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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES [ ] NO [X]
At August 5, 2003, the registrant had outstanding 46,065,000 shares of
common stock, $.005 par value.
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
JUNE 30,
2003 DECEMBER 31,
ASSETS (PLEDGED) (UNAUDITED) 2002
------------- -------------
Current assets:
Cash and cash equivalents $ 3,810,000 $ 577,000
Restricted cash 271,000 102,000
Accounts receivable, net 1,754,000 2,013,000
Inventory 324,000 241,000
Investment available for sale 168,000 178,000
Deposits on broadcast equipment 108,000 --
Deferred costs 407,000 492,000
Prepaid expenses and other current assets 613,000 581,000
------------- -------------
Total current assets 7,455,000 4,184,000
Broadcast equipment and fixed assets, net 4,291,000 5,141,000
Software development costs, net 579,000 591,000
Deferred costs 349,000 370,000
Other assets 1,563,000 556,000
------------- -------------
Total assets $ 14,237,000 $ 10,842,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 826,000 $ 657,000
Accrued expenses 1,392,000 1,177,000
Sales tax payable 268,000 284,000
Income taxes payable 16,000 30,000
Obligations under capital leases 155,000 184,000
Equipment note payable 13,000 --
Revolving line of credit -- 89,000
Deferred revenue - Hospitality Technologies 810,000 1,199,000
Deferred revenue - Buzztime 76,000 --
------------- -------------
Total current liabilities 3,556,000 3,620,000
Obligations under capital leases, excluding current portion 200,000 199,000
Revolving line of credit 1,875,000 2,250,000
8% Senior subordinated convertible notes -- 1,997,000
Deferred revenue - Hospitality Technologies 350,000 653,000
Equipment note payable 61,000 --
------------- -------------
Total liabilities 6,042,000 8,719,000
------------- -------------
Minority interest in consolidated subsidiary -- 643,000
------------- -------------
Shareholders' equity:
Series A 10% cumulative convertible preferred stock,
$.005 par value, 5,000,000 shares authorized;
161,000 shares issued and outstanding at
June 30, 2003 and December 31, 2002 1,000 1,000
Common stock, $.005 par value, 84,000,000 shares
authorized; 46,030,000 and 39,381,000 shares
issued and outstanding at June 30, 2003 and
December 31, 2002, respectively 228,000 196,000
Additional paid-in capital 88,823,000 81,211,000
Accumulated deficit (80,182,000) (79,079,000)
Accumulated other comprehensive loss (649,000) (639,000)
Treasury stock, at cost, 6,000 and 49,000 shares at
June 30, 2003 and December 31, 2002, respectively (26,000) (210,000)
------------- -------------
Total shareholders' equity 8,195,000 1,480,000
------------- -------------
Total liabilities and shareholders' equity $ 14,237,000 $ 10,842,000
============= =============
See accompanying notes to unaudited consolidated financial statements
2
NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------- ---------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2003 2002 2003 2002
------------ ------------ ------------ ------------
Revenues:
Hospitality Technologies revenues $ 6,640,000 $ 6,128,000 $13,970,000 $11,967,000
Buzztime service revenues 58,000 27,000 65,000 83,000
Other revenues 3,000 3,000 5,000 5,000
------------ ------------ ------------ ------------
Total revenues 6,701,000 6,158,000 14,040,000 12,055,000
------------ ------------ ------------ ------------
Operating expenses:
Direct operating costs (includes depreciation of
$728,000, $842,000, $1,471,000 and $1,695,000
for the three months ended June 30, 2003 and
2002 and for the six months ended June 30, 2003
and 2002, respectively) 2,488,000 2,617,000 5,492,000 4,787,000
Selling, general and administrative 4,631,000 3,985,000 8,739,000 7,394,000
Depreciation and amortization 257,000 381,000 579,000 778,000
Research and development 87,000 6,000 164,000 9,000
------------ ------------ ------------ ------------
Total operating expenses 7,463,000 6,989,000 14,974,000 12,968,000
------------ ------------ ------------ ------------
Operating loss (762,000) (831,000) (934,000) (913,000)
------------ ------------ ------------ ------------
Other income (expense):
Interest income 3,000 2,000 3,000 6,000
Interest expense (74,000) (121,000) (167,000) (254,000)
------------ ------------ ------------ ------------
Total other expense (71,000) (119,000) (164,000) (248,000)
------------ ------------ ------------ ------------
Loss before minority interest in loss of
consolidated subsidiary and income taxes (833,000) (950,000) (1,098,000) (1,161,000)
Minority interest in loss of consolidated subsidiary -- 52,000 10,000 97,000
------------ ------------ ------------ ------------
Net loss before income taxes (833,000) (898,000) (1,088,000) (1,064,000)
Provision for income taxes 7,000 -- 15,000 --
------------ ------------ ------------ ------------
Net loss $ (840,000) $ (898,000) $(1,103,000) $(1,064,000)
============ ============ ============ ============
Net loss per common share - basic and diluted: $ (0.02) $ (0.02) $ (0.03) $ (0.03)
============ ============ ============ ============
Weighted average shares outstanding - basic
and diluted 44,756,000 39,977,000 43,413,000 39,294,000
============ ============ ============ ============
See accompanying notes to unaudited consolidated financial statements
3
NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
SIX MONTHS ENDED
-------------------------------
JUNE 30, JUNE 30,
2003 2002
-------------- --------------
Cash flows provided by operating activities:
Net loss $ (1,103,000) $ (1,064,000)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 2,050,000 2,473,000
Provision for doubtful accounts 289,000 171,000
Non-cash stock-based compensation charges 91,000 55,000
Minority interest in loss of consolidated subsidiary (10,000) (97,000)
Non-cash interest expense 14,000 80,000
Accreted interest expense 3,000 19,000
Loss from disposition of equipment 43,000 90,000
Changes in assets and liabilities:
Restricted cash (169,000) (20,000)
Accounts receivable (30,000) (244,000)
Inventory (83,000) (24,000)
Deferred costs 106,000 122,000
Prepaid expenses and other assets (139,000) 42,000
Accounts payable and accrued expenses 358,000 (193,000)
Income taxes payable (14,000) --
Deferred revenue (616,000) (743,000)
-------------- --------------
Net cash provided by operating activities 790,000 667,000
-------------- --------------
Cash flows from investing activities:
Capital expenditures (632,000) (628,000)
Acquisition of businesses -- (101,000)
Deposits on broadcast equipment (108,000) 69,000
-------------- --------------
Net cash used in investing activities (740,000) (660,000)
-------------- --------------
Cash flows from financing activities:
Principal payments on capital leases (115,000) (104,000)
Principal payments on notes payable (244,000) --
Borrowings from revolving line of credit 13,260,000 11,551,000
Principal payments on revolving line of credit (13,724,000) (11,751,000)
Proceeds from issuance of common stock,
net of offering expenses 3,748,000 --
Proceeds from exercise of stock options and warrants 258,000 131,000
-------------- --------------
Net cash provided by (used in)financing activities 3,183,000 (173,000)
-------------- --------------
Net increase (decrease) in cash and cash equivalents 3,233,000 (166,000)
Cash and cash equivalents at beginning of period 577,000 1,296,000
-------------- --------------
Cash and cash equivalents at end of period $ 3,810,000 $ 1,130,000
============== ==============
See accompanying notes to unaudited consolidated financial statements
4
NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited) (Continued)
SIX MONTHS ENDED
-------------------------------
JUNE 30, JUNE 30,
2003 2002
-------------- --------------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 152,000 $ 155,000
============== ==============
Income taxes $ 29,000 $ --
============== ==============
Supplemental disclosure of non-cash investing
and financing activities:
Issuance of common stock in payment of interest $ 54,000 $ 80,000
============== ==============
Equipment acquired under capital leases and notes payable $ 499,000 $ 87,000
============== ==============
Unrealized holding loss on investments $ 10,000 $ 67,000
============== ==============
Issuance of treasury stock in payment of board compensation $ 44,000 $ 30,000
============== ==============
Issuance of common stock in payment of dividends $ 8,000 $ 8,000
============== ==============
Conversion of Senior Subordinated Notes into common stock $ 2,000,000 $ --
============== ==============
Conversion of Buzztime Preferred Series A into common stock $ 633,000 $ --
============== ==============
Issuance of common stock for licensed technology $ 1,000,000 $ --
============== ==============
Supplemental non-cash disclosure of acquisition of
businesses:
Accounts receivable (net) -- $ 121,000
Inventory -- 89,000
Fixed assets -- 38,000
Other assets -- 419,000
Accounts payable & accrued liabilities -- (244,000)
Deferred revenue -- (31,000)
Line of credit -- (72,000)
Common stock issued -- (320,000)
See accompanying notes to unaudited consolidated financial statements
5
NTN COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 2003
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 its majority-owned
subsidiaries (collectively, "we" or "NTN") and the results of operations and
cash flows of NTN for the interim periods presented. Management has elected to
omit substantially all notes to our consolidated financial statements as
permitted by the rules and regulations of the Securities and Exchange
Commission. The results of operations for the interim periods are not
necessarily indicative of results to be expected for any other interim period or
for the year ending December 31, 2003.
The consolidated financial statements for the three months and six months
ended June 30, 2003 and 2002 are unaudited and should be read in conjunction
with the consolidated financial statements and notes thereto included in our
Form 10-K for the year ended December 31, 2002.
We have reclassified certain items in the prior period consolidated
financial statements to conform to the current period presentation.
2. CRITICAL ACCOUNTING POLICIES
The discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with U.S. generally accepted accounting principles. The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities. On an
on-going basis, we evaluate our estimates, including those related to deferred
costs and revenues, depreciation of broadcast equipment and other fixed assets,
bad debts, investments, intangible assets, financing operations, and
contingencies and litigation. We base our estimates on historical experience and
on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements.
o We record deferred costs and revenues related to the costs and related
installation revenue associated with installing new customer sites.
Based on Staff Accounting Bulletin No. 101, we amortize these amounts
over an estimated three-year average life of a customer relationship. If
a significant number of our customers leave us before the estimated life
of each customer is attained, amortization of those deferred costs and
revenues would accelerate, which would result in net incremental
revenue.
o We incur a relatively significant level of depreciation expense in
relationship to our operating income. The amount of depreciation expense
in any fiscal year is largely related to the estimated life of handheld,
wireless Playmaker devices and computer servers located at our customer
sites. The Playmakers are depreciated over a four-year life and the
servers over a three-year life. The estimated life of these assets was
determined based upon anticipated technology changes. If our Playmakers
and servers turn out to have a longer life, on average, than estimated,
our depreciation expense would be significantly reduced in those future
periods. Conversely, if the Playmakers and servers turn out to have a
shorter life, on average, than estimated, our depreciation expense would
be significantly increased in those future periods.
o We maintain allowances for doubtful accounts for estimated losses
resulting from the inability of our customers to make required payments.
The allowance is determined based on reserving for all customers that
have terminated our service and all accounts over 90 days past due, plus
five percent of outstanding balances for all unreserved customer
balances. If the financial condition of our customers were to
deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required.
o We assess our inventory for estimated obsolescence or unmarketable
inventory and write down the difference between the cost
6
of inventory and the estimated market value based upon assumptions about future
sales and supply on-hand. If actual market conditions are less favorable than
those projected by management, additional inventory write-downs may be required.
We do not have any of the following:
o Off-balance sheet arrangements;
o Certain trading activities that include non-exchange traded contracts
accounted for at fair value or speculative or hedging instruments; or
o Relationships and transactions with persons or entities that derive
benefits from any non-independent relationship other than the related
party transactions discussed in ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS or in the SUBSEQUENT EVENTS or in the RELATED
PARTIES notes of the audited financial statements in our Form 10-K for
the year ended December 31, 2002.
STOCK-BASED COMPENSATION
In December 2002, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 148, ACCOUNTING FOR STOCK-BASED
COMPENSATION-TRANSITION AND DISCLOSURE-AN AMENDMENT OF FASB STATEMENT NO. 123
(SFAS No. 148). SFAS No. 148 amends FASB Statement No. 123; ACCOUNTING FOR
STOCK-BASED COMPENSATION (SFAS No. 123), to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. We adopted the disclosure provisions of SFAS No. 148 beginning with our
annual financial statements for the year ended December 31, 2002.
We applied Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB No. 25) and related interpretations in
accounting for our stock options. No compensation expense has been recognized
for the options granted under the Special Plan and the Option Plan unless the
grants were issued at exercise prices below market value. The following table
represents the effect on net loss and net loss per share if we had applied the
fair value recognition provisions of SFAS No. 123 as amended by SFAS No. 148.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
2003 2002 2003 2002
----------- ---------- ----------- -----------
Net loss As reported............................. $ 840,000 $ 898,000 $1,103,000 $1,064,000
Add: stock-based employee
compensation expense included
in reported net loss, net of
related tax effects................. 2,000 2,000 4,000 4,000
Deduct: stock-based employee
compensation expense using
fair value method, net of
related tax effects................. 256,000 193,000 542,000 461,000
----------- ---------- ----------- -----------
Pro forma............ $1,094,000 $1,089,000 $1,641,000 $1,521,000
Basic and diluted net As reported............ $ 0.02 $ 0.02 $ 0.03 $ 0.03
loss per share
Pro forma.............. $ 0.02 $ 0.03 $ 0.04 $ 0.04
The per share weighted-average fair value of stock options granted during
the three months ended June 30, 2003 and 2002 was $1.09 and $1.00, respectively.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions: 2003 -- dividend yield of 0%, risk-free interest rate of 1.77%,
expected volatility of 91%, and expected life of 3.0 years; and 2002 -- dividend
yield of 0%, risk-free interest rate of 4.48%, expected volatility of 123%, and
expected life of 4.8 years. In compliance with APB No. 25, we expensed $2,000
for the three months ended June 30, 2003 and 2002, associated with the grants of
80,000 options in 2000 at exercise prices below market value pursuant to the
Option Plan. No options were granted at exercise prices below market value in
2003 and 2002 pursuant to the Option Plan.
The per share weighted-average fair value of stock options granted during
the six months ended June 30, 2003 and 2002 was $0.78 and $0.80, respectively.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions: 2003 -- dividend yield of 0%, risk-free interest rate of 2.68%,
expected
7
volatility of 112%, and expected life of 4.2 years; and 2002 -- dividend yield
of 0%, risk-free interest rate of 4.30%, expected volatility of 124%, and
expected life of 4.7 years. In compliance with APB No. 25, we expensed $4,000
for the six months ended June 30, 2003 and 2002, associated with the grants of
80,000 options in 2000 at exercise prices below market value pursuant to the
Option Plan. No options were granted at exercise prices below market value in
2003 and 2002 pursuant to the Option Plan.
3. INCOME (LOSS) PER SHARE
For the three months and six months ended June 30, 2003 and 2002, options,
warrants, convertible preferred stock and convertible notes representing
approximately 12,244,000, 12,426,000, 12,100,000 and 12,248,000 potential common
shares, respectively, have been excluded from the computation of net loss per
share, as their effect was anti-dilutive.
4. SEGMENT INFORMATION
Our operations are to develop and distribute interactive communications and
entertainment products for the home and for the hospitality industry. Our
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 Hospitality Technologies and Buzztime segments. NTN Hospitality Technologies
revenue is generated primarily from providing an interactive entertainment
service which serves as a marketing and promotional vehicle for the hospitality
industry, from advertising sold on the network and from its wireless business
with restaurant on-site paging systems, stored-value gift cards and loyalty
programs and electronic data-managed comment cards. NTN Hospitality Technologies
revenues comprise 99% of our total revenue for the three months and six months
ended June 30, 2003 and 2002. Revenue from Buzztime is primarily generated from
the distribution of its digital trivia game show content and "Play-Along" sports
games as well as revenue related to production services for third parties.
Included in the operating loss and depreciation and amortization for both NTN
Hospitality Technologies and Buzztime is an allocation of corporate expenses,
while the related corporate assets are not allocated to the segments. The
following tables set forth certain information regarding our segments and other
operations:
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------- --------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2003 2002 2003 2002
------------ ------------ ------------ ------------
Revenues
NTN Network (includes "other revenues") $ 5,728,000 $ 5,513,000 $11,222,000 $11,211,000
NTN Wireless 915,000 618,000 2,753,000 761,000
------------ ------------ ------------ ------------
NTN Hospitality Technologies division 6,643,000 6,131,000 13,975,000 11,972,000
Buzztime 58,000 27,000 65,000 83,000
------------ ------------ ------------ ------------
Total revenue $ 6,701,000 $ 6,158,000 $14,040,000 $12,055,000
============ ============ ============ ============
Operating income (loss)
NTN Network $ 410,000 $ 35,000 $ 950,000 $ 670,000
NTN Wireless (224,000) -- 17,000 38,000
------------ ------------ ------------ ------------
NTN Hospitality Technologies division 186,000 35,000 967,000 708,000
Buzztime (948,000) (866,000) (1,901,000) (1,621,000)
------------ ------------ ------------ ------------
Operating loss $ (762,000) $ (831,000) $ (934,000) $ (913,000)
============ ============ ============ ============
Net income (loss)
NTN Network $ 332,000 $ (84,000) $ 771,000 $ 422,000
NTN Wireless (224,000) -- 17,000 38,000
------------ ------------ ------------ ------------
NTN Hospitality Technologies division 108,000 (84,000) 788,000 460,000
Buzztime (948,000) (814,000) (1,891,000) (1,524,000)
------------ ------------ ------------ ------------
Net loss $ (840,000) $ (898,000) $(1,103,000) $(1,064,000)
============ ============ ============ ============
5. CONTINGENT LIABILITY
Our Canadian licensee is currently in discussions with the Canada Customs
and Revenue Agency regