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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K/A
(AMENDMENT NO. 1)
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
COMMISSION FILE NUMBER 1-11460
NTN COMMUNICATIONS, INC.
(Exact name of Registrant as specified in its charter)
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<S> <C>
DELAWARE 31-1103425
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
5966 LA PLACE COURT
CARLSBAD, CALIFORNIA 92008
(Address of Principal Executive (Zip Code)
Offices)
</TABLE>
(760) 438-7400
(Registrant's telephone number, including Area Code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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<CAPTION>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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Common Stock, $.005 par value American Stock Exchange
Redeemable Common Stock
Purchase Warrants
</TABLE>
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulations S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the Common Stock held by non-affiliates of
Registrant as of March 1, 2000, computed by reference to the closing sale price
of the Common Stock on the American Stock Exchange, was approximately
$116,318,582. For purposes of this computation, all directors and executive
officers of Registrant are considered affiliates.
As of March 1, 2000, Registrant had 30,242,559 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Not Applicable
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NTN Communications, Inc. (the "Registrant") hereby amends and restates Item
7 of its Annual Report on Form 10-K filed for the fiscal year ending December
31, 1999 to read in its entirety as follows:
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Management's discussion and analysis of financial condition and results of
operations should be read in conjunction with the selected financial data and
the consolidated financial statements and notes thereto included elsewhere
herein.
RESULTS OF OPERATIONS
Following is a comparative discussion by fiscal year of the results of
operations for the three years ended December 31, 1999. The Company believes
that inflation has not had a material effect on its results of operations for
the periods presented.
YEAR ENDED DECEMBER 31, 1999 AS COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
Operations for the year ended December 31, 1999 resulted in a net loss of
$2,498,000 compared to net loss of $1,793,000 for the year ended December 31,
1998. The operating results for the year ended December 31, 1999 included a gain
of $2,254,000 related to the sale of the assets of the Company's wholly-owned
subsidiary, IWN, L.P., to eBet Limited for $1,227,000 in cash and 4,000,000
shares of eBet Online stock. The operating results for the year ended December
31, 1998 included a gain of $1,643,000 related to the sale of a majority
interest in one of the Company's subsidiaries.
Total revenues decreased 2% to $23,748,000 for the year ended December 31,
1999 from $24,194,000 for the year ended December 31, 1998. This occurred
primarily due to decreases in Internet revenues, America Online fees, equipment
sales and other revenues which were partially offset by increases in Hospitality
revenues.
Hospitality revenues increased 6% to $22,250,000 for the year ended
December 31, 1999 from $20,973,000 for the year ended December 31, 1998. This
increase is primarily due to an increase in fees charged for the setup,
installation and training for the Digital Interactive Television Network ("DITV
Network") as compared to the original NTN Network. During the year ended
December 31, 1999, approximately 1,500 DITV Network systems were installed.
Internet revenues decreased 66% to $383,000 for the year ended December 31,
1999 from $1,131,000 for the year ended December 31, 1998. The decrease was
largely due to the expiration of the trials the Company performed for Bell
Canada in 1998 which generated $670,000 in 1998 that did not occur in 1999.
America Online fees decreased 32% to $600,000 for the year ended December
31, 1999 from $883,000 for the year ended December 31, 1998. The Company entered
into a new contract in the second quarter of 1998 with its Internet partner,
America Online. The new contract, which expired December 1, 1999, provided for a
flat monthly fee rather than fees based on AOL member usage of the Company's
content, which resulted in a reduction of revenue from this source of $283,000
for the year ended December 31, 1999 compared to the year ended December 31,
1998.
Equipment sales decreased 83% to $84,000 for the year ended December
31,1999 from $499,000 for the year ended December 31, 1998. This decrease was
due to the conclusion of the recognition of deferred revenue associated with
prior equipment sale-leasebacks and also a result of no equipment being sold in
1999.
Other revenue decreased 39% to $431,000 for the year ended December 31,
1999 from $708,000 for the year ended December 31, 1998. Other revenue for the
year ended December 31, 1998 included $125,000 in sales generated by LearnStar,
Inc. As a result of the sale of an 82.5% interest in LearnStar in June 1998, no
such revenue was recorded for the year ended December 31, 1999. Additionally,
due to the curtailment of operations related to IWN, Inc. in 1998, other revenue
decreased by approximately $191,000 for IWN, Inc. for the year ended December
31, 1999 as compared to the year ended December 31,1998.
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Direct operating costs increased 27% to $5,982,000 for the year ended
December 31, 1999 from $4,715,000 for the year ended December 31, 1998. This
increase was due to aggregate expenses of approximately $600,000 associated with
an increase in the number of sites installed, increased freight expenses
associated with shipping equipment to the sites and an increase in the number of
sales commissions paid in connection with the roll-out of the DITV Network in
1999. Satellite transmissions costs and ISP charges increased $884,000 due to
additional services needed to support the DITV Network for the year ended
December 31, 1999. These increases were partially offset by the settlement of an
accrued liability for license fees that was less than had been estimated. As a
result, the Company reduced the accrued expenses and direct operating costs by
approximately $180,000 related to the settlement in 1999. The results for the
year ended December 31, 1998 included approximately $360,000 in costs related to
the realignment of the satellite dishes at hospitality locations in order to
receive broadcast transmissions from the Galaxy III-R satellite when the
PanAmSat Galaxy IV satellite failed to operate in May 1998.
Selling, general and administrative expenses increased 1% to $11,920,000
for the year ended December 31, 1999 from $11,767,000 for the year ended
December 31, 1998. Selling, general and administrative expense for the year
ended December 31, 1999 included consulting expenses of approximately $415,000
relating to Year 2000 remediation efforts. Additionally, marketing expenses
increased approximately $343,000 related to the new DITV Network which was
introduced during the year ended December 31, 1999. Approximately $276,000 in
selling, general and administrative expenses were incurred by LearnStar for the
year ended December 31, 1998. As a result of the sale of an 82.5% interest in
LearnStar in June 1998, no such expenses were recorded for the year ended
December 31, 1999. Selling, general and administrative expenses incurred by IWN
also decreased by approximately $235,000 in 1999 as a result of the sale of
assets of IWN, L.P. in August 1999. Additionally, office lease expense decreased
approximately $135,000 due to the sublet of office space beginning in September
1998.
Litigation, legal and professional fees decreased to $558,000 for the year
ended December 31, 1999 from $1,658,000 for the year ended December 31, 1998
partially due to the settlement of litigation for which the Company had accrued
a liability of $500,000 and the litigation was settled for approximately
$340,000. As a result, the Company reduced the accrued expenses and litigation,
legal and professional fee expenses by approximately $160,000 related to the
settlement. Expenses for 1998 include legal expenses incurred in the ordinary
course of business, as well as certain litigation expenses which did not recur
in 1999.
Equipment lease expense decreased 30% to $652,000 for the year ended
December 31, 1999 from $932,000 for the year ended December 31, 1998 due to the
payoff of such leases during the year ended December 31, 1999.
Stock-based compensation expense decreased 17% to $292,000 for the year
ended December 31, 1999 compared to $353,000 for the year ended December 31,
1998. The 1999 and 1998 charges resulted from the issuance of warrants and
options to employees and non-employees and can vary from period-to-period.
