<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
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 [ ]
At August 7, 2000 the registrant had 34,286,000 shares of common stock,
$.005 par value, outstanding.
<PAGE> 2
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
2
<PAGE> 3
NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30,
2000 December 31,
Assets (Unaudited) 1999
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,347,000 $ 1,044,000
Restricted cash 259,000 239,000
Accounts receivable, net 1,392,000 2,541,000
Investment available for sale 587,000 937,000
Deposits on broadcast equipment 479,000 611,000
Prepaid expenses and other current assets 701,000 1,015,000
------------ ------------
Total current assets 5,765,000 6,387,000
Broadcast equipment and fixed assets, net 13,190,000 10,470,000
Other assets 264,000 430,000
------------ ------------
Total assets $ 19,219,000 $ 17,287,000
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 716,000 $ 1,421,000
Accrued expenses 1,677,000 1,498,000
Accrual for litigation costs 212,000 334,000
Accrual for management severance 342,000 598,000
Obligations under capital leases 780,000 740,000
Deferred revenue 660,000 796,000
Note payable and other current liabilities 96,000 79,000
------------ ------------
Total current liabilities 4,483,000 5,466,000
Obligations under capital leases, excluding current portion 259,000 475,000
Accrual for settlement warrants -- 1,793,000
Revolving line of credit 3,693,000 2,486,000
7% senior convertible notes 4,604,000 4,705,000
Other long-term liabilities 91,000 141,000
------------ ------------
Total liabilities 13,130,000 15,066,000
------------ ------------
Shareholders' equity:
Series A 10% cumulative convertible preferred stock, $.005 par value,
5,000,000 shares authorized; 161,000 shares issued
and outstanding at June 30, 2000 and December 31, 1999 1,000 1,000
Common stock, $.005 par value, 70,000,000 and 50,000,000 shares
authorized at June 30, 2000 and December 31, 1999, respectively;
33,653,000 and 29,914,000 shares issued and outstanding
at June 30, 2000 and December 31, 1999, respectively 168,000 149,000
Additional paid-in capital 72,947,000 66,548,000
Accumulated deficit (66,308,000) (63,645,000)
Accumulated other comprehensive gain (loss) (247,000) (360,000)
Treasury stock, at cost, 111,000 shares at June 30, 2000
and December 31, 1999 (472,000) (472,000)
------------ ------------
Total shareholders' equity 6,089,000 2,221,000
------------ ------------
Total liabilities and shareholders' equity $ 19,219,000 $ 17,287,000
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements
3
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NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------ ------------------------------
June 30 June 30 June 30 June 30
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Hospitality revenues $ 5,408,000 $ 5,360,000 $ 11,173,000 $ 10,587,000
Internet revenues 102,000 118,000 184,000 228,000
America Online fees -- 170,000 -- 350,000
Other revenues 4,000 163,000 20,000 333,000
------------ ------------ ------------ ------------
Total revenues 5,514,000 5,811,000 11,377,000 11,498,000
------------ ------------ ------------ ------------
Operating expenses:
Direct operating costs 1,541,000 1,143,000 3,057,000 2,288,000
Selling, general and administrative 4,276,000 3,319,000 7,123,000 6,692,000
Depreciation and amortization 1,877,000 1,443,000 3,807,000 3,140,000
Research and development 76,000 160,000 223,000 295,000
------------ ------------ ------------ ------------
Total operating expenses 7,770,000 6,065,000 14,210,000 12,415,000
------------ ------------ ------------ ------------
Operating loss (2,256,000) (254,000) (2,833,000) (917,000)
------------ ------------ ------------ ------------
Other income (expense):
Interest income (expense), net (228,000) (205,000) 9,000 (364,000)
Other 15,000 (15,000) 161,000 (25,000)
------------ ------------ ------------ ------------
Total other income (expense) (213,000) (220,000) 170,000 (389,000)
------------ ------------ ------------ ------------
Income (loss) before income taxes (2,469,000) (474,000) (2,663,000) (1,306,000)
Provision for income taxes -- -- -- --
------------ ------------ ------------ ------------
Net income (loss) $ (2,469,000) $ (474,000) $ (2,663,000) $ (1,306,000)
============ ============ ============ ============
Net income (loss) per common share - basic and diluted $ (0.07) $ (0.02) $ (0.08) $ (0.05)
============ ============ ============ ============
Weighted average shares outstanding - basic and diluted 33,061,000 28,249,000 31,788,000 28,063,000
============ ============ ============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements
4
<PAGE> 5
NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------------- ----------------------------
June 30 June 30 June 30 June 30
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash flows provided by (used in) operating activities:
Net Income (loss) $ (2,469,000) $ (474,000) $ (2,663,000) $ (1,306,000)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization 1,877,000 1,443,000 3,807,000 3,140,000
Provision for doubtful accounts 173,000 192,000 548,000 385,000
Non-cash compensation charges 119,000 17,000 312,000 56,000
Expiration of settlement warrant obligation -- -- (1,793,000) --
Accreted interest expense 48,000 100,000 108,000 192,000
Amortization of deferred revenue -- (34,000) -- (85,000)
(Gain) loss on sale of investment available for sale 12,000 (6,000) (65,000) (6,000)
Changes in assets and liabilities:
Accounts receivable 223,000 (126,000) 601,000 (618,000)
Prepaid expenses and other assets 331,000 (1,013,000) 132,000 (926,000)
Accounts payable and accrued expenses (830,000) (92,000) (462,000) (784,000)
Deferred revenue (127,000) 18,000 (136,000) 239,000
Management severance and other long-term liabilities (131,000) (200,000) (262,000) (535,000)
------------ ------------ ------------ ------------
Net cash provided by (used in) operating activities (774,000) (175,000) 127,000 (248,000)
------------ ------------ ------------ ------------
Cash flows provided by (used in) investing activities:
Capital expenditures (2,650,000) (1,154,000) (6,040,000) (2,001,000)
Deposits on broadcast equipment 332,000 549,000 132,000 549,000
Restricted cash (157,000) -- (20,000)
Notes receivable -- 19,000 138,000 38,000
Capital software expenditures -- (3,000) -- (31,000)
Proceeds from sale of equipment -- 45,000 -- 45,000
Proceeds from sale of investment available for sale 134,000 -- 528,000 --
------------ ------------ ------------ ------------
Net cash provided by (used in) investing activities (2,341,000) (544,000) (5,262,000) (1,400,000)
------------ ------------ ------------ ------------
Cash flows provided by (used in) financing activities:
Principal payments on capital leases (235,000) (414,000) (453,000) (537,000)
Borrowings from revolving line of credit 5,794,000 -- 14,402,000 --
Principal payments on revolving line of credit (5,801,000) -- (13,195,000) --
Proceeds from issuance of stock, net of offering expenses 5,163,000 -- 5,163,000 --
Principal payments on notes payable -- -- (50,000) --
Exercise of stock options and warrants 79,000 -- 571,000 150,000
------------ ------------ ------------ ------------
Net cash provided by (used in) financing activities 4,999,000 (414,000) 6,438,000 (387,000)
------------ ------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 1,884,000 (1,133,000) 1,303,000 (2,035,000)
------------ ------------ ------------ ------------
Cash and cash equivalents at beginning of period 463,000 3,658,000 1,044,000 4,560,000
------------ ------------ ------------ ------------
Cash and cash equivalents at end of period $ 2,347,000 $ 2,525,000 $ 2,347,000 $ 2,525,000
============ ============ ============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements
5
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NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------------- ---------------------------
June 30 June 30 June 30 June 30
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 108,000 $ 32,000 $ 260,000 $ 58,000
============ ============ ============ ============
Income taxes $ -- $ -- $ -- $ --
============ ============ ============ ============
Supplemental disclosure of non-cash investing and
financing activities:
Issuance of common stock in payment of interest $ 82,000 $ 90,000 $ 168,000 $ 90,000
============ ============ ============ ============
Equipment acquired under capital leases $ 39,000 $ 712,000 $ 277,000 $ 1,044,000
============ ============ ============ ============
Unrealized holding gain (loss) on investments $ (284,000) $ -- $ 113,000 $ --
============ ============ ============ ============
Exchange of convertible notes to common stock $ -- $ -- $ 202,000 $ --
============ ============ ============ ============
Issuance of treasury stock pursuant to anti-dilution provisions $ -- $ 930,000 $ -- $ 930,000
============ ============ ============ ============
Equipment and license acquired by issuing note payable $ -- $ 360,000 $ -- $ 360,000
============ ============ ============ ============
Exchange of preferred stock for convertible notes and warrants $ -- $ -- $ -- $ 5,449,000
============ ============ ============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements
6
<PAGE> 7
NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 2000
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying consolidated financial
statements include all adjustments that are necessary for a fair presentation of
the financial position of NTN Communications, Inc. and subsidiaries
(collectively, the "Company") and the results of operations and cash flows of
the Company for the interim periods presented. Management has elected to omit
substantially all notes to the Company's consolidated financial statements as
permitted by the rules and regulations of the Securities and Exchange
Commission. The results of operations for the interim periods are not
necessarily indicative of results to be expected for any other interim period or
for the year ending December 31, 2000.
