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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 March 31, 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 May 3, 2000 the registrant had 33,532,000 shares of common stock, $.005
par value, outstanding.
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PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
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NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31,
2000 December 31,
Assets (Unaudited) 1999
------------- -------------
Current Assets:
Cash and cash equivalents $ 463,000 $ 1,044,000
Restricted cash 102,000 239,000
Accounts receivable, net 1,788,000 2,541,000
Investment available for sale 1,017,000 937,000
Deposits on broadcast equipment 811,000 611,000
Prepaid expenses and other current assets 1,051,000 1,015,000
------------- -------------
Total current assets 5,232,000 6,387,000
Broadcast equipment and fixed assets, net 12,297,000 10,470,000
Software development costs, net 71,000 138,000
Other assets 255,000 292,000
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Total assets $ 17,855,000 $ 17,287,000
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Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $ 1,525,000 $ 1,421,000
Accrued expenses 1,783,000 1,498,000
Accrual for litigation costs 226,000 334,000
Accrual for management severance 471,000 598,000
Obligations under capital leases 827,000 740,000
Deferred revenue 787,000 796,000
Note payable 79,000 79,000
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Total current liabilities 5,698,000 5,466,000
Obligations under capital leases 408,000 475,000
Accrual for settlement warrants -- 1,793,000
Revolving line of credit 3,700,000 2,486,000
7% senior convertible notes 4,558,000 4,705,000
Other long-term liabilities 91,000 141,000
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Total liabilities 14,455,000 15,066,000
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Shareholders' equity:
Series A 10% cumulative convertible preferred stock, $.005 par
value, 5,000,000 shares authorized; 161,000 shares issued
and outstanding at March 31, 2000 and December 31, 1999 1,000 1,000
Common stock, $.005 par value, 70,000,000 shares authorized;
31,515,000 and 29,914,000 shares issued and outstanding
at March 31, 2000 and December 31, 1999, respectively 157,000 149,000
Additional paid-in capital 67,516,000 66,548,000
Accumulated deficit (63,839,000) (63,645,000)
Accumulated other comprehensive gain (loss) 37,000 (360,000)
Treasury stock, at cost, 111,000 shares at March 31, 2000
and December 31, 1999 (472,000) (472,000)
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Total shareholders' equity 3,400,000 2,221,000
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Total liabilities and shareholders' equity $ 17,855,000 $ 17,287,000
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See accompanying notes to unaudited consolidated financial statements
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NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
Three Months Ended
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March 31, March 31,
2000 1999
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Revenues:
Hospitality revenues $ 5,765,000 $ 5,227,000
Internet revenues 82,000 110,000
America Online fees -- 180,000
Other revenues 16,000 170,000
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Total revenues 5,863,000 5,687,000
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Operating expenses:
Direct operating costs 1,516,000 1,145,000
Selling, general and administrative 3,352,000 2,665,000
Litigation, legal and professional fees (1,074,000) 242,000
Equipment lease expense -- 234,000
Stock-based compensation expense 194,000 39,000
Depreciation and amortization 1,930,000 1,697,000
Bad debt expense 375,000 193,000
Research and development 147,000 135,000
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Total operating expenses 6,440,000 6,350,000
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Operating loss (577,000) (663,000)
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Other income (expense):
Interest income (expense), net 237,000 (159,000)
Other 146,000 (10,000)
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Total other income (expense) 383,000 (169,000)
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Income (loss) before income taxes (194,000) (832,000)
Provision for income taxes -- --
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Net income (loss) $ (194,000) $ (832,000)
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Net income (loss) per common share - basic and diluted $ (0.01) $ (0.03)
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Weighted average shares outstanding - basic and diluted 30,500,000 27,875,000
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See accompanying notes to unaudited consolidated financial statements
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NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended
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March 31 March 31
2000 1999
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Cash flows provided by (used in) operating activities:
Net Income (loss) $ (194,000) $ (832,000)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization 1,930,000 1,697,000
Provision for doubtful accounts 375,000 193,000
Non-cash compensation charges 194,000 39,000
Expiration of Settlement Warrant obligation (1,793,000) --
Accreted interest expense 94,000 142,000
Amortization of deferred revenue -- (51,000)
Gain on sale of investment available for sale (77,000) --
Changes in assets and liabilities:
Restricted cash 137,000 --
Accounts receivable 410,000 (492,000)
Deposits on broadcast equipment (200,000) --
Prepaid expenses and other assets (200,000) 87,000
Accounts payable and accrued expenses 367,000 (692,000)
Deferred revenue (9,000) 221,000
Management severance and other long-term liabilities (165,000) (385,000)
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Net cash provided by (used in) operating activities 869,000 (73,000)
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Cash flows provided by (used in) investing activities:
Capital expenditures (3,389,000) (875,000)
Notes receivable 138,000 19,000
Proceeds from sale of investments available for sale 362,000 --
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Net cash provided by (used in) investing activities (2,889,000) (856,000)
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Cash flows provided by (used in) financing activities:
Principal payments on capital leases (218,000) (123,000)
Borrowings from revolving line of credit 8,608,000 --
Principal payments on revolving line of credit (7,394,000) --
Principal payments on notes payable (50,000) --
Exercise of stock options and warrants 493,000 150,000
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Net cash provided by (used in) financing activities 1,439,000 27,000
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Net increase (decrease) in cash and cash equivalents (581,000) (902,000)
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Cash and cash equivalents at beginning of period 1,044,000 4,560,000
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Cash and cash equivalents at end of period $ 463,000 $ 3,658,000
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See accompanying notes to unaudited consolidated financial statements
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NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended
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March 31 March 31
2000 1999
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Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 152,000 $ 26,000
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Income taxes $ -- $ --
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Supplemental disclosure of non-cash investing and
financing activities:
Issuance of common stock in payment of interest $ 86,000 $ --
=============== ===============
Equipment acquired under capital leases $ 238,000 $ 332,000
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Exchange of preferred stock for convertible notes and warrants $ -- $ 5,913,000
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Unrealized holding gain on investments $ 397,000 $ --
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Exchange of convertible notes to common stock $ 202,000 $ --
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See accompanying notes to unaudited consolidated financial statements
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NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 their operations and their cash
flows 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. 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 ended December 31, 2000.
The consolidated financial statements for the three months ended March 31,
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 filed 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. EARNINGS (LOSS) PER SHARE
Options, warrants, convertible preferred stock and convertible notes
representing approximately 14,632,000 and 11,628,000 potentially dilutive common
shares have been excluded from the computations of net income (loss) per share
for the three months ended March 31, 2000 and March 31, 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.com divisions. Hospitality revenue is
generated primarily from broadcasting content to customer locations through an
interactive television network. Hospitality revenues comprise 98% of the
Company's total revenue. Revenue from BUZZTIME.com is primarily generated from
the distribution of its 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:
Three Months Ended
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March 31, March 31,
2000 1999
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Revenues
NTN Network $ 5,771,000 $ 5,282,000
BUZZTIME.com 82,000 290,000
Corporate 10,000 21,000
Other -- 94,000
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Total Revenue $ 5,863,000 $ 5,687,000
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Operating income (loss)
NTN Network $ 565,000 $ 1,369,000
BUZZTIME.com (848,000) (544,000)
Corporate (294,000) (1,469,000)
Other -- (19,000)
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Operating loss $ (577,000) $ (663,000)
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4. SETTLEMENT WARRANTS
The results for the three months ended March 31, 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. SUBSEQUENT EVENTS
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 $5,185,000, will be used primarily for working capital and general
corporate purposes relating to the Company's launch of its new game portal,
BUZZTIME.com and ongoing conversion of the NTN Network's hospitality locations
to the Company's new DITV technology.
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, which risk factors are incorporated herein by
reference.
GENERAL
NTN Communications, Inc. ("NTN" or the "Company"), develops, produces and
distributes interactive entertainment and owns and operates what it believes to
be the largest "out-of-home" interactive consumer marketing television network
in the United States. NTN operates its businesses principally through two
operating divisions:
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BUZZTIME.com, Inc.(TM) ("BUZZTIME") and The NTN Network(R).
