
share, of which not in excess of $.02 per share may be reallowed to other
dealers who are members of the NASD.
We have agreed to pay to the underwriters a non-accountable expense
allowance equal to 1 7/8% of the gross proceeds derived from the sale of the
shares of our Common Stock offered by this Prospectus Supplement and the
accompanying Prospectus. We have also agreed to pay all expenses in connection
with qualifying the shares offered under the laws of such states as the
underwriters may designate, including expenses of counsel retained for such
purpose by the underwriters. We estimate the expenses of this offering to be
$335,000.
S-13
<PAGE> 14
At the closing of this offering, we will sell to GunnAllen Financial, Inc.
and its designees, for an aggregate of $42.00, underwriter's warrants to
purchase up to 42,000 shares of our Common Stock. The underwriter's warrants are
exercisable at any time, in whole or in part, between April 14, 2001 and April
14, 2005, at an exercise price of $3.75 per share (125% of the public offering
price per share). The underwriter's warrants may not be sold, transferred,
assigned, pledged or hypothecated during the one-year period following the date
of this Prospectus Supplement except to the officers and partners of GunnAllen
Financial, Inc. and members of the selling group. During the exercise period,
the holders of the underwriter's warrants will have the opportunity to profit
from a rise in the market price of our Common Stock, which will dilute the
interests of our stockholders. We expect that the underwriter's warrants will be
exercised when we would, in all likelihood, be able to obtain any capital needed
on terms more favorable than those provided by the underwriter's warrants. Any
profit realized by the underwriters on the sale of the underwriter's warrants or
the underlying shares of our Common Stock may be deemed additional underwriting
compensation. The underwriter's warrants contain a cashless exercise provision.
We have agreed that, upon the request of the holders of the majority of the
underwriter's warrants, we will (at our own expense), on one occasion during the
exercise period, register the underwriter's warrants and the shares of our
Common Stock underlying the underwriter's warrants under the Securities Act. We
have also agreed to include all such underlying shares of our Common Stock in
any appropriate registration statement which is filed by us under the Securities
Act during the seven years following the date of this Prospectus Supplement.
We have agreed to indemnify the underwriters against certain civil
liabilities, including liabilities under the Securities Act. We have been
advised that, in the opinion of the SEC, indemnification for liabilities arising
under the Securities Act is against public policy as expressed in the Securities
Act and is, therefore, unenforceable.
In connection with the offering, the underwriters and selling group members
and their respective affiliates may engage in transactions that stabilize,
maintain or otherwise affect the market price of our Common Stock. Such
transactions may include stabilization effected in accordance with Regulation M
of the Securities Exchange Act of 1934, as amended, pursuant to which such
persons may bid for or purchase our Common Stock for the purpose of pegging,
fixing or maintaining the price of our Common Stock at a level that is higher
than the market would dictate in the absence of such transactions.
The underwriters may also create a short position for the account of the
underwriters by selling more shares of our Common Stock in connection with the
offering than they are committed to purchase from us, and in such case may
purchase our Common Stock in the open market following the completion of the
offering to cover all or a portion of their short position.
In addition, the underwriters may also impose a "penalty bid" under
contractual arrangements whereby the underwriters may reclaim from a dealer
participating in the offering the selling concession with respect to shares of
our Common Stock that are distributed in the offering but subsequently purchased
for the account of the underwriters in the open market.
In general, any of the transactions described above may result in the
maintenance of the price of our Common Stock at a level above that which might
otherwise prevail in the absence of such transactions. We and the underwriters
make no representation or prediction as to the direction or magnitude of any
effect that such transactions may have on the price of our Common Stock. In
addition, we and the underwriters make no representation that the underwriters
will engage in such transactions or that such transactions, once commenced, will
not be discontinued without notice.
LEGAL MATTERS
The legality of the shares of Common Stock to be issued in connection with
this offering is being passed upon for the Company by the law firm of O'Melveny
& Myers LLP. Certain other legal matters relating to this offering are being
passed upon for the underwriters by Blank Rome Tenzer Greenblatt LLP.
S-14
<PAGE> 15
PROSPECTUS
$20,000,000
<TABLE>
<S> <C>
LIVE INTERACTIVE ENTERTAINMENT [4-COLOR LOGO]
</TABLE>
NTN COMMUNICATIONS, INC.
COMMON STOCK
---------------------
This Prospectus is part of a Registration Statement that we filed with the
SEC utilizing a "shelf" registration process. Under this shelf process, we may
offer from time to time shares of our Common Stock, $.005 par value per share,
as described in this Prospectus. The shares of our Common Stock will have a
maximum aggregate offering price of $20,000,000. We will offer the shares of our
Common Stock on terms to be determined at the time of the offering. The specific
number of shares and issuance price per share will be set forth in an
accompanying Prospectus Supplement.
Our Common Stock is listed on the American Stock Exchange under the symbol
"NTN."