The consolidated financial statements for the three months and six months
ended June 30, 2000 and 1999 are unaudited and should be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's Form 10-K for the year ended December 31, 1999.
Certain items in the prior period consolidated financial statements have
been reclassified to conform to the current period presentation.
2. INCOME (LOSS) PER SHARE
Options, warrants, convertible preferred stock and convertible notes
representing approximately 12,818,000, 13,491,000, 14,440,000, and 13,309,000
potentially dilutive common shares have been excluded from the computations of
net income (loss) per share for the three months ended June 30, 2000 and 1999
and the six months ended June 30, 2000 and 1999, respectively, as their effect
was anti-dilutive.
3. SEGMENT INFORMATION
The Company develops, produces and distributes interactive entertainment.
The Company's reportable segments have been determined based on the nature of
the services offered to customers, which include, but are not limited to,
revenue from the NTN Network and BUZZTIME divisions. Hospitality revenue is
generated primarily from broadcasting content to customer locations through an
interactive television network and from advertising sold on the network.
Hospitality revenues comprise 98% of the Company's total revenue. Internet
revenue includes revenue from BUZZTIME and is generated primarily from the
distribution of the Company's digital trivia game show content and "Play-Along"
sports games, as well as revenue related to advertising and production services
for third parties. The following tables set forth certain information regarding
the Company's segments and other operations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------ ------------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES
NTN Network $ 5,410,000 $ 5,394,000 $ 11,181,000 $ 10,676,000
BUZZTIME 102,000 288,000 184,000 578,000
Other 2,000 129,000 12,000 244,000
------------ ------------ ------------ ------------
Total revenue $ 5,514,000 $ 5,811,000 $ 11,377,000 $ 11,498,000
============ ============ ============ ============
OPERATING INCOME (LOSS)
NTN Network $ 492,000 $ 1,294,000 $ 1,057,000 $ 2,663,000
BUZZTIME (1,109,000) (182,000) (1,957,000) (726,000)
Corporate (1,639,000) (1,356,000) (1,933,000) (2,825,000)
Other -- (10,000) -- (29,000)
------------ ------------ ------------ ------------
OPERATING LOSS $ (2,256,000) $ (254,000) $ (2,833,000) $ (917,000)
============ ============ ============ ============
</TABLE>
7
<PAGE> 8
4. SETTLEMENT WARRANTS
The results for the six months ended June 30, 2000 include a reversal of an
accrued liability of approximately $1,793,000 for a potential redemption
obligation, relating to Settlement Warrants, which expired in February 2000. The
Settlement Warrants entitle the holder of a Settlement Warrant to purchase a
share of Common Stock at a price of $0.96 during the period ending February 18,
2001. During the period from February 18, 2000 to February 18, 2001, the holders
of the Settlement Warrants were to have the right to cause the Company to redeem
the Settlement Warrants for a redemption price of $3.25 per Warrant (the "Put
Right"); however, this Put Right expired by its terms on February 17, 2000 when
the closing price per share of the Company's Common Stock on the American Stock
Exchange reached $4.22 or above for the seventh trading day since the Settlement
Warrants were issued. The Company has no further obligation to redeem or
repurchase the Settlement Warrants.