BUZZTIME, NTN's wholly-owned subsidiary formed in December 1999, owns the
exclusive rights to two separate sets of game content. First, BUZZTIME owns the
largest known digital trivia game show library, encompassing content from widely
diverse areas of knowledge. Second, BUZZTIME owns the rights to eight unique "TV
Play-along" sports games, played in conjunction with live televised sports
programming. This is accomplished through NTN's interactive broadcast studio
that enables the Company to turn televised sports or other televised events into
a live interactive game.
The NTN Network is North America's largest "out-of-home" interactive
television network. The unique private network, distributed by Internet-enhanced
technology, broadcasts a variety of multi-player sports and trivia games 365
days a year to hospitality venues such as restaurants, sports bars, hotels,
clubs and military bases totaling approximately 3,300 locations in North America
("Locations") as of May 1, 2000. A unique feature of NTN Network's interactive
programming is that all players compete in real-time within each Location and
are ranked at the end of each game against players in all Locations throughout
North America. This enables each Location to create on-premises promotions to
increase patron loyalty as well as allowing NTN to capture national sponsors who
want to use the competitions as a promotional tool.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND MARCH 31, 1999
Operations for the three months ended March 31, 2000 resulted in a net loss
of $194,000. 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 three months ended March 31, 2000 was
$1,987,000 compared to a net loss of $832,000 for the three months ended March
31, 1999.
Total revenues increased 3% to $5,863,000 for the three months ended March
31, 2000 from $5,687,000 for the three months ended March 31, 1999. This
increase is due to an increase in hospitality revenues, which was partially
offset by decreases in Internet revenues, America Online fees and other revenues
as the Company winds down such relationships in preparation for its launch of
BUZZTIME.com.
Hospitality revenues increased 10% to $5,765,000 for the three months ended
March 31, 2000 from $5,227,000 for the three months ended March 31, 1999. This
increase is primarily due to an increase in rates charged for the setup,
installation and training for the DITV network as compared to the original
network. During the three months ended March 31, 2000, approximately 375 DITV
systems were installed. Advertising revenue for hospitality also increased to
$399,000 for the three months ended March 31, 2000 from $83,000 for the three
months ended March 31, 1999 due to new advertising contracts that did not exist
for the three months ended March 31, 1999.
Internet revenues decreased 25% to $82,000 for the three months ended March
31, 2000 from $110,000 for the three months ended March 31, 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 March 31,
2000, compared to $180,000 for the three months ended March 31, 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 21 million subscribers allowing promotion of
the BUZZTIME.com website on each of thirteen AOL channels. The Company will
receive extensive promotional branding and revenue opportunities, however, it
will receive little or no revenue directly from AOL.
Other revenues decreased 91% to $16,000 for the three months ended March 31,
2000 from $170,000 for the three months ended March 31, 1999. Included in other
revenue for the three months ended March 31, 1999 was approximately $94,000 of
revenue from IWN, Inc. and approximately $51,000 of deferred revenue from
equipment sales. No revenue was recorded for IWN or equipment sales for the
three months ended March 31, 2000.
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Direct operating costs increased 32% to $1,516,000 for the three months
ended March 31, 2000 from $1,145,000 for the three months ended March 31, 1999.
This increase was due primarily to increased ISP charges of $314,000 due to
additional services needed to support the DITV network for the three months
ended March 31, 2000, and to a lesser extent, to expenses of approximately
$114,000 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 for the three months ended March 31, 2000. Advertising commissions
also increased by approximately $116,000 directly related to the increase in
hospitality advertising revenue. These increases were partially offset by a
decrease of approximately $130,000 for technical site service costs which can be
attributed to new equipment at the sites for the DITV network which have
required less servicing than the 49 MHz network equipment. The Company expects
direct operating costs to continue to increase as sites are converted to the
DITV network and for ongoing ISP charges compared to prior periods. The
conversion is expected to be complete in the fall of 2000.
Selling, general and administrative expenses increased 26% to $3,352,000 for
the three months ended March 31, 2000 from $2,665,000 for the three months ended
March 31, 1999. Salaries and related payroll taxes, benefits and recruiting fees
increased approximately $653,000 for the three months ended March 31, 2000 due
to an increase in the number of employees as compared to the three months ended
March 31, 1999. Consulting expenses increased approximately $108,000 related to
the launch of the Internet website and investor relations for the three months
ended March 31, 2000.