Research and development expenses decreased 18% to $842,000 for the year
ended December 31, 1999 compared to $714,000 for the year ended December 31,
1998. The current period expenses result from the Company's research and
development efforts related to the second generation of the DITV Network,
Internet stations, and future Internet web sites. For the year ended December
31, 1998, the Company's research and development efforts focused primarily on
the upgrade of the NTN Network to DITV Network.
Interest expense increased 263% to $1,050,000 for the year ended December
31, 1999 from $289,000 for the year ended December 31, 1998. The increase was
primarily due to interest expense recorded in 1999 related to the 7% senior
subordinated convertible notes issued in 1999. The Company also incurred
increased interest expense related to a new revolving line of credit, other
notes payable and additional capital leases for equipment acquisitions that did
not exist in 1998.
YEAR ENDED DECEMBER 31, 1998 AS COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
The Company incurred a net loss of $1,793,000 for the year ended December
31, 1998 as compared to a net loss of $12,457,000 for the year ended December
31, 1997. The 1998 results includes an operating loss of $3,447,000 which was
partially offset by a gain of $1,643,000 from the sale of an 82.5% interest in
the Company's LearnStar subsidiary. The 1997 results included charges totaling
$4,998,000 related to a management
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reorganization, a $2,543,000 charge related to shrinkage and obsolete equipment
and a $905,000 gain from the sale of an interest in real estate.
Total revenues decreased 6% to $24,194,000 in 1998 from $25,861,000 in 1997
due to declines in Hospitality revenues, Internet revenues, America Online fees,
and other revenue.
Hospitality revenues decreased 1% to $20,973,000 in 1998 from $21,018,000
in 1997 due primarily to a reduction in average billing rates during 1998, which
is offset by an increase in advertising revenue due to an increase in the number
of commercial spots sold.
Internet revenues increased 63% to $1,131,000 in 1998 from $694,000 in 1997
partially due to the trials the Company performed for Bell Canada which resulted
in an increase in revenue from this source of $290,000 in 1998. Also included in
1998 is revenue related to GTE Mainstreet which did not exist in 1997.
America Online fees decreased 66% to $883,000 in 1998 from $2,632,000 in
1997 largely due to non-recurring revenue of $1,000,000 in 1997 from AOL related
to AOL's termination of its prior contract with the Company and the recognition
of revenue for production services in 1997 that did not recur in 1998.
Equipment sales increased 5% to $499,000 in 1998 from $475,000 in 1997.
Equipment sales in the past have included sales to foreign licensees, which are
subject to outside influences and can occur unevenly throughout the year.
Direct operating costs decreased 28% to $4,715,000 in 1998 from $6,565,000
in 1997. The decrease relates to a reduction in site visit fees, commissions and
other field expenses due to (i) the Company's decreased reliance on independent
representatives in favor of employed field and marketing personnel and (ii) a
revision, effective January 1, 1998, in the Company's commission and bonus
structure for all field personnel.
Selling, general and administrative expenses decreased 28% to $11,767,000
in 1998 from $16,244,000 in 1997. Included in selling, general and
administrative expenses for 1997 were charges for the reorganization of the
Company's management totaling $3,363,000 and costs associated with the abandoned
merger with GTECH Corporation of $376,000. Exclusive of these charges, selling,
general and administrative expenses decreased $738,000 or 6%. This decrease is
primarily due to a reduction in advertising and promotion expense, the sale of
LearnStar, Inc. and a significant reduction in IWN, LP business activity which
collectively reduced selling, general and administrative expenses.
Litigation, legal and professional fees increased to $1,658,000 in 1998
from $808,000 in 1997. In the fourth quarter of 1997, the Company reduced the
accrual for a legal settlement which reduced legal expense by $1,350,000.
Expenses for 1998 included legal expenses incurred in the ordinary course of
business, as well as litigation expenses and accruals which included $500,000 to
cover the potential liability related to insufficient licensing for MS-DOS.
Stock-based compensation decreased 89% to $353,000 in 1998 from $3,205,000
in 1997. Stock-based compensation charges result from the issuance, extension or
modification of warrants or options to non-employees and can vary from period to
period. Charges in 1997 included $1,450,000 that resulted from extension of the
exercise period and reductions in the exercise price of warrants owned by
certain former officers pursuant to the management reorganization in 1997.
Depreciation and amortization expense increased 21% to $6,412,000 in 1998
from $5,305,000 in 1997 due to additions of broadcast equipment and fixed
assets.
Bad debt expense decreased 42% to $850,000 in 1998 from $1,462,000 in 1997.
The Company began to experience reliability problems with its equipment in NTN
Network Locations. These problems led to an increase in bad debt expense in 1996
and 1997. In 1998, the equipment problems stabilized, resulting in a lower bad
debt expense.
Equipment charges decreased 91% to $240,000 in 1998 from $2,543,000 in
1997. Equipment charges consist of charges for obsolescence and shrinkage of the
Company's stock of broadcast equipment. The Company performs periodic reviews of
its broadcast equipment. In connection with these reviews, the Company
identified equipment shrinkage and obsolescence primarily related to terminated
sites.
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Research and development expenses decreased 55% to $714,000 in 1998 from
$1,600,000 in 1997. The decrease was due to certain research and development
endeavors which began in early 1997 that were completed by the end of 1997.
These efforts included initial design and implementation of the Company website,
redesign of the America Online site and content and other production for third
parties. For 1998, the Company's research and development efforts related
primarily to the upgrade of the NTN network to DITV Network.
Other income (expense) increased to $1,654,000 in 1998 from $350,000 in
1997. Other income in 1998 included a gain of $1,643,000 related to the sale of
an 82.5% interest in LearnStar in June 1998. Other income in 1997 included a
gain of $905,000 related to the sale of the Company's interest in an office
building. Interest expense decreased 64% to $289,000 in 1998 from $793,000 in
1997 due primarily to interest expense recorded in 1997 in conjunction with the
repurchase of a limited partnership interest in IWN, L.P. in 1997.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company had cash and cash equivalents of
$1,044,000 and working capital (current assets in excess of current liabilities)
of $921,000 compared to cash and cash equivalents of $4,560,000 and working
capital of $2,400,000 at December 31, 1998. Net cash provided by operations was
$431,000 and $1,120,000 for the twelve months ended December 31, 1999 and 1998,
respectively. The principal uses of cash in 1999 were to fund the Company's net
loss from operations, to fund prepaid expenses and to fund severance payments
totaling $925,000 in compliance with reorganization agreements with former
officers. These uses were more than offset by depreciation, amortization and
other noncash charges. Net cash used in investing activities was $5,472,000 for
the twelve months ended December 31, 1999 and $1,220,000 for the twelve months
ended December 31, 1998. Included in net cash used in investing activities for
the twelve months ended December 31, 1999 were approximately $6,814,000 in
capital expenditures, which were partially offset by proceeds from the sale of
assets of a subsidiary of approximately $1,227,000. Net cash provided by
financing activities was $1,525,000 for the year ended December 31, 1999. Net
cash used in financing activities was $104,000 for the year ended December 31,
1998. Net cash provided by financing activities for the year ended December 31,
1999 included borrowings under a new revolving line of credit of approximately
$11,175,000, offset by principal payments on the revolving line of credit and
other debt of approximately $8,872,000, and $1,125,000 of principal payments on
capital leases.