5. PUBLIC OFFERING OF COMMON STOCK
The Company raised gross proceeds of $6,000,000 in April 2000 through the
underwritten sale of 2,000,000 shares of Common Stock pursuant to the Company's
existing shelf registration. The net proceeds from the sale, which totaled
approximately $5,163,000, are being used primarily for working capital and
general corporate purposes relating to the Company's launch of its new game
portal, BUZZTIME and ongoing conversion of the NTN Network's hospitality
locations to the Company's new DITV technology.
6. SUBSEQUENT EVENTS
On July 13, 2000, approximately $713,000 of the 7% senior convertible notes,
was converted into approximately 560,000 shares of Common Stock in accordance
with the terms of the notes.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FORWARD LOOKING STATEMENTS
This Quarterly Report contains forward looking statements regarding use of
the proceeds from the recent sale of common stock and other matters, which are
subject to risks and uncertainties, including cash needs and other risk factors
detailed in the Company's Securities and Exchange Commission filings, including
the Company's Report on Form 10-K for the fiscal year ended December 31, 1999,
as amended by Form 10-K/A, and its quarterly report on 10Q for the period ended
March 31, 2000, which risk factors are incorporated herein by reference.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 AND JUNE 30, 1999
Operations for the three months ended June 30, 2000 resulted in a net loss
of $2,469,000 compared to a net loss of $474,000 for the three months ended June
30, 1999.
Total revenues decreased 5% to $5,514,000 for the three months ended June
30, 2000 from $5,811,000 for the three months ended June 30, 1999. This decrease
was primarily due to a decrease in Internet revenues, America Online fees and
other revenues as the Company wound down such exclusive relationships to pursue
Internet and interactive initiatives through its wholly-owned subsidiary,
BUZZTIME, Inc.
Hospitality revenues increased 1% to $5,408,000 for the three months ended
June 30, 2000 from $5,360,000 for the three months ended June 30, 1999. This
increase was primarily due to an increase in rates charged for the setup,
installation and training for the DITV network as compared to the original
network. Advertising revenue for hospitality increased 81%, or $150,000, to
$335,000 for the three months ended June 30, 2000 from $185,000 for the three
months ended June 30, 1999 due to new advertising contracts that did not exist
for the three months ended June 30, 1999. These increases were partially offset
by a 2% decrease in hospitality subscription revenues attributable to a lower
billing rate structure associated with the DITV network as compared to the
original network. During the three months ended June 30, 2000, approximately 377
DITV systems were installed, including both new customers and conversions from
the original network.
8
<PAGE> 9
Internet revenues decreased 14% to $102,000 for the three months ended June
30, 2000 from $118,000 for the three months ended June 30, 1999. The decrease
was largely due to the expiration of the Company's contract with GTE Mainstreet,
which occurred in February 2000.
America Online ("AOL") fees were zero for the three months ended June 30,
2000, compared to $170,000 for the three months ended June 30, 1999. The
Company's contract with AOL expired on December 1, 1999, at which time a new
contract was signed. Under the terms of the new nonexclusive contract, the
Company will have access to AOL's 24 million subscribers allowing promotion of
the BUZZTIME website on several AOL channels. The Company also will receive
extensive promotional branding and revenue opportunities; however, it will
receive little or no revenue directly from AOL.
Other revenues decreased 98% to $4,000 for the three months ended June 30,
2000 from $163,000 for the three months ended June 30, 1999. Included in other
revenues for the three months ended June 30, 1999 was approximately $108,000 of
revenues from IWN, Inc. and approximately $34,000 recognition of previously
deferred revenues from equipment sales. No revenue was recorded for IWN, Inc. or
deferred revenues from equipment sales for the three months ended June 30, 2000.
Direct operating costs increased 35% to $1,541,000 for the three months
ended June 30, 2000 from $1,143,000 for the three months ended June 30, 1999.