We may sell shares of our Common Stock at fixed prices directly, through
agents from time to time or through underwriters or dealers. If any agent or any
underwriter is involved in the sale of the shares of Common Stock, their name
and any applicable commission or discount will be set forth in the accompanying
Prospectus Supplement. See "Plan of Distribution." Our net proceeds from such
sale will also be set forth in the applicable Prospectus Supplement.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS THAT ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 4 OF THIS PROSPECTUS. YOU SHOULD READ
THIS PROSPECTUS AND ANY PROSPECTUS SUPPLEMENT, TOGETHER WITH THE ADDITIONAL
INFORMATION DESCRIBED UNDER THE HEADING "WHERE YOU CAN FIND MORE INFORMATION,"
CAREFULLY BEFORE YOU INVEST.
---------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL AND COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
This Prospectus may not be used to consummate sales of our Common Stock
unless accompanied by a Prospectus Supplement.
---------------------
The date of this Prospectus is April 7, 2000
<PAGE> 16
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
financial and business information with the SEC. Our SEC filings are available
on the SEC's web site at http://www.sec.gov. You also may read and copy any
document we file at the SEC's public reference rooms in Washington, D.C., New
York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for
further information about their public reference rooms, including copy charges.
You also can obtain information about us from the American Stock Exchange at 86
Trinity Place, New York, New York 10006-1881.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring to those documents. The information incorporated by reference is an
important part of this Prospectus, and information that we file later with the
SEC will automatically update and supersede information in this Prospectus and
in our other filings with the SEC. We incorporate by reference the following
reports and information which we have already filed with the SEC:
- our Annual Report on Form 10-K for the year ended December 31, 1999, as
amended by our Form 10-K/A filed with the SEC on April 5, 2000;
- our Proxy Statement for our Special Meeting of Stockholders held on
January 7, 2000; and
- the description of our Common Stock which is contained in our
Registration Statement on Form 8-A (File No. 0-19383).
We also incorporate by reference any future filings we make with the SEC
under Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934
until we sell all of the shares of Common Stock covered by this Prospectus.
You may request a copy of these filings at no cost, by writing or calling
us at the following address:
NTN Communications, Inc.
The Campus -- 5966 La Place Court
Carlsbad, California 92008
Telephone: (760) 438-7400
Attention: Ms. Berger
You should rely only on the information contained in, or incorporated by
reference into, this Prospectus or any applicable Prospectus Supplement. We have
not authorized anyone to provide you with additional or different information.
You should not assume that the information in this Prospectus, any Prospectus
Supplement, or any document incorporated by reference is accurate as of any date
other than the date of those documents.
You may also obtain from the SEC a copy of the Registration Statement and
exhibits that we filed with the SEC when we registered the shares of Common
Stock. The Registration Statement may contain additional information that may be
important to you.
FORWARD-LOOKING STATEMENTS
We make statements in this Prospectus and the documents incorporated by
reference that are considered forward-looking statements under the federal
securities laws. Such forward-looking statements are based on the beliefs of our
management as well as assumptions made by and information currently available to
them. The words "anticipate," "believe," "may," "estimate," "expect," and
similar expressions, and variations of such terms or the negative of such terms,
are intended to identify such forward-looking statements.
All forward-looking statements are subject to certain risks, uncertainties
and assumptions. Should one or more of these risks or uncertainties materialize,
or should underlying assumptions prove incorrect, our actual results,
performance or achievements could differ materially from those expressed in, or
implied by, any such forward-looking statements. Important factors that could
cause or contribute to such difference include those
2
<PAGE> 17
discussed under "Risk Factors" in this Prospectus and in our Annual Report on
Form 10-K. You should not place undue reliance on such forward-looking
statements, which speak only as of their dates. We do not undertake any
obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise. You should carefully
consider the information set forth under "Risk Factors" in this Prospectus.
ABOUT NTN COMMUNICATIONS
We are a developer and distributor of interactive game content, and we own
and operate the largest "out-of-home" interactive consumer marketing television
network in the United States. We operate our businesses through two operating
divisions, BUZZTIME.com, Inc.(TM) and the NTN Network(R).
BUZZTIME.com, our wholly-owned subsidiary formed in December 1999, owns the
exclusive rights to two separate sets of game content. First, BUZZTIME.com owns
the largest known digital trivia game show library, encompassing content from
widely diverse areas of knowledge. Second, BUZZTIME.com owns the rights to eight
unique "TV Play-along" sports games, played in conjunction with live televised
sports programming. This is accomplished through our interactive broadcast
studio that enables us to turn televised sports or other televised events into a
live interactive game.
We anticipate that BUZZTIME.com will function both as a game web site, with
the expected launch of "BUZZTIME.com" in Spring 2000, and as a developer and
distributor of game content. As a developer, BUZZTIME.com will continue to
augment our expansive interactive game libraries. As a distributor, BUZZTIME.com
intends to broadcast live play-along game shows to a broad array of interactive
networks and platforms, including the Internet and online services, interactive
television and hand-held devices.