As of December 31, 1999, the Company has outstanding 7% senior subordinated
convertible notes (convertible notes) of approximately $4,705,000, payable
February 1, 2001 and bearing interest at 7% per annum. If the Company defaults
under the convertible notes, in the discretion of the holders of the convertible
notes, the entire outstanding principal amount of the convertible notes and all
accrued and unpaid interest will become immediately due and payable in full. On
November 20, 1999, $1,000,000 of principal plus accrued interest was converted
into approximately 793,000 shares of Common Stock.
In August 1999, the Company entered into an agreement with Coast Business
Credit for a revolving line of credit not to exceed $4,000,000. Interest is
charged on the outstanding balance at a rate equal to the Prime Rate plus 1.5%
per annum, but cannot be less than 9% per annum. The line of credit is secured
by substantially all of the Company's assets. Total loan fees of $120,000 are
payable in three annual installments and are being amortized over the life of
the loan, which matures on August 31, 2002. The line of credit is expected to be
used primarily for capital expenditures related to the launch of the DITV
Network.
In February 1998, pursuant to the settlement of a class-action lawsuit
pending against the Company since 1993, the Company issued 565,000 warrants to
purchase Common Stock of the Company ("Settlement Warrants"). Each Settlement
Warrant has a term of three years beginning February 18, 1998. The Settlement
Warrants entitle the holder of a Settlement Warrant to purchase a share of
Common Stock of the Company at a price of $0.96. During the period from February
18, 2000 to February 18, 2001, the holders of Settlement Warrants were to have
the right, but not the obligation, to cause the Company to redeem the Settlement
Warrants for a redemption price of $3.25 per Settlement 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. The Company has no
further obligation to repurchase the Settlement Warrants or the underlying
Common Stock. The right of holders to exercise the
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Settlement Warrants to purchase shares of Common Stock of the Company at $0.96
per share continues through February 18, 2001.
The Company believes that its cash on hand, anticipated cash flows from its
operations and borrowings under its line of credit will be sufficient to meet
its immediate operating needs. If cash flow is less than anticipated, however,
or if the Company incurs unexpected expenses, the Company may need additional
funding in order to maintain its current level of operations of business
activities. It also is likely the Company will need to raise additional capital
in future periods through public or private financing or other arrangements to
expand the BUZZTIME Internet strategy, convert its entire existing customer base
to the DITV Network, to expand the DITV Network and to implement the Company's
Internet station strategy. The Company has no agreement or commitment for any
such additional financing and there can be no assurance whether, or on what
terms, such financing will be available to the Company. If the Company is unable
to obtain any needed financing, it would have to curtail certain business
activities.
YEAR 2000 COMPLIANCE
The Company's computer systems and equipment successfully transitioned to
the Year 2000 with no significant issues. The Company continues to keep its Year
2000 project management in place to monitor latent problems that could surface
at key dates or events in the future. It is not anticipated that there will be
any significant problems related to these events. All costs associated with the
Year 2000 remediation efforts were expensed or capitalized in accordance with
appropriate accounting policies.
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's business, results of operation and financial condition would
be adversely affected by a number of factors, including the following:
The Company's Limited Liquidity And Capital Resources May Constrain Its
Ability To Operate Its Business. At December 31, 1999, the Company's current
assets exceeded its current liabilities by $921,000. As of the date of this
Annual Report, the Company believes that its cash on hand, anticipated cash
flows from its operations and borrowings under its line of credit will be
sufficient to meet immediate operating needs. However, if cash flows are less
than anticipated, or if unanticipated expenses arise, the Company will have to
obtain additional funding to maintain its current level of operations and
business activities, or otherwise curtail business operations.
The Company will require additional financing to implement its plan of:
- converting its entire existing customer base to DITV Network;
- expanding DITV Network; and
- executing its strategy to promote its newly-branded game portal called
"BUZZTIME.com."
The Company may seek to raise additional funds through public or private
financing or other arrangements. There can be no assurance that the Company will
be able to raise capital on satisfactory terms. If the Company is unable to
raise capital when needed, its business, financial condition and results of
operations could be materially adversely affected.
Any additional equity financing may be dilutive to stockholders.
The Company Has Experienced Significant Losses And Its Future Profitability
Remains Uncertain. The Company has a history of significant losses, including
net losses of $2,498,000, $1,793,000 and $12,457,000 for each of the three years
ended December 31, 1999, and an accumulated deficit of $63,645,000 as of
December 31, 1999. The results of operations during these periods included
substantial charges related to the resignation or termination of certain former
executive officers, write-downs of assets associated with discontinued business
activities and shrinkage and obsolescence of equipment, accruals for litigation
settlement costs and other litigation expenses, charges relating to stock-based
compensation, charges related to Year 2000 compliance, as well as charges
related to the rollout of the new DITV Network and the development of the
Company's Internet strategies. The Company expects to incur significant
additional charges in the future in connection with the
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deployment of the Company's Internet strategies. There is no assurance that the
Company will ever operate profitably. See "Liquidity and Capital Resources" and
"Selected Consolidated Financial Data" for more information regarding the
Company's financial condition and need for financing.
The Company's Prospects For Growth Are Uncertain. DITV Network was launched
in April 1999 and is now being deployed to subscriber locations. The Company
currently plans to continue operating its original NTN network and DITV Network
concurrently until approximately June 2000. Immediate prospects for growth
depend, in part, on the successful introduction and implementation of the new
DITV Network. There can be no assurance that DITV Network will be favorably
received by current subscribers or that it will enable the Company to attract a
significant number of new subscribers. There also can be no assurance that the
Company can implement and operate DITV Network profitably.
In December 1999, the Company established a subsidiary, BUZZTIME.com, Inc.,
a Delaware corporation ("BUZZTIME.com"). The Company expects BUZZTIME.com to
function both as a developer and a distributor of game content. As a developer,
BUZZTIME.com will continue to augment the Company's 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, the Company expects to launch BUZZTIME.com as a new game web
site. The strategy is to develop and take the BUZZTIME.com brand beyond the
Internet and online services to multiple consumer interactive platforms. These
prospects are subject to risks and uncertainties, including those described in
this Annual Report, and there can be no assurance that the Company will be
successful in executing its strategy.
The Company Is Involved In Pending Litigation Proceedings. On June 11,
1997, the Company was 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 the Company's 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 the Company. The plaintiffs
further alleged that the defendants made false statements about, and failed to
disclose, contingent liabilities and phantom assets in the Company's
consolidated financial statements and independent auditor's audit reports.
According to the plaintiffs, these alleged misrepresentations and omissions
inflated the trading price of the Company's Common Stock.
In November 1999, the Company reached a tentative settlement agreement with
the plaintiffs in the federal lawsuit whereby the Company 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.