This increase was due primarily to increased ISP charges of $235,000
attributable to additional services needed to support the DITV network. This was
combined with a reversal of $180,000 during the three months ended June 30, 1999
due to the settlement of an accrued liability and license fee expense which had
been less than estimated. As a result, the Company reduced the excess liability
and license fee expense related to the settlement which occurred in the second
quarter of last year. The conversion to the DITV network is expected to be
complete by the end of 4th quarter 2000.
Selling, general and administrative expenses increased 29% to $4,276,000 for
the three months ended June 30, 2000 from $3,319,000 for the three months ended
June 30, 1999. Salaries and related payroll taxes, benefits, recruiting fees and
other related expenses increased approximately $872,000 during the three months
ended June 30, 2000 due to an increase in the number of employees directly
related to the development and launch of the Internet web sites as compared to
the three months ended June 30, 1999. Consulting expenses increased
approximately $201,000 related to the launch of the Internet website and the
hiring of an investor relations firm for the three months ended June 30, 2000.
Stock-based compensation expense increased to $119,000 for the three months
ended June 30, 2000 from $17,000 for the three months ended June 30, 1999. The
charges resulted from the issuance of warrants and options to employees and
non-employees, which can vary from period-to-period. Equipment lease expense
decreased for the three months ended June 30, 2000 by $236,000 due to the payoff
of such leases during 1999.
Research and development expenses were $76,000 for the three months ended
June 30, 2000, compared to $160,000 for the three months ended June 30, 1999.
The current period expenses resulted from the Company's research and development
efforts related to the next generation of the DITV network and development of
new Internet web sites. For the three-month period ended June 30, 1999, the
Company's research and development efforts focused primarily on the upgrade of
the NTN network as well as future Internet web sites.
SIX MONTHS ENDED JUNE 30, 2000 AND JUNE 30, 1999
Operations for the six months ended June 30, 2000 resulted in a net loss of
$2,663,000. The results for the first quarter of 2000 included a one-time
expense reduction of approximately $1,793,000 related to the reversal of an
accrued liability for Settlement Warrants. Excluding the one-time expense
reduction, the Company's net loss for the six months ended June 30, 2000 was
$4,456,000 compared to a net loss of $1,306,000 for the six months ended June
30, 1999.
Total revenues decreased 1% to $11,377,000 for the six months ended June 30,
2000 from $11,498,000 for the six months ended June 30, 1999. This decrease was
primarily due to a decrease in Internet revenues, America Online fees and other
revenues as the Company wound down such exclusive relationships to pursue
Internet and interactive initiatives through its wholly-owned subsidiary,
BUZZTIME, Inc.
Hospitality revenues increased 6% to $11,173,000 for the six months ended
June 30, 2000 from $10,587,000 for the six months ended June 30, 1999. This
increase was due primarily to an increase in rates charged for the setup,
installation and training for the DITV network as compared to the original
network. This increase was partially offset by a decrease in hospitality
subscription revenues attributable to a lower billing rate structure associated
with the DITV network as compared to the original network. During the six months
ended June 30, 2000, approximately 730 DITV systems were installed. Advertising
revenue for hospitality also
9
<PAGE> 10
increased to $733,000 for the six months ended June 30, 2000 from $269,000 for
the six months ended June 30, 1999 due to new advertising contracts that did not
exist for the six months ended June 30, 1999.
Internet revenues decreased 19% to $184,000 for the six months ended June
30, 2000 from $228,000 for the six months ended June 30, 1999. The decrease was
largely due to the expiration of the Company's contract with GTE Mainstreet, in
February 2000.
AOL fees were zero for the six months ended June 30, 2000, compared to
$350,000 for the six months ended June 30, 1999. The Company's contract with AOL
expired on December 1, 1999, at which time a new contract was signed as
described above, under which the Company will not generate revenue from AOL.
Other revenues decreased 94% to $20,000 for the six months ended June 30,
2000 from $333,000 for the six months ended June 30, 1999. Included in other
revenue for the six months ended June 30, 1999 was approximately $202,000 of
revenue from IWN, Inc. and approximately $84,000 of equipment sales. No revenue
was recorded for IWN, Inc. or equipment sales for the six months ended June 30,
2000.