The NTN Network is North America's largest "out-of-home" interactive
television network. The unique private network, distributed by Internet-enhanced
technology, broadcasts a variety of multi-player sports and trivia games 365
days a year to hospitality venues such as restaurants, sports bars, hotels,
clubs and military bases totaling approximately 3,300 locations in North America
("Locations") as of March 1, 2000. A unique feature of NTN Network's interactive
programming is that all players compete in real-time within each Location and
are ranked at the end of each game against players in all Locations throughout
North America. This enables each Location to create on-premises promotions to
increase patron loyalty as well as allowing NTN to capture national sponsors who
want to use the competitions as a promotional tool.
Our current strategy is to develop and take the BUZZTIME.com brand beyond
the Internet and online services to multiple consumer interactive platforms and
to gain player registrations and loyalty, regardless of the consumer's point of
access. The NTN Network will be a key element in promoting the new brand. In the
future, we expect to generate revenues through a combination of advertising,
game sponsorships, pay-to-play and subscription models across all platforms.
There can be no assurance, however, that we will be successful in executing this
strategy.
RISK FACTORS
The shares of Common Stock being offered involve a high degree of risk. You
should carefully consider the following risk factors and all other information
contained in this Prospectus and the Prospectus Supplement before you buy shares
of our Common Stock. The trading price of our Common Stock could decline due to
any of these risks, and you could lose all or part of your investment.
RISKS ASSOCIATED WITH NTN COMMUNICATIONS AND THIS OFFERING
Our Limited Liquidity and Capital Resources May Constrain Our Ability To
Operate Our Business. At December 31, 1999, our current assets exceeded our
current liabilities by $921,000. As of the date of this Prospectus, we believe
that our cash on hand, anticipated cash flows from our operations and borrowings
under our line of credit will be sufficient to meet our immediate operating
needs.
3
<PAGE> 18
We will require additional financing to implement our plan of
- converting our entire existing customer base to the Digital Interactive
Television Network ("DITV");
- expanding the DITV Network; and
- executing our strategy to promote our newly-branded game portal called
"BUZZTIME.com."
We intend to raise funds through public or private financings or other
arrangements. We cannot assure you that we will be able to raise capital on
terms to our satisfaction. If we are unable to raise capital when needed, or if
our cash flows are less than we anticipate, or if we incur unanticipated
expenses, our business, financial condition and results of operations will be
materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" in our Annual Report on Form 10-K for the fiscal year ended December
31, 1999 for additional information about our liquidity and capital resources.
Any additional equity financing may be dilutive to stockholders.
We Have Experienced Significant Losses and Our Future Profitability Remains
Uncertain. We had a net loss of $2,498,000 for the year ended December 31, 1999.
We cannot assure you that we will achieve or sustain profitability, and we may
have significant or increasing operating and net losses in the future.
Our Prospects for Growth Are Uncertain. Our new DITV Network, launched in
April 1999, is now being deployed to subscriber locations. We currently plan to
continue operating our original NTN network and the DITV Network concurrently
until approximately June 2000. Our immediate prospects for growth depend, in
part, on the successful introduction and implementation of the new DITV Network.
We cannot assure that the DITV Network will be favorably received by our current
subscribers or that it will enable us to attract a significant number of new
subscribers. We also cannot assure that we can implement and operate the DITV
Network profitably.
In December 1999, we established a subsidiary, BUZZTIME.com, Inc., a
Delaware corporation. We expect BUZZTIME.com to function both as a developer and
a distributor of game content. As a developer, BUZZTIME.com will continue to
augment our expansive interactive game library. As a distributor, BUZZTIME.com
intends to broadcast live play-along game shows to a broad array of interactive
networks and platforms, including the Internet and online services, interactive
television and hand-held devices. In Spring of 2000, we expect to launch
BUZZTIME.com as a new game web site. Our strategy is to develop and take the
BUZZTIME.com brand beyond the Internet and online services to multiple consumer
interactive platforms. Our prospects are subject to risks and uncertainties,
including those described in this Prospectus, and we cannot assure that we will
be successful in executing our strategy.
We Are Involved in Pending Litigation Proceedings. On June 11, 1997, we
were named as a defendant in a class action lawsuit filed in the United States
District Court for the Southern District of California. The complaint alleged
violations of state and federal securities laws based upon purported omissions
from our periodic filings with the Securities and Exchange Commission. More
particularly, the complaint alleged that the defendant directors and former
officers devised an "exit strategy" to provide themselves with undue
compensation upon their resignation from NTN Communications. The plaintiffs
further alleged that the defendants made false statements about, and failed to
disclose, contingent liabilities and phantom assets in our consolidated
financial statements and our independent auditor's audit reports. According to
the plaintiffs, these alleged misrepresentations and omissions inflated the
trading price of our Common Stock.
In November 1999, we reached a tentative settlement agreement with the
plaintiffs in the federal lawsuit whereby we will pay $3,250,000, subject to
final approval by the U.S. District Court. A settlement hearing is scheduled to
take place in April 2000 for the purpose of seeking court approval of the
proposed settlement and plan of allocation of the settlement funds. Upon
approval of the proposed settlement, the court is expected to enter final
judgment and dismiss the litigation. However, there can be no assurance that the
U.S. District Court will approve the settlement agreement.
4
<PAGE> 19
We Face Significant Competition. The entertainment business is highly
competitive. We compete with other companies for total entertainment dollars in
the marketplace. Our network programming competes generally with broadcast
television, direct satellite programming, pay-per-view, other content offered on
cable television, and other forms of entertainment. Furthermore, certain of our
competitors have greater financial and other resources available to them. With
the entrance of motion picture, cable and television companies, competition in
the interactive entertainment and multimedia industries will likely intensify in
the future. In January 1999, The Walt Disney Company introduced interactive
programming broadcast in conjunction with live sporting and other events which
may compete directly with our programming.
We also compete with other content and services available to consumers
through online services. Moreover, the expanded use of online networks and the
Internet provide computer users with an increasing number of alternatives to
video games and entertainment software. We seek to compete by providing high
quality products, thereby establishing a favorable reputation among frequent
users. There can be no assurance, however, that we can compete effectively. The
entertainment industry is continuing to undergo significant changes, primarily
due to technological developments. Due to this rapid growth of technology,
shifting consumer tastes and the popularity and availability of other forms of
entertainment, it is impossible to predict the overall effect these factors will
have on the potential revenue from and profitability of our products.
New Products and Rapid Technological Change May Affect Our Operations. The
emergence of new entertainment products and technologies, changes in consumer
preferences and other factors may limit the life cycle of our technologies and
any future products and services we develop. Accordingly, our future performance
will depend on our ability to
- identify emerging technological trends in our market;
- identify changing consumer needs, desires or tastes;
- develop and maintain competitive technology, including new product and
service offerings;
- improve the performance, features and reliability of our products and
services, particularly in response to technological changes and
competitive offerings; and
- bring technology to the market quickly at cost-effective prices.
There can be no assurance that we will be successful in developing and marketing
new products and services that respond to technological and competitive
developments and changing customer needs, or that such products and services
will gain market acceptance. Any significant delay or failure in developing new
or enhanced technology, including new product and service offerings, would have
a material adverse effect on our business, financial condition and operating
results.
Our Inability To Protect Our Intellectual Property Could Seriously Damage
Our Business. We rely on a combination of trademarks, copyrights and trade
secret laws to protect our proprietary rights in certain of our products.
Furthermore, it is our policy that all employees and consultants involved in
research and development activities sign nondisclosure agreements. Our
competitors may, however, misappropriate our technology or independently develop
technologies that are as good as or better than ours. Our competitors may also
challenge or circumvent our proprietary rights. If we have to initiate or defend
against an infringement claim in the future to protect our proprietary rights,
the litigation over such claims could be time-consuming and costly to us,
adversely affecting our financial condition.
If We Cannot Establish Brand Awareness, Our Business May Be Adversely
Affected. Enhancing the BUZZTIME.com brand is critical to our ability to expand
our user base and revenues. We believe that the importance of brand recognition
will increase as the number of entertainment web sites grows and have,
therefore, launched our "BUZZTIME Everywhere" campaign. In order to attract and
retain users and advertisers, we intend to increase expenditures for creating
and maintaining brand loyalty. There is no assurance that we will be successful
in building or maintaining this brand. Our success in promoting and enhancing
the BUZZTIME.com brand will also depend on our success in providing high quality
content, features and functions that are attractive and entertaining to users of
online game shows and multi-player
5
<PAGE> 20
games. If advertisers or visitors to our web sites do not perceive our services
to be of high quality, the value of the BUZZTIME.com brand could be diminished,
and this could adversely affect our business, financial condition and results of
operations.
We Have Experienced Recent Equipment Problems. The 49 megahertz
Playmaker(R), a hand-held, radio frequency device used to enter choices and
selections by players of QB-1(R) and our other games and programming broadcast
via our original NTN Network is still being used in approximately 40% of our
hospitality locations as of March 16, 2000. Our customers have experienced
certain recurring problems with 49 megahertz Playmakers related to noise
sensitivity and performance of the Playmaker's rechargeable batteries. We
believe these equipment problems have contributed to high rate of terminations
and bad debt experience. To address these problems, we introduced a 900
megahertz Playmaker in April 1999. The 900 megahertz Playmaker is manufactured
by the manufacturer of the 49 megahertz Playmaker. To date, there have been no
significant equipment problems with the 900 megahertz Playmaker. However, there
is no assurance that such problems or other problems will not occur in the
future.