The Company is also involved in two pending lawsuits in Canada involving
Interactive Network, Inc. ("IN"), in which the Company and IN have each claimed
that the other is unlawfully infringing on its trademarks and certain other
proprietary rights. The litigation is at the discovery stage, and accordingly,
there can be no assurance as to the probable outcome of the litigation or its
potential impact on the Company's business operations in Canada or elsewhere.
The Company Faces Significant Competition. The entertainment business is
highly competitive. The Company competes with other companies for total
entertainment dollars in the marketplace. Its 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 its 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 the
Company's programming.
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The Company also competes 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. The Company seeks to
compete by providing high quality products, thereby establishing a favorable
reputation among frequent users. There can be no assurance, however, that it 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 the Company's products.
New Products And Rapid Technological Change May Affect The Company's
Operations. The emergence of new entertainment products and technologies,
changes in consumer preferences and other factors may limit the life cycle of
the Company's technologies and any future products and services it develops.
Accordingly, the Company's future performance will depend on its ability to:
- identify emerging technological trends in its 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 its 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 the Company 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 the Company's business,
financial condition and operating results.
The Company's Inability To Protect Its Intellectual Property Could
Seriously Damage Its Business. The Company relies on a combination of
trademarks, copyrights and trade secret laws to protect its proprietary rights
in certain of its products. Furthermore, it is the Company's policy that all
employees and consultants involved in research and development activities sign
nondisclosure agreements. Competitors may, however, misappropriate the Company's
technology or independently develop technologies that are as good as or better
than those of the Company. Competitors may also challenge or circumvent the
Company's proprietary rights. If the Company has to initiate or defend against
an infringement claim in the future to protect its proprietary rights, the
litigation over such claims could be time-consuming and costly, adversely
affecting its financial condition.
If The Company Cannot Establish Brand Awareness, Its Business May Be
Adversely Affected. Enhancing the BUZZTIME.com brand is critical to the
Company's ability to expand its user base and revenues. The Company believes
that the importance of brand recognition will increase as the number of
entertainment web sites grows and has, therefore, launched its "BUZZTIME
Everywhere" campaign. In order to attract and retain users and advertisers, the
Company intends to increase expenditures for creating and maintaining brand
loyalty. There is no assurance that it will be successful in building or
maintaining this brand. The Company's success in promoting and enhancing the
BUZZTIME.com brand will also depend on its success in providing high quality
content, features and functions that are attractive and entertaining to users of
online game shows and multi-player games. If advertisers or visitors to the
Company's web sites do not perceive its services to be of high quality, the
value of the BUZZTIME.com brand could be diminished, and this could adversely
affect its business, financial condition and results of operations.
The Company Has Recently Experienced 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 other games and programming broadcast via
the original NTN Network is still being used in approximately 40% of the
Company's hospitality locations as of March 16, 2000. Customers have experienced
certain recurring problems with 49 megahertz Playmakers related to noise
sensitivity and performance of the Playmaker's rechargeable
8
<PAGE> 9
batteries. The Company believes these equipment problems have contributed to a
high rate of terminations and bad debt experience. To address these problems,
the Company 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.
The Company Depends On A Single Supplier Of Playmakers. The Company
currently purchases the redesigned 900 megahertz Playmaker from a single,
unaffiliated Taiwanese manufacturer. Unless and until it succeeds in
establishing additional manufacturing relationships, the Company will continue
to depend on its current sole source supplier of Playmakers. If the Company
loses its supplier, its business will be adversely affected.
The Company's Games And Game Shows Are Subject To Gaming Regulations. The
Company operates online games of skill and chance that are regulated in many
jurisdictions and, in some instances, it rewards prizes to the participants. The
selection of prize winners is sometimes based on chance, although none of the
Company's games requires any form of monetary payment. The laws and regulations
that govern these 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 the Company offers its games. If such changes were to
happen, the Company may find it necessary to eliminate, modify or cancel certain
components of its products that could result in additional development costs
and/or the possible loss of revenue.
If The Company Fails To Manage Its Growth Effectively, It May Lose Business
and Experience Reduced Profitability. Continued implementation of the Company's
business plan requires an effective planning and management process. The
Company's growth has placed, and its anticipated future growth will continue to
place, a significant strain on its management systems and resources. If the
Company is to grow successfully, it must:
- improve its operational, administrative and financial systems;
- expand, train and manage its workforce; and
- attract and retain qualified management and technical personnel.
The Company plans to continue adding to its technical and Internet sales
and marketing force and its advertising sales department. However, competition
for qualified personnel is intense, particularly for employees with technical
and Internet sales and marketing expertise. The success of the Company depends
on hiring and retaining suitable personnel.
If Key Personnel Leave The Company, Its Business May Be Adversely
Affected. The Company's success greatly depends on the efforts of its executive
management, including the Chief Executive Officer, Chief Financial Officer and
President of BUZZTIME.com. The Company's ability to operate successfully will
depend significantly on the services and contributions of each of these
officers. Although the Company entered into an employment agreement with the
Chief Executive Officer on October 7, 1998, there can be no assurance that he
will continue his employment for any specified period of time. The Company's
business and operations may be adversely affected if one or more key executives
were to leave.
The Company's Stock Price Has Been Highly Volatile. The trading price of
the Company's 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 the Company or
its competitors, changes in financial estimates and recommendations by
securities analysts, the operating and stock price performance of other
companies that investors may deem comparable, and news reports relating to
trends in the Company's 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 the Company's stock, regardless of its operating
performance.
9
<PAGE> 10
Outstanding Options And Warrants May Adversely Affect The Company's Ability
To Engage In Certain Transactions And May Have A Dilutive Effect On The
Company's Stockholders. At 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. At
March 1, 2000, there were also outstanding warrants to purchase an aggregate of
approximately 3,008,238 shares of Common Stock at current exercise prices
ranging from $0.6875 to $6.125 per share. Substantially all of the shares
underlying these outstanding warrants are subject to currently effective
registration statements covering the resale of the underlying warrant shares by
the holders.
The foregoing options and warrants could adversely affect the Company's
ability to obtain future financing or engage in certain mergers or other
transactions, since the holders of those options and warrants can be expected to
exercise them at a time when the Company would be able to obtain additional
capital through a new offering of securities on terms more favorable than those
provided by such options and warrants. For the life of such options and
warrants, the holders are given the opportunity to profit from a rise in the
market price of the Common Stock without assuming the risk of ownership. To the
extent the trading price of the Common Stock at the time of exercise of any such
options or warrants exceeds the exercise price, such exercise will also have a
dilutive effect on the Company's stockholders, including purchases of the
offered shares.
The Company's Charter Contains Provisions That May Hinder Or Prevent A
Change In Control Of The Company. Certain provisions of the Company's
Certificate of Incorporation could make it more difficult for a third party to
acquire control of the Company, even if such a change in control would benefit
its stockholders. For example, the Company's 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 such document,
including those provisions relating to:
- the number, election and term of directors;
- the removal and the filling of vacancies of directors; and
- the supermajority voting requirements of the Certificate of
Incorporation.
These provisions could discourage third parties from taking over control of
the Company. Such provisions may also impede a transaction in which stockholders
receive a premium over then current market prices and impede stockholders'
ability to approve a transaction that they consider in their best interests.