Direct operating costs increased 34% to $3,057,000 for the six months ended
June 30, 2000 from $2,288,000 for the six months ended June 30, 1999. This
increase was due primarily to increased ISP charges of $549,000 due to
additional services needed to support the DITV network for the six months ended
June 30, 2000, and to a lesser extent, due to expenses of approximately $79,000
associated with an increase in the number of sites installed in connection with
the roll out of the DITV network for the six months ended June 30, 2000.
Advertising commissions also increased directly related to the increase in
hospitality advertising revenue. These increases were partially offset by a
decrease of approximately $187,000 for technical site service costs attributable
to new equipment at the sites for the DITV network which required less servicing
than the 49 MHz network equipment. The conversion to the DITV network is
expected to be complete by the end of 4th quarter 2000.
Selling, general and administrative expenses increased 6% to $7,123,000 for
the six months ended June 30, 2000 from $6,692,000 for the six months ended June
30, 1999. Salaries and related payroll taxes, benefits, recruiting fees and
other related expenses increased approximately $1,466,000 for the six months
ended June 30, 2000 due to an increase in the number of employees directly
related to the development and launch of the Internet web site as compared to
the six months ended June 30, 1999. Consulting expenses increased approximately
$286,000 related to the launch of the Internet web site and investor relations
for the six months ended June 30, 2000. Bad debt expense increased approximately
$163,000 for the six months ended June 30, 2000. This increase is directly
related to continuing evaluation of the uncollectible accounts. Stock-based
compensation expense increased approximately $257,000 for the six months ended
June 30, 2000. The charges resulted from the issuance of warrants and options to
employees and non-employees, which can vary from period-to-period. Equipment
leases decreased for the six months ended June 30, 2000 by $503,000 due to the
payoff of such leases during 1999. The Company reduced litigation, legal and
professional fee expenses by approximately $1,252,000 and reversed the
previously recorded interest expense by approximately $541,000 during the six
months ended June 30, 2000, due to a one-time expense reduction of approximately
$1,793,000 related to the reversal of an accrued liability for Settlement
Warrants. Excluding the one-time expense reduction, professional fees decreased
to $371,000 for the six months ended June 30, 2000 from $485,000 for the six
months ended June 30, 1999.
Research and development expenses were $223,000 for the six months ended
June 30, 2000, compared to $295,000 for the six months ended June 30, 1999. The
current period expenses resulted from the Company's research and development
efforts related to the next generation of the DITV network and future Internet
web sites. For the six-month period ended June 30, 1999, the Company's research
and development efforts focused primarily on the upgrade of the NTN network and
future Internet web sites.
Interest income (expense), net, includes a one-time expense reduction of
approximately $541,000 from the reversal of the Settlement Warrant liability for
the six months ended June 30, 2000. Excluding the one-time expense reduction,
interest expense totaled $532,000 for the six months ended June 30, 2000
compared to $364,000 for the six months ended June 30, 1999. This increase in
interest expense relates to the Company's revolving line of credit, other notes
payable and additional capital leases for equipment acquisitions which did not
exist for the most of the first half of 1999.
The Company recorded other income of $161,000 for the six months ended June
30, 2000 compared to other expenses of $25,000 for the six months ended June 30,
1999. Other income includes gains on sales of investments available for sale and
equipment.
10
<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, the Company had cash and cash equivalents of $2,347,000
and working capital of $1,282,000, compared to cash and cash equivalents of
$1,044,000 and working capital of $921,000 at December 31, 1999. Net cash
provided by operations was $127,000 for the six months ended June 30, 2000 and
net cash used by operations was $248,000 for the six months ended June 30, 1999.
The principal uses of cash from operations for the six months ended June 30,
2000 were to fund the Company's net loss, to fund deposits on broadcast
equipment and capital software and for severance payments made by the Company in
compliance with management resignation agreements with former officers totaling
$262,000. Depreciation, amortization and other non-cash charges offset the uses.