We Depend on a Single Supplier of Playmakers. We currently purchase the
redesigned 900 megahertz Playmaker from a single, unaffiliated Taiwanese
manufacturer. Unless and until we succeed in establishing additional
manufacturing relationships, we will continue to depend on our current sole
source supplier of Playmakers. If we lose our supplier, our business will be
adversely affected.
Our Games and Game Shows Are Subject To Gaming Regulations. We operate
online games of skill and chance that are regulated in many jurisdictions and,
in some instances, we reward prizes to the participants. The selection of prize
winners is sometimes based on chance, although none of our games requires any
form of monetary payment. The laws and regulations that govern our games,
however, are subject to differing interpretations in each jurisdiction and are
subject to legislative and regulatory change in any of the jurisdictions in
which we offer our games. If such changes were to happen, we may find it
necessary to eliminate, modify or cancel certain components of our products that
could result in additional development costs and/or the possible loss of
revenue.
If We Fail To Manage Our Growth Effectively, We May Lose Business and
Experience Reduced Profitability. Continued implementation of our business plan
requires an effective planning and management process. Our growth has placed,
and our anticipated future growth will continue to place, a significant strain
on our management systems and resources. If we are to grow successfully, we
must:
- improve our operational, administrative and financial systems;
- expand, train and manage our workforce; and
- attract and retain qualified management and technical personnel.
We plan to continue adding to our technical and Internet sales and
marketing force and our advertising sales department. However, competition for
qualified personnel is intense, particularly for employees with technical and
Internet sales and marketing expertise. The success of our business depends on
hiring and retaining suitable personnel.
If Our Key Personnel Leave Us, Our Business May Be Adversely Affected. Our
success greatly depends on the efforts of our executive management, including
the Chief Executive Officer, Chief Financial Officer and President of
BUZZTIME.com. Our ability to operate successfully will depend significantly on
the services and contributions of each of these officers. Although we entered
into an employment agreement with our Chief Executive Officer on October 7,
1998, we cannot assure you that he will continue his employment for any
specified period of time. Our business and operations may be adversely affected
if one or more key executives were to leave.
Our Stock Price Has Been Highly Volatile. The trading price of our Common
Stock has been and may continue to be subject to wide fluctuations. The stock
price may fluctuate in response to a number of events and factors, such as
quarterly variations in operating results, announcements of technological
innovations or new products and media properties by us or our competitors,
changes in financial estimates and recommenda-
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<PAGE> 21
tions by securities analysts, the operating and stock price performance of other
companies that investors may deem comparable, and news reports relating to
trends in our markets. In addition, the stock market in general, and the market
prices for Internet-related companies in particular, have experienced extreme
volatility that often has been unrelated to the operating performance of such
companies. These broad market and industry fluctuations may adversely affect the
price of our stock, regardless of our operating performance.
Our Charter Contains Provisions That May Hinder or Prevent a Change in
Control of Our Company. Certain provisions of our Certificate of Incorporation
could make it more difficult for a third party to acquire control of our
company, even if such a change in control would benefit our stockholders. For
example, our Certificate of Incorporation requires a supermajority vote of at
least 80% of the total voting power, voting together as a single class, to amend
certain provisions of the Certificate of Incorporation and the Bylaws, including
those provisions relating to:
- the number, election and term of directors;
- the removal of directors and the filling of vacancies; and
- the supermajority voting requirements of our Certificate of
Incorporation.
These provisions could discourage third parties from taking over control of our
company. Such provisions may also impede a transaction in which you could
receive a premium over then-current market prices and your ability to approve a
transaction that you consider in your best interests.
In addition, our Certificate of Incorporation and Bylaws divide our Board
of Directors into three classes, each class to be nearly equal in number as
possible and to serve staggered three-year terms. Approximately one-third of our
directors are subject to re-election at each annual meeting of stockholders.
This classification of directors, together with other provisions in our
Certificate of Incorporation that limit the ability of stockholders to increase
the size of our Board of Directors without a supermajority vote or to remove
directors, may make it more difficult for stockholders to change the composition
of our Board of Directors, whether or not a change in our Board of Directors
would be beneficial to our company and our stockholders and whether or not a
majority of our stockholders believes such a change would be desirable.
Our Certificate of Incorporation also eliminates the ability of the
stockholders to call a special meeting of stockholders or to act by written
consent.
We Do Not Expect to Pay Dividends During the Foreseeable Future. We have
never declared or paid any cash dividends on our Common Stock and anticipate
that for the foreseeable future any earnings will be retained for use in our
business. Our outstanding revolving line of credit prohibits us from paying cash
dividends without obtaining prior approval from the lender.