The Company Does Not Expect To Pay Dividends During The Foreseeable
Future. The Company has never declared or paid any cash dividends on its Common
Stock and anticipates that for the foreseeable future any earnings will be
retained for use in its business. The Company's outstanding revolving line of
credit prohibits it from paying cash dividends without obtaining prior approval
from the lender.
If The Shares Of The Company's Common Stock Eligible For Future Sales Are
Sold, The Market Price Of Its Common Stock May Be Adversely Affected. Future
sales of substantial amounts of the Company's Common Stock in the public market
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 $6.50 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 the Company's principal business objectives is to increase its
direct contact with consumers. To that end, the Company maintains a web site on
the Internet (the "NTN Web Site") and is currently constructing a web site for
BUZZTIME on the Internet (the "BUZZTIME Web Site", together with NTN Web Site,
the "Web Sites"). The Company will face the risks described below in operating
the Web Sites on the Internet.
The Company Faces Significant Internet Competition. The Internet market is
new, rapidly evolving and intensely competitive. The Company expects this
competition to intensify in the future due in part to the minimal
10
<PAGE> 11
barriers to entry and the relatively low cost to launch a new web site. The
Company will compete with a variety of other entertainment and multimedia
companies on the Internet. Some of these competitors can devote substantial
resources to Internet commerce in the near future. The Web Sites will also
compete with traditional providers of entertainment and multimedia content and
services.
The Company believes that the principal competitive factors it will face in
providing entertainment and multimedia content and services through the 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
the Company's current and potential competitors have large customer bases,
greater brand recognition and significantly greater financial, marketing and
other resources than the Company. 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 the Company.
There can be no assurance that the Web Sites will be able to compete
successfully against current or future competitors.
The Company Faces 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 the Web Sites will depend, in part, on the Company's ability to do the
following:
- license leading technologies useful in the Internet services business;
- enhance the Web Sites' existing services;
- develop new services and technologies that address the increasingly
sophisticated and varied needs of its customers; and
- respond to technological advances and emerging industry standards and
practices on a cost-effective and timely basis.
There can be no assurance that the Company will successfully use new
technologies effectively or adapt the Web Sites to customer requirements or
emerging industry standards.
The Company Depends On Continued Growth Of The Internet. The Company's
future success depends on the increased use of the Internet. There can be no
assurance 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. The Company's
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.
The Company Will Only Be Able To Execute Its Business Plan If It Is
Successful In Achieving Its Advertising Revenue Goals. Consumer usage of the
Internet is relatively new, and the success of the Internet as an
11
<PAGE> 12
advertising medium will depend on its widespread adoption. The Company's
business would be materially adversely affected if the Internet advertising
market develops more slowly than it expects, or if the Company is unsuccessful
in achieving its advertising revenue goals. The Company expects that revenues
from Internet advertising will make up a significant amount of its 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.
The Company May Be Liable For The Content It Makes Available On The
Internet. The Company makes content available on the Web Sites and on the web
sites of its advertisers and distribution partners. The availability of this
content could result in claims against the Company based on a variety of
theories, including defamation, obscenity, negligence, or copyright or trademark
infringement. The Company could also be exposed to liability for third-party
content accessed through the links from the Web Sites to other web sites. The
Company may incur costs to defend itself against even baseless claims, and its
financial condition could be materially adversely affected if it is found liable
for information that it makes available. Implementing measures to reduce the
Company's exposure to this liability may require it to spend substantial
resources and may limit the attractiveness of its services to users.
The Company May Lose Visitors To The Web Sites If Its 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 the Company employs 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 the Company's activities or the
activities of third-party contractors involve the storage and transmission of
proprietary information, security breaches could damage the Company's reputation
and expose it to a risk of loss or litigation and possible liability. The
Company may be required to expend significant capital and other resources to
protect against such security breaches or to alleviate security-related
problems, and there can be no assurance that its security measures will prevent
security breaches. Any compromise of the Company's security systems could have a
material adverse effect on its reputation, business, prospects, financial
condition and results of operations.
The Company's Business May Suffer If It Has Difficulty Retaining Users On
The Web Sites. The Company's business and financial results depend on its
ability to retain users on the Web Sites. In any particular month, many of the
visitors to the Web Sites are not registered users, and many registered users do
not visit the Web Sites. The Company believes that intense competition has
caused, and will continue to cause, some of its registered users to seek online
entertainment on other web sites and spend less time on the Web Sites. It is
relatively easy for Internet users to go to competing sites, and the Company
cannot be certain that any steps it takes will maintain or improve its retention
of users. In addition, some new users may decide to visit the Web Sites out of
curiosity regarding the Internet and may later discontinue using Internet
entertainment services. If the Company is unable to retain its user base, its
business and financial results may suffer.
Laws Restricting the Internet Could Adversely Affect The Company's
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 the Web Sites offer, and could increase the cost of doing business on
the Internet. In addition, the Company does 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. The Company's business
could be materially adversely affected by any new legislation or regulation or
by the application or interpretation of existing laws to the Internet.
12
<PAGE> 13
PART IV
The Registrant hereby amends and restates Item 14 of its Annual Report on
Form 10-K for the fiscal year ending December 31, 1999 to read in its entirety
as follows:
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON
FORM 8-K
(a) The following documents are filed as a part of this report:
1. Consolidated Financial Statements and Schedule. The consolidated
financial statements and schedule of the Company and its consolidated
subsidiaries are set forth in the "Index to Consolidated Financial
Statements and schedule" on page F-1.
2. Exhibits. The following exhibits are filed as a part of this report:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
3.1 -- Amended and Restated Certificate of Incorporation of the
Company, as amended.(7)
3.2 -- Certificate of Designations, Rights and Preferences of
Series B Convertible Preferred Stock.(12)
3.3 -- Certificate of Amendment to Restated Certificate of
Incorporation of the Company, dated March 22, 2000.(1)
3.4 -- Certificate of Amendment to Restated Certificate of
Incorporation of the Company, dated March 24, 2000.(1)
3.5 -- By-laws of the Company.(2)
10.1 -- License Agreement with NTN Canada.(3)
10.2 -- National Football League License Agreement.(3)
10.3 -- Lease of Office with The Campus L.L.C.(4)
10.4* -- Resignation and General Release Agreement, dated December
31, 1996 between NTN Communications, Inc. and Patrick J.
Downs.(5)
10.5* -- Resignation and General Release Agreement, dated December
31, 1996 between NTN Communications, Inc. and Daniel C.
Downs.(5)
10.6* -- Resignation and General Release Agreement, dated December
31, 1996 between NTN Communications, Inc. and Ronald E.
Hogan.(5)
10.7* -- Resignation and General Release Agreement, dated December
31, 1996 between NTN Communications, Inc. and Gerald P.
McLaughlin.(5)
10.8* -- Resignation and General Release Agreement, dated December
31, 1996 between NTN Communications, Inc. and Michael J.