Net cash used in investing activities was $5,262,000 for the six months ended
June 30, 2000 and $1,400,000 for the six months ended June 30, 1999. Included in
net cash used in investing activities for the six months ended June 30, 2000 was
$6,040,000 in capital expenditures offset by deposits on broadcast equipment of
$132,000, proceeds from the sale of investments available for sale of $528,000
and notes receivable of $138,000 for the six months ended June 30, 2000. Net
cash provided by financing activities was $6,438,000 for the six months ended
June 30, 2000 and net cash used by financing activities of $387,000 for the six
months ended June 30, 1999. Net cash provided by financing activities for the
six months ended June 30, 2000 included $5,163,000 of proceeds from issuance of
stock, net of offering expenses, $1,207,000 of proceeds from the revolving line
of credit, net of principal payments, and $571,000 of proceeds from the exercise
of stock options and warrants offset by $453,000 of principal payments on
capital leases.
The Company raised gross proceeds of $6,000,000 in April 2000 through the
underwritten sale of 2,000,000 shares of Common Stock pursuant to the Company's
existing shelf registration. The net proceeds from the sale, which totaled
approximately $5,163,000, are being used primarily for working capital and
general corporate purposes relating to the Company's launch of its new game
portal, BUZZTIME and ongoing conversion of the NTN Network's hospitality
locations to the Company's new DITV technology. The Company has approximately
$14,000,000 remaining under its existing shelf registration for possible future
sale to meet its liquidity needs. Depending on market conditions, the Company
may attempt to raise capital during the second half of the year for, among other
uses, further development and marketing of its game portal, BUZZTIME, and
further expansion and improvement of its DITV Network.
The Company believes that its cash on hand, anticipated net proceeds from
additional sales of Common Stock under its shelf registration, anticipated cash
flows from its operations and borrowings under its line of credit will be
sufficient to meet its operating needs through 2000. Depending on the Company's
results of operations, the actual availability under the line of credit may be
restricted. The Company has no commitments or arrangements for the purchase of
Common Stock available under its shelf registration, and if no sales of such
stock are made, borrowings under the line of credit become restricted, cash flow
is less than anticipated or the Company incurs unexpected expenses, the Company
may need additional funding or need to curtail certain of its activities. The
Company will also need to raise additional capital to fully implement the
BUZZTIME Internet strategy, convert its entire existing customer base to the
DITV Network, expand the DITV Network and implement the Company's Internet
station strategy. The Company has no agreement or commitment for any additional
financing and there can be no assurance whether, or on what terms, such
financing will be available to the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of June 30, 2000, the Company owned an investment available for sale
which is common stock of an Australian company that is subject to market risk.
During the six months June 30, 2000, the Company recorded an unrealized gain of
$113,000 associated with the investment. The Company is exposed to risks related
to currency exchange rates and stock market fluctuations associated with the
investment.
The Company is also exposed to risks related to interest rates. The Company
has convertible notes which bear interest at 7% per annum and a line of credit
at a rate equal to the Prime Rate plus 1.5% per annum, which cannot be less than
9% per annum. A significant increase in interest rates could have an adverse
affect on the Company's financial condition or results of operations.
The Company does not have derivative financial instruments.
11
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
In April 2000, approximately 20,000 shares of Common Stock were issued in a
private transaction in payment of interest of approximately $82,000 on the
outstanding 7% senior convertible notes.
On February 29, 2000, the Company issued warrants to purchase 20,000 shares of
Common Stock to an advertising and marketing firm retained by the Company to
serve as an independent sales representative for advertising and marketing
services. These warrants enable the holder to purchase 20,000 common shares at a
price of $3.975 per share for a period of three years. The warrants shall vest
as to one third of the total shares when net advertising revenues resulting from
advertising contracts solicited solely by the independent representative reach
$2.5 million or more during a single calendar year; as to an additional one
third of the total shares when such net advertising revenues reach $3.5 million
or more during a single calendar year; and as to the final one third of the
total shares when such advertising revenues reach $5 million or more during a
single calendar year. Any such vesting is subject to the Company's receipt in
full of payment from the responsible advertiser or agency.
On June 13, 2000, the Company issued warrants to purchase 25,000 shares of
Common Stock to a consultant. These warrants enable the holder to purchase
25,000 common shares at a price of $3.00 per share for five years, subject to
vesting requirements.