If the Shares of Our Common Stock Eligible for Future Sales Are Sold, the
Market Price of Our Common Stock May Be Adversely Affected. Sales of substantial
amounts of our Common Stock in the public market after this offering or the
anticipation of such sales could have a material adverse effect on
then-prevailing market prices. As of March 1, 2000, there were approximately
7,011,104 shares of Common Stock reserved for issuance upon the exercise of
outstanding stock options at exercise prices ranging from $0.5625 to $6.37 per
share. As of March 1, 2000, there were also outstanding warrants to purchase an
aggregate of approximately 3,008,238 shares of Common Stock at exercise prices
ranging from $0.6875 to $6.125 per share.
RISKS ASSOCIATED WITH THE INTERNET
One of our principal business objectives is to increase our direct contact
with consumers. To that end, we maintain a web site on the Internet (the "NTN
Web Site") and are currently constructing a web site for BUZZTIME on the
Internet (the "BUZZTIME Web Site", together with NTN Web Site, our "Web Sites").
We will face the risks described below in operating the Web Sites on the
Internet.
We Face Significant Internet Competition. The Internet market is new,
rapidly evolving and intensely competitive. We expect this competition to
intensify in the future due in part to the minimal barriers to entry and the
relatively low cost to launch a new web site. We will compete with a variety of
other entertainment
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<PAGE> 22
and multimedia companies on the Internet. Some of these competitors can devote
substantial resources to Internet commerce in the near future. Our Web Sites
will also compete with traditional providers of entertainment and multimedia
content and services.
We believe that the principal competitive factors we will face in providing
entertainment and multimedia content and services through our Web Sites are
brand recognition, selection, availability, price, effectiveness of advertising,
customer service, technical expertise, convenience, accessibility, quality of
search tools and quality of editorial and other site content. Many of our
current and potential competitors have large customer bases, greater brand
recognition and significantly greater financial, marketing and other resources
than we have. In addition, some competitors may be able to obtain services from
vendors on more favorable terms, devote greater resources to marketing and
promotional campaigns, adopt more aggressive pricing policies and devote more
resources to web site and systems development than we can. We cannot assure you
that our Web Sites will be able to compete successfully against current or
future competitors.
We Face Rapid Technological Change. The technology used in the Internet
commerce industry changes rapidly. This rapid change results in the availability
of many new products and services, new industry standards, and frequent changes
in user and customer requirements and preferences. The success of our Web Sites
will depend, in part, on our ability to do the following:
- license leading technologies useful in the Internet services business;
- enhance our Web Sites' existing services;
- develop new services and technologies that address the increasingly
sophisticated and varied needs of our customers; and
- respond to technological advances and emerging industry standards and
practices on a cost-effective and timely basis.
We cannot assure you that we will successfully use new technologies effectively
or adapt our Web Sites to customer requirements or emerging industry standards.
We Depend on Continued Growth of the Internet. Our future success depends
on the increased use of the Internet. We cannot assure you that the market for
Internet services will continue to grow or become sustainable. The Internet may
not continue as a viable commercial marketplace because of many factors,
including:
- inadequate development of the necessary infrastructure;
- lack of development of complementary products such as high speed modems
and high speed communication lines; and
- delays in the development or adoption of new standards and protocols
required to handle increased levels of Internet activity.
If the Internet and other online services continue to experience
significant growth in the number of users, the frequency of use or bandwidth
requirements, the infrastructure for the Internet could be affected by capacity
constraints. In addition, the Internet could lose its viability due to delays in
the development or adoption of new standards and protocols required to handle
increased levels of service activity. Changes in or insufficient availability of
telecommunications services to support the Internet also could result in slower
response times and could adversely affect usage of the Internet. Our business,
prospects, financial condition and results of operations could be materially
adversely affected if use of the Internet does not continue to grow or grows
more slowly than expected, if the infrastructure for the Internet does not
effectively support growth that may occur, or if the Internet does not become a
viable commercial marketplace.
We Will Only Be Able To Execute Our Business Plan If We Are Successful In
Achieving Our Advertising Revenue Goals. Consumer usage of the Internet is
relatively new, and the success of the Internet as an advertising medium will
depend on its widespread adoption. Our business would be materially adversely
8
<PAGE> 23
affected if the Internet advertising market develops more slowly than we expect,
or if we are unsuccessful in achieving our advertising revenue goals. We expect
that revenues from Internet advertising will make up a significant amount of our
revenues in the future. The adoption of Internet advertising, particularly by
those entities that have historically relied on traditional media for
advertising, requires the acceptance of a new way of conducting business,
exchanging information and advertising products and services. Advertisers that
have traditionally relied on other advertising media may be reluctant to
advertise on the Internet. These businesses may find Internet advertising to be
less effective than traditional advertising media for promoting their products
and services. Many potential advertising and electronic commerce partners have
little or no experience using the Internet for advertising purposes.
Consequently, they may allocate only limited portions of their advertising
budgets to the Internet.