Downs.(5)
10.9* -- Resignation and General Release Agreement, dated December
31, 1996 between NTN Communications, Inc. and Robert
Klosterman.(5)
10.10* -- Letter agreement, dated March 4, 1997, between NTN and
Alan Magerman.(5)
10.11* -- Consulting Agreement, dated as of December 31, 1996,
between NTN Communications Inc. and Patrick J. Downs.(5)
10.12* -- Consulting Agreement, dated as of December 31, 1996,
between NTN Communications Inc. and Daniel C. Downs.(5)
10.13* -- Consulting Agreement, dated as of December 31, 1996,
between NTN Communications Inc. and Ronald E. Hogan.(5)
10.14* -- Consulting Agreement, dated as of December 31, 1996,
between NTN Communications Inc. and Gerald P.
McLaughlin.(5)
</TABLE>
13
<PAGE> 14
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.15* -- Consulting Agreement, dated as of March 14, 1997, between
NTN Communications Inc. and Donald Klosterman.(5)
10.16* -- General Release, dated as of December 31, 1996, between
NTN Communications Inc. and Patrick J Downs.(5)
10.17* -- General Release, dated as of December 31, 1996, between
NTN Communications Inc. and Daniel C. Downs.(5)
10.18* -- General Release, dated as of December 31, 1996, between
NTN Communications Inc. and Ronald E. Hogan.(5)
10.19* -- General Release, dated as of December 31, 1996, between
NTN Communications Inc. and Gerald P. McLaughlin.(5)
10.20* -- General Release, dated as of December 31, 1996, between
NTN Communications Inc. and Michael J. Downs.(5)
10.21* -- General Release, dated as of December 31, 1996, between
NTN Communications Inc. and Robert Klosterman.(5)
10.22* -- Special Stock Option dated August 18, 1996 between NTN
Communications, Inc. and Gerald Sokol, Jr.(5)
10.23* -- Special Stock Option dated August 25, 1996 between NTN
Communications, Inc. and Robert Bennett.(5)
10.24* -- Special Stock Option dated August 30, 1996 between NTN
Communications, Inc. and Edward C. Frazier.(5)
10.25* -- Amendment to Nonqualified Stock Option Agreement, dated
as of April 14, 1997, between NTN Communications, Inc.
and Edward C. Frazier.(6)
10.26 -- Warrant Agreement, dated as of February 18, 1998 between
NTN Communications, Inc. and American Stock Transfer and
Trust Company, as warrant agent, including a form of
warrant certificate.(7)
10.27* -- Performance Incentive Stock Option Agreement dated
November 4, 1996 by and between NTN Communications, Inc.
and Gerald Sokol, Jr.(7)
10.28* -- Nonqualified Stock Option Agreement dated May 14, 1997 by
and between NTN Communications, Inc. and Gerald Sokol,
Jr.(7)
10.29* -- Modification to Resignation Agreement, dated as of March
9, 1998 by and between NTN Communications, Inc. and
Daniel C. Downs.(7)
10.30* -- Modification to Resignation Agreement, dated as of March
9, 1998 by and between NTN Communications, Inc. and
Patrick J. Downs.(7)
10.31* -- Modification to Resignation Agreement, dated as of March
20, 1998 by and between NTN Communications, Inc. and
Ronald E. Hogan.(7)
10.32* -- Employment Agreement, dated July 1, 1998, by and between
NTN Communications, Inc. and Gerald Sokol, Jr.(8)
10.33* -- Employment Agreement, dated October 7, 1998, by and
between NTN Communications, Inc. and Stanley B.
Kinsey.(9)
10.34* -- Stock Option Agreement, dated October 7, 1998, by and
between NTN Communications, Inc. and Stanley B.
Kinsey.(9)
10.35* -- Resignation and Release Agreement, dated February 18,
1999, by and between NTN Communications, Inc. and Gerald
Sokol, Jr.(9)
10.36 -- Exchange Agreement, dated October 5, 1998, by and between
NTN Communications, Inc. and the Buyers as defined).(7)
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.37 -- Loan and Security Agreement, dated August 6, 1999, by and
between NTN Communications, Inc. and Coast Business
Credit, a division of Southern Pacific Bank.(10)
10.38 -- Settlement Agreement, dated November 1, 1999, by and
between the Business Software Alliance and NTN
Communications, Inc.(10)
10.39* -- Stock Option Agreement, dated October 7, 1999, by and
between NTN Communications, Inc. and Stanley B.
Kinsey.(11)
10.40* -- 1985 Incentive Stock Option Plan, as amended.(2)
23.00 -- Consent of KPMG LLP.(11)
27.00 -- Financial Data Schedule.(11)
</TABLE>
- ---------------
* Management Contract or Compensatory Plan.
(1) Filed herewith.
(2) Previously filed as an exhibit to the Company's registration statement on
Form S-8, File No. 33-75732, and incorporated by reference.
(3) Previously filed as an exhibit to the Company's report on Form 10-K for the
year ended December 31, 1990, and incorporated by reference.
(4) Previously filed as an exhibit to the Company's report on Form 10-K for the
year ended December 31, 1994, and incorporated herein by reference.
(5) Previously filed as an exhibit to the Company's report on Form 8-K dated
March 5, 1997 and incorporated by reference.
(6) Previously filed as an exhibit to the Company's report on Form 10-K dated
December 31, 1996 and incorporated by reference.
(7) Previously filed as an exhibit to the Company's registration statement on
Form S-3, File No. 333-69383, and incorporated by reference.
(8) Previously filed as an exhibit to the Company's report on Form 10-Q dated
September 30, 1998 and incorporated herein by reference.
(9) Previously filed as an exhibit to the Company's report on Form 10-K dated
December 31, 1998 and incorporated by reference.
(10) Previously filed as an exhibit to the Company's report on Form 10-Q dated
September 30, 1999 and incorporated herein by reference.
(11) Previously filed as an exhibit to the Company's report on Form 10-K for the
year ended December 31, 1999, and incorporated herein by reference.
(12) Previously filed as an exhibit to the Company's report on Form 8-K dated
November 7, 1997 and incorporated by reference.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment No. 1 to
Annual Report on Form 10-K to be signed on its behalf by the undersigned,
thereunto duly authorized.
NTN COMMUNICATIONS, INC.
By: /s/ KENDRA BERGER
----------------------------------
Chief Financial Officer
Dated: April 5, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Amendment No. 1 to Annual Report on Form 10-K has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ STANLEY B. KINSEY Chief Executive Officer and April 5, 2000
- ----------------------------------------------------- Chairman of the Board
Stanley B. Kinsey
/s/ BARRY BERGSMAN Director April 5, 2000
- -----------------------------------------------------
Barry Bergsman
/s/ ROBERT M. BENNETT Director April 5, 2000
- -----------------------------------------------------
Robert M. Bennett
/s/ DONALD C. KLOSTERMAN Director April 5, 2000
- -----------------------------------------------------
Donald C. Klosterman
/s/ ESTHER L. RODRIGUEZ Director April 5, 2000
- -----------------------------------------------------
Esther L. Rodriguez
/s/ GARY ARLEN Director April 5, 2000
- -----------------------------------------------------
Gary Arlen
/s/ VINCENT A. CARRINO Director April 5, 2000
- -----------------------------------------------------
Vincent A. Carrino
</TABLE>
16
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
3.1 -- Amended and Restated Certificate of Incorporation of the
Company, as amended.(7)
3.2 -- Certificate of Designations, Rights and Preferences of
Series B Convertible Preferred Stock.(12)
3.3 -- Certificate of Amendment to Restated Certificate of
Incorporation of the Company, dated March 22, 2000.(1)
3.4 -- Certificate of Amendment to Restated Certificate of
Incorporation of the Company, dated March 24, 2000.(1)
3.5 -- By-laws of the Company.(2)
10.1 -- License Agreement with NTN Canada.(3)
10.2 -- National Football League License Agreement.(3)
10.3 -- Lease of Office with The Campus L.L.C.(4)
10.4* -- Resignation and General Release Agreement, dated December
31, 1996 between NTN Communications, Inc. and Patrick J.