Each offering was made without registration under the Securities Act of 1933, as
amended (the "Act") in reliance upon the exemption from registration afforded by
Section 4(2) of the Act and Rule 506 of Regulation D promulgated thereunder.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held its annual meeting of shareholders on July 31, 2000. The
following matters voted upon at such meeting:
1. To elect two directors to hold office until the 2003 annual meeting of
stockholders.
<TABLE>
<CAPTION>
Gary Arlen
----------
<S> <C>
Votes In Favor .................. 30,906,571
Abstentions ..................... 147,339
Vincent A. Carrino
------------------
Votes In Favor .................. 30,906,571
Abstentions ..................... 147,339
</TABLE>
Both Mr. Arlen and Mr. Carrino were elected to hold office until the annual
meeting of stockholders in 2003 and until each respective successor is duly
elected and qualified.
2. To approve the transfer and contribution of certain of the Company's assets
to its wholly owned subsidiary, BUZZTIME, Inc.
<TABLE>
<S> <C>
Votes In Favor .................. 7,660,623
Votes Against ................... 407,486
Abstentions ..................... 139,383
</TABLE>
The proposal was not approved due to an insufficient number of votes cast with
respect to the proposal.
ITEM 5. OTHER INFORMATION.
In June 2000, Zach A. Vela joined the Company as Chief Financial Officer.
Concurrent with Mr. Vela's appointment, Kendra Berger moved from Chief Financial
Officer to the position of Senior Vice President of Finance.
ITEM 6. EXHIBITS AND REPORTS ON REPORT 8-K.
(a) Exhibits
10.3 (i) Amended and Restated Certificate of Incorporation of the Company,
as amended (2)
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<PAGE> 13
(ii) Bylaws of the Company (3)
10.99 Warrant Certificate, dated February 29, 2000, issued to Beverage
Industry Marketing Services (1)
27 Financial Data Schedule. (1)
(b) Reports on Form 8-K
The Company filed two reports on Form 8-K during the quarter
ended June 30, 2000.
On April 17, 2000, the Company disclosed, in response to Item
5, its preliminary operating results for the quarter ended March 31,
2000; recent developments pertaining to the Company's DITV Network; a
new agreement with the National Football League; settlement of the
pending class action lawsuit; warrant exercise by the holders of the
common stock purchase warrants issued pursuant to the Exchange
Agreement, dated October 5, 1998, between the Company and the holders
of the Series B Preferred Stock [999,096 shares issued]; and the
election by the holders of the Senior Subordinated Convertible Notes
due February 2001 to convert $200,000 in principal, plus accrued
interest, into shares of Common Stock [159,150 shares issued].
On April 24, 2000, also in response to Item 5, the Company
announced completion of an underwritten public offering of 2,000,000
shares of its Common Stock, $.005 par value. The Company disclosed its
intention to use the net proceeds from the offering [approximately
$5,163,000] to market its new game portal, Buzztime.com, to convert its
existing customer base to the DITV Network and for working capital and
general corporate purposes. Further, the Company announced its
strategic plan for its Buzztime.com interactive game website.
----------
(1) Filed herewith.
(2) Previously filed as an exhibit to the Company's registration statement
on Form S-3, File No. 333-69383, and incorporated by reference.
(3) Previously filed as an exhibit to the Company's registration statement
on Form S-8, File No. 333-75732, and incorporated by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NTN COMMUNICATIONS, INC.
Date: August 14, 2000
By: /s/ Zach Vela
---------------------
Zach Vela
CFO
13
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
10.3 (i) Amended and Restated Certificate of Incorporation of the Company,
as amended (2)
(ii) Bylaws of the Company (3)
10.99 Warrant Certificate, dated February 29, 2000, issued to Beverage
Industry Marketing Services (1)
27 Financial Data Schedule. (1)
</TABLE>
----------
(1) Filed herewith.
(2) Previously filed as an exhibit to the Company's registration statement
on Form S-3, File No. 333-69383, and incorporated by reference.
(3) Previously filed as an exhibit to the Company's registration statement
on Form S-8, File No. 333-75732, and incorporated by reference.