We May Be Liable for the Content We Make Available on the Internet. We make
content available on our Web Sites and on the web sites of our advertisers and
distribution partners. The availability of this content could result in claims
against us based on a variety of theories, including defamation, obscenity,
negligence, or copyright or trademark infringement. We could also be exposed to
liability for third-party content accessed through the links from our Web Sites
to other web sites. We may incur costs to defend ourselves against even baseless
claims, and our financial condition could be materially adversely affected if we
are found liable for information that we make available. Implementing measures
to reduce our exposure to this liability may require us to spend substantial
resources and may limit the attractiveness of our services to users.
We May Lose Visitors To Our Web Sites If Our Online Security Measures
Fail. Secure transmission of confidential information over public networks is a
significant barrier to Internet commerce. Advances in computer capabilities, new
discoveries in the field of cryptography or other developments could compromise
the security measures we employ to protect customer transaction data. In
addition, concerns over the security of transactions conducted on the Internet
and the privacy of users in general may inhibit the growth of Internet commerce.
To the extent that our activities or the activities of third-party contractors
involve the storage and transmission of proprietary information, security
breaches could damage our reputation and expose us to a risk of loss or
litigation and possible liability. We may be required to expend significant
capital and other resources to protect against such security breaches or to
alleviate security-related problems, and we cannot assure you that our security
measures will prevent security breaches. Any compromise of our security systems
could have a material adverse effect on our reputation, business, prospects,
financial condition and results of operations.
Our Business May Suffer If We Have Difficulty Retaining Users on Our Web
Sites. Our business and financial results depend on our ability to retain users
on our Web Sites. In any particular month, many of the visitors to our Web Sites
are not registered users, and many of our registered users do not visit our Web
Sites. We believe that intense competition has caused, and will continue to
cause, some of our registered users to seek online entertainment on other web
sites and spend less time on our Web Sites. It is relatively easy for Internet
users to go to competing sites, and we cannot be certain that any steps we take
will maintain or improve our retention of users. In addition, some new users may
decide to visit our Web Sites out of curiosity regarding the Internet and may
later discontinue using Internet entertainment services. If we are unable to
retain our user base, our business and financial results may suffer.
Laws Restricting the Internet Could Adversely Affect Our Business. Federal,
state and foreign governmental organizations are currently considering many
legislative and regulatory proposals. If a government authority were to adopt
laws or regulations that cover Internet-related issues such as user privacy,
pricing and characteristics and quality of products and services provided, the
growth of the Internet could be adversely affected. This could lead to a
decrease in demand for services offered over the Internet, including those that
our Web Sites offer, and could increase the cost of doing business on the
Internet. In addition, we do not know how existing laws governing issues such as
property ownership, copyright, trade secret, libel and personal privacy will be
applied to the rapidly changing Internet. We could be materially adversely
affected by any new legislation or regulation or by the application or
interpretation of existing laws to the Internet.
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<PAGE> 24
RECENT DEVELOPMENT
EXPIRATION OF PUT RIGHT
In February 1998, pursuant to the settlement of a class action lawsuit
pending against us since 1993, we issued 565,000 warrants to purchase our Common
Stock (the "Settlement Warrants"). Each Settlement Warrant has a term of three
years beginning February 18, 1998 and entitles the holder thereof to purchase a
share of our Common Stock at a price of $0.96. During the period from February
18, 2000 to February 18, 2001, the holders of the Settlement Warrants were to
have the right, but not the obligation, to put the Settlement Warrants to us for
repurchase at a price of $3.25 per Settlement Warrant (the "Put Right").
However, the Put Right expired by its terms on February 17, 2000 when the
closing price per share of our Common Stock on the American Stock Exchange
reached $4.22 or above for the seventh trading day. We have no further
obligation to repurchase the Settlement Warrants. The right of holders to
exercise the Settlement Warrants to purchase shares of our Common Stock at $0.96
per share continues through February 18, 2001. As a result of the expiration of
the Put Right, an accrual for the Settlement Warrants in the approximate amount
of $1,793,000 as of December 31, 1999, will be reversed in the first quarter of
2000, thereby reducing expenses.
USE OF PROCEEDS
Unless otherwise specified in the Prospectus Supplement which accompanies
this Prospectus, the net proceeds from the sale of the shares of our Common
Stock offered from time to time hereby will be used for working capital and
general corporate purposes, which may include sales and marketing activities,
capital expenditures and the purchase of additional equipment. Pending these
uses, the net proceeds of an offering of our shares of Common Stock will be
invested in short term, interest-bearing, investment grade securities.
PLAN OF DISTRIBUTION
We may sell shares of Common Stock at fixed prices through underwriters,
dealers or agents, or directly to one or more purchasers. For each sale of
Common Stock, the Prospectus Supplement will describe:
- the public offering price;
- the names of any underwriters, dealers or agents;
- the purchase price of the Common Stock;
- our proceeds from the sale of the Common Stock;
- any underwriting discounts, agency fees, or other compensation payable to
underwriters or agents; and
- any discounts or concessions allowed or reallowed or paid to dealers.
If we use underwriters in the sale, they will buy shares of Common Stock
for their own account. The underwriters may then resell the shares of Common
Stock in one or more transactions at a fixed public offering price or at varying
prices determined at the time of sale or thereafter. The obligations of the
underwriters to purchase shares of Common Stock will be subject to certain
conditions. The underwriters will be obligated to purchase all of the shares of
Common Stock offered if they purchase any shares of Common Stock. Any public
offering price and any discounts or concessions allowed or re-allowed or paid to
dealers may be changed from time to time.
If we use dealers in the sale, we will sell shares of Common Stock to such
dealers as principals. The dealers may then resell the shares of Common Stock to
the public at varying prices to be determined by such dealers at the time of
resale. If we use agents in the sale, they will use their reasonable best
efforts to solicit purchases for the period of their appointment. If we sell
directly, no underwriters or agents would be involved. We are not making an
offer of Common Stock in any state that does not permit such an offer.
10
<PAGE> 25
Underwriters, dealers and agents that participate in the distribution of
the Common Stock may be deemed to be underwriters as defined in the Securities
Act of 1933. Any discounts, commissions or profit they receive when they resell
shares of Common Stock may be treated as underwriting discounts and commissions
under that Act. We may have agreements with underwriters, dealers and agents to
indemnify them against certain civil liabilities, including certain liabilities
under the Securities Act of 1933, or to contribute with respect to payments that
they may be required to make.
We may authorize underwriters, dealers or agents to solicit offers from
certain institutions whereby the institution contractually agrees to purchase
shares of Common Stock from us on a future date at a specified price. This type
of contract may be made only with institutions that we specifically approve.
Such institutions could include banks, insurance companies, pension funds,
investment companies and educational and charitable institutions. The
underwriters, dealers or agents will not be responsible for the validity or
performance of these contracts.
Underwriters, dealers and agents may engage in transactions with us or
perform services for us in the ordinary course of business.
LEGAL MATTERS
The validity of the shares of Common Stock being offered will be passed
upon for NTN Communications by O'Melveny & Myers LLP. Underwriters, dealers or
agents, who we will identify in a Prospectus Supplement, may have their counsel
opine about certain legal matters relating to the offering and sale of the
shares of Common Stock.
EXPERTS
The consolidated financial statements of NTN Communications, Inc., as of
December 31, 1999 and 1998, and for each of the years in the three-year period
ended December 31, 1999, have been incorporated herein by reference and in the
Registration Statement in reliance upon the report of KPMG LLP, independent
certified public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
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YOU SHOULD RELY ON THE INFORMATION INCORPORATED BY REFERENCE OR PROVIDED IN
THE ACCOMPANYING PROSPECTUS AND THIS PROSPECTUS SUPPLEMENT. NTN COMMUNICATIONS
HAS NOT AUTHORIZED ANYONE ELSE TO PROVIDE YOU WITH DIFFERENT INFORMATION.
NEITHER NTN COMMUNICATIONS, NOR ANY OTHER PERSON ON BEHALF OF NTN
COMMUNICATIONS, IS MAKING AN OFFER TO SELL OR SOLICITING AN OFFER TO BUY ANY OF
THE SECURITIES DESCRIBED IN THE ACCOMPANYING PROSPECTUS OR IN THIS PROSPECTUS
SUPPLEMENT IN ANY STATE WHERE THE OFFER IS NOT PERMITTED BY LAW. YOU SHOULD NOT
ASSUME THAT THE INFORMATION IN THE ACCOMPANYING PROSPECTUS OR THIS PROSPECTUS
SUPPLEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THE
DOCUMENTS. THERE MAY HAVE BEEN CHANGES IN THE AFFAIRS OF NTN COMMUNICATIONS
SINCE THE DATE OF THE ACCOMPANYING PROSPECTUS OR THIS PROSPECTUS SUPPLEMENT.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Forward-Looking Statements................ S-2
Offering Summary.......................... S-3
Risk Factors.............................. S-4
Recent Company Developments............... S-5
Price Range of Common Stock and Dividend
Policy.................................. S-6
Selected Historical Financial
Information............................. S-7
Use of Proceeds........................... S-8
Capitalization............................ S-9
Dilution.................................. S-10
Description of Capital Stock.............. S-11
Underwriting.............................. S-13
Legal Matters............................. S-14
PROSPECTUS
Where You Can Find More Information....... 2
Forward-Looking Statements................ 2
About NTN Communications.................. 3
Risk Factors.............................. 3
Recent Development........................ 10
Use of Proceeds........................... 10
Plan of Distribution...................... 10
Legal Matters............................. 11
Experts................................... 11
</TABLE>
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2,000,000 SHARES
LIVE INTERACTIVE ENTERTAINMENT [4-COLOR LOGO]
NTN COMMUNICATIONS, INC.
COMMON STOCK
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PROSPECTUS SUPPLEMENT
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STARR SECURITIES, INC.
GUNNALLEN
FINANCIAL
April 14, 2000
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