Downs.(5)
10.5* -- Resignation and General Release Agreement, dated December
31, 1996 between NTN Communications, Inc. and Daniel C.
Downs.(5)
10.6* -- Resignation and General Release Agreement, dated December
31, 1996 between NTN Communications, Inc. and Ronald E.
Hogan.(5)
10.7* -- Resignation and General Release Agreement, dated December
31, 1996 between NTN Communications, Inc. and Gerald P.
McLaughlin.(5)
10.8* -- Resignation and General Release Agreement, dated December
31, 1996 between NTN Communications, Inc. and Michael J.
Downs.(5)
10.9* -- Resignation and General Release Agreement, dated December
31, 1996 between NTN Communications, Inc. and Robert
Klosterman.(5)
10.10* -- Letter agreement, dated March 4, 1997, between NTN and
Alan Magerman.(5)
10.11* -- Consulting Agreement, dated as of December 31, 1996,
between NTN Communications Inc. and Patrick J. Downs.(5)
10.12* -- Consulting Agreement, dated as of December 31, 1996,
between NTN Communications Inc. and Daniel C. Downs.(5)
10.13* -- Consulting Agreement, dated as of December 31, 1996,
between NTN Communications Inc. and Ronald E. Hogan.(5)
10.14* -- Consulting Agreement, dated as of December 31, 1996,
between NTN Communications Inc. and Gerald P.
McLaughlin.(5)
10.15* -- Consulting Agreement, dated as of March 14, 1997, between
NTN Communications Inc. and Donald Klosterman.(5)
10.16* -- General Release, dated as of December 31, 1996, between
NTN Communications Inc. and Patrick J Downs.(5)
10.17* -- General Release, dated as of December 31, 1996, between
NTN Communications Inc. and Daniel C. Downs.(5)
10.18* -- General Release, dated as of December 31, 1996, between
NTN Communications Inc. and Ronald E. Hogan.(5)
10.19* -- General Release, dated as of December 31, 1996, between
NTN Communications Inc. and Gerald P. McLaughlin.(5)
</TABLE>
<PAGE> 18
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.20* -- General Release, dated as of December 31, 1996, between
NTN Communications Inc. and Michael J. Downs.(5)
10.21* -- General Release, dated as of December 31, 1996, between
NTN Communications Inc. and Robert Klosterman.(5)
10.22* -- Special Stock Option dated August 18, 1996 between NTN
Communications, Inc. and Gerald Sokol, Jr.(5)
10.23* -- Special Stock Option dated August 25, 1996 between NTN
Communications, Inc. and Robert Bennett.(5)
10.24* -- Special Stock Option dated August 30, 1996 between NTN
Communications, Inc. and Edward C. Frazier.(5)
10.25* -- Amendment to Nonqualified Stock Option Agreement, dated
as of April 14, 1997, between NTN Communications, Inc.
and Edward C. Frazier.(6)
10.26 -- Warrant Agreement, dated as of February 18, 1998 between
NTN Communications, Inc. and American Stock Transfer and
Trust Company, as warrant agent, including a form of
warrant certificate.(7)
10.27* -- Performance Incentive Stock Option Agreement dated
November 4, 1996 by and between NTN Communications, Inc.
and Gerald Sokol, Jr.(7)
10.28* -- Nonqualified Stock Option Agreement dated May 14, 1997 by
and between NTN Communications, Inc. and Gerald Sokol,
Jr.(7)
10.29* -- Modification to Resignation Agreement, dated as of March
9, 1998 by and between NTN Communications, Inc. and
Daniel C. Downs.(7)
10.30* -- Modification to Resignation Agreement, dated as of March
9, 1998 by and between NTN Communications, Inc. and
Patrick J. Downs.(7)
10.31* -- Modification to Resignation Agreement, dated as of March
20, 1998 by and between NTN Communications, Inc. and
Ronald E. Hogan.(7)
10.32* -- Employment Agreement, dated July 1, 1998, by and between
NTN Communications, Inc. and Gerald Sokol, Jr.(8)
10.33* -- Employment Agreement, dated October 7, 1998, by and
between NTN Communications, Inc. and Stanley B.
Kinsey.(9)
10.34* -- Stock Option Agreement, dated October 7, 1998, by and
between NTN Communications, Inc. and Stanley B.
Kinsey.(9)
10.35* -- Resignation and Release Agreement, dated February 18,
1999, by and between NTN Communications, Inc. and Gerald
Sokol, Jr.(9)
10.36 -- Exchange Agreement, dated October 5, 1998, by and between
NTN Communications, Inc. and the Buyers as defined).(7)
10.37 -- Loan and Security Agreement, dated August 6, 1999, by and
between NTN Communications, Inc. and Coast Business
Credit, a division of Southern Pacific Bank.(10)
10.38 -- Settlement Agreement, dated November 1, 1999, by and
between the Business Software Alliance and NTN
Communications, Inc.(10)
10.39* -- Stock Option Agreement, dated October 7, 1999, by and
between NTN Communications, Inc. and Stanley B.
Kinsey.(11)
10.40* -- 1985 Incentive Stock Option Plan, as amended.(2)
23.00 -- Consent of KPMG LLP.(11)
27.00 -- Financial Data Schedule.(11)
</TABLE>
<PAGE> 19
- ---------------
* Management Contract or Compensatory Plan.
(1) Filed herewith.
(2) Previously filed as an exhibit to the Company's registration statement on
Form S-8, File No. 33-75732, and incorporated by reference.
(3) Previously filed as an exhibit to the Company's report on Form 10-K for the
year ended December 31, 1990, and incorporated by reference.
(4) Previously filed as an exhibit to the Company's report on Form 10-K for the
year ended December 31, 1994, and incorporated herein by reference.
(5) Previously filed as an exhibit to the Company's report on Form 8-K dated
March 5, 1997 and incorporated by reference.
(6) Previously filed as an exhibit to the Company's report on Form 10-K dated
December 31, 1996 and incorporated by reference.
(7) Previously filed as an exhibit to the Company's registration statement on
Form S-3, File No. 333-69383, and incorporated by reference.
(8) Previously filed as an exhibit to the Company's report on Form 10-Q dated
September 30, 1998 and incorporated herein by reference.
(9) Previously filed as an exhibit to the Company's report on Form 10-K dated
December 31, 1998 and incorporated by reference.
(10) Previously filed as an exhibit to the Company's report on Form 10-Q dated
September 30, 1999 and incorporated herein by reference.
(11) Previously filed as an exhibit to the Company's report on Form 10-K for the
year ended December 31, 1999, and incorporated herein by reference.
(12) Previously filed as an exhibit to the Company's report on Form 8-K dated
November 7, 1997 and incorporated by reference.
<PAGE> 1
EXHIBIT 3.3
CERTIFICATE OF AMENDMENT
TO
RESTATED CERTIFICATE OF INCORPORATION
OF
NTN COMMUNICATIONS, INC.
Kendra Berger hereby certifies as follows:
She is the duly appointed and acting Chief Financial Officer and Secretary of
NTN Communications, Inc., a Delaware corporation.
The first paragraph of Article IV of the Restated Certificate of Incorporation
of this corporation is hereby amended to read in its entirety as follows:
"ARTICLE IV
The total number of shares of stock which the corporation shall have
authority to issue is 80,000,000 shares, of which 70,000,000 shares
shall be Common Stock, par value $.005 per share, and 10,000,000 shall
be Preferred Stock, par value $.005 per share."
The foregoing amendment of the Restated Certificate of Incorporation of this
corporation has been duly adopted in accordance with Section 242 of the Delaware
General Corporation Law.
Dated: March 22, 2000
/s/ Kendra Berger
-------------------------------
Kendra Berger, Chief Financial
Officer and Secretary
<PAGE> 1
EXHIBIT 3.4
CERTIFICATE OF AMENDMENT
TO
RESTATED CERTIFICATE OF INCORPORATION
OF
NTN COMMUNICATIONS, INC.
Kendra Berger hereby certifies as follows:
She is the duly appointed and acting Chief Financial Officer and Secretary of
NTN Communications, Inc., a Delaware corporation.
Articles IX, X and XI are hereby added to the Restated Certificate of
Incorporation of this corporation and shall read in their entirety as follows:
"ARTICLE IX
Number, Election and Term of Directors. Except as otherwise fixed by
or pursuant to the provisions of Article IV hereof relating to the
rights of the holders of Preferred Stock to elect additional directors
under specified circumstances, the number of the directors of the
Corporation shall be fixed from time to time by or pursuant to the
bylaws of the Corporation. The directors, other than those who may be
elected by the holders of Preferred Stock, shall be classified, with
respect to the time for which they severally hold office, into three
classes, as nearly equal in number as possible, as shall be provided
in the manner specified in the bylaws of the Corporation, one class to
be originally elected for a term expiring at the annual meeting of
stockholders to be held in 1994, another class to be originally
elected for a term expiring at the annual meeting of stockholders to
be held in 1995, and another class to be originally elected for a term
expiring at the annual meeting of stockholders to be held in 1996,
with each class to hold office until its successor is elected and
qualified. At each annual meeting of the stockholders of the
Corporation, the successors of the class of directors whose term
expires at that meeting shall be elected to hold office for a term
expiring at the annual meeting of stockholders held in the third year
following the year of their election.
Newly Created Directorships and Vacancies. Except as otherwise
provided for or fixed by or pursuant to the provisions of Article IV
hereof relating to the rights of the holders of Preferred Stock to
elect directors under specified circumstances, newly created
directorships resulting from any increase in the number of directors
and any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other cause shall be filled
by the affirmative vote of a majority of the remaining directors then
in the office, even though less than a quorum of the Board of
Directors. Any director elected in accordance with the preceding
sentence shall hold office for the remainder of the full term of the
class of directors in which the new directorship was created or the
vacancy occurred and until such director's successor shall have been
elected and qualified. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any
incumbent director.
Removal. Subject to the rights of any Preferred Stock to elect
directors under specified circumstances, any director may be removed
from office, with or without cause, and only by the affirmative vote
of the holders of 80% of the combined voting power of the then
outstanding shares of stock entitled to vote generally in the election
of directors, voting together as a single class.
<PAGE> 2
ARTICLE X
Any action required or permitted to be taken by the stockholders of
the Corporation must be effected at a duly called annual or special
meeting of such holders and may not be effected by any consent in
writing by such holders. Except as otherwise required by law and
subject to the rights of the holders of Preferred Stock, special
meetings of stockholders of the Corporation may be called only by the
Board of Directors pursuant to a resolution approved by a majority of
the entire Board of Directors. Notwithstanding anything contained in
this Restated Certificate of Incorporation to the contrary, the
affirmative vote of the holders of at least 80% of the voting power of
all shares of the Corporation entitled to vote generally in the
election of directors, voting together as a single class, shall be
required to alter, amend, adopt any provision inconsistent with or
repeal this Article X.
ARTICLE XI
Except as otherwise provided in this Article XI, no purchase by the
Corporation from any Controlling Person (as hereinafter defined) of
shares of any stock of the Corporation owned by such Controlling
Person shall be made at a price exceeding the average price paid by
such Controlling Person for all shares of stock of the Corporation
acquired by such Controlling Person during the two-year period
preceding the date of such proposed purchase unless such purchase is
approved by the affirmative vote of not less than a majority of the
voting power of the shares of stock of the Corporation entitled to
vote held by Disinterested Stockholders (as hereinafter defined).
The provisions of this Article XI shall not apply to (i) any offer to
purchase made by the Corporation which is made on the same terms and
conditions to the holders of all shares of stock of the Corporation,
(ii) any purchase by the Corporation of shares owned by a Controlling
Person occurring after the end of two years following the date of the
last acquisition by such Controlling Person of stock of the
Corporation, (iii) any transaction which may be deemed to be a
purchase by the Corporation of shares of its stock which is made in
accordance with the terms of any stock option or other employee
benefit plan now or hereafter maintained by the Corporation, or (iv)
any purchase by the Corporation of shares of its stock at prevailing
market prices pursuant to a stock repurchase program.
This Article XI shall not be amended without the affirmative vote of
not less than a majority of the stock of the Corporation entitled to
vote thereon; provided, however, that if, at the time of such vote,
there shall be one or more Controlling Persons, such affirmative vote
shall include the affirmative vote in favor of such amendment of not
less than a majority of the voting power of the shares of stock of the
Corporation entitled to vote thereon held by Disinterested
Stockholders.
For purposes of this Article XI: (i) the term "Controlling Person"
means any individual, corporation, partnership, trust, association or
other organization or entity (including any group formed for the
purpose of acquiring, voting or holding securities of the Corporation)
which either directly, or indirectly through one or more
intermediaries, owns, beneficially or of record, or controls by
agreement, voting trust or otherwise, at least 10% of the voting power
of the stock of the Corporation, and such term also includes any
corporation, partnership, trust, association or other organization or
entity in which one or more Controlling Persons have the power,
through the ownership of voting securities, by contract, or otherwise,
to influence significantly any of the management, activities or
policies of such corporation, partnership, trust, association, other
organization or entity and (ii) the term "Disinterested Stockholders"
means those holders of the stock of the Corporation entitled to vote
on any matter, none of which is a "Controlling Person.""
The foregoing amendment of the Restated Certificate of Incorporation of this
corporation has been duly adopted in accordance with Section 242 of the Delaware
General Corporation Law.
Dated: March 24, 2000
/s/ Kendra Berger
-------------------------------
Kendra Berger, Chief Financial
Officer and Secretary