Bad debt expense increased 94% to $375,000 for the three months ended March
31, 2000 from $193,000 for the three months ended March 31, 1999. This increase
is directly related to continuing evaluation of the uncollectible accounts.
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 three months ended March 31, 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 $178,000 for the three months ended
March 31, 2000 from $242,000 for the three months ended March 31, 1999.
Equipment leases decreased for the three months ended March 31, 2000 by
$234,000 due to the payoff of such leases during 1999.
Stock-based compensation expense increased to $194,000 for the three months
ended March 31, 2000 from $39,000 for the three months ended March 31, 1999. The
charges resulted from the issuance of warrants and options to employees and
non-employees, which can vary from period-to-period.
Research and development expenses were $147,000 for the three months ended
March 31, 2000, compared to $135,000 for the three months ended March 31, 1999.
The current period expenses result from the Company's research and development
efforts related to the next generation of the DITV network, Internet stations
and future Internet web sites. For the three-month period ended March 31, 1999,
the Company's research and development efforts focused primarily on the upgrade
of the NTN network.
Interest income (expense), net, includes a one-time expense reduction of
approximately $541,000 from the reversal of the Settlement Warrant liability for
the three months ended March 31, 2000. Excluding the one-time expense reduction,
interest income (expense), net, increased to $304,000 for the three months ended
March 31, 2000 from $159,000 for the three months ended March 31, 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 in the first quarter of 1999.
Other income (expense) increased to $146,000 for the three months ended
March 31, 2000 from ($10,000) for the three months ended March 31, 1999. Other
income includes gains on sales of investments held for sale and equipment.
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LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, the Company had cash and cash equivalents of $463,000
and a working capital deficit of $466,000, 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 $869,000 for the three months ended March 31, 2000
and net cash used by operations was $73,000 for the three months ended March 31,
1999. The principal uses of cash from operations for the three months ended
March 31, 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 $165,000. Depreciation, amortization and other non-cash
charges offset the uses. Net cash used in investing activities was $2,889,000
for the three months ended March 31, 2000 and $856,000 for the three months
ended March 31, 1999. Included in net cash used in investing activities for the
three months ended March 31, 2000 were $3,389,000 in capital expenditures offset
by proceeds from the sale of investments available for sale of $362,000 and
notes receivable of $138,000 for the three months ended March 31, 2000. Net cash
provided by financing activities was $1,439,000 for the three months ended March
31, 2000 and $27,000 for the three months ended March 31,1999. Net cash provided
by financing activities for the three months ended March 31, 2000 included
$1,214,000 of proceeds from the revolving line of credit, net of principal
payments, and $493,000 of proceeds from the exercise of stock options and
warrants offset by $218,000 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 $5,185,000, will be used primarily for working capital and general
corporate purposes relating to the Company's launch of its new game portal,
BUZZTIME.com 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 future liquidity needs.
Depending on market conditions, NTN 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.com, and further expansion and improvement of its
DITV Network.
The Company believes that its cash on hand (including the remaining net
proceeds from the recent sale of Common Stock), anticipated cash flows from its
operations and borrowings under its line of credit will be sufficient to meet
its operating needs through 2000. If cash flow is less than anticipated,
however, or if the Company incurs unexpected expenses, the Company may need
additional funding or need to slow capital intensive business activities. It is
likely the Company will need to raise additional capital in future periods to
expand 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.
YEAR 2000
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of March 31, 2000, the Company owned an investment available for sale
which is common stock of an Australian company that is subject to market risk.
At March 31, 2000, the Company recorded an
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unrealized gain of $397,000 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.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
In January 2000, approximately 26,000 shares of Common Stock were issued in a
private transaction in payment of interest of approximately $86,000 on the 7%
senior convertible notes.
Similarly, in March 2000, $200,000 of the Company's outstanding principal amount
of the 7% senior convertible notes, plus accrued interest, was converted into
approximately 159,000 shares of Common Stock in accordance with the terms of the
notes.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
None
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: May 10, 2000
By: /s/ Kendra Berger
----------------------------------
Kendra Berger
Chief Financial Officer
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EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- ------- -----------
27 Financial Data Schedule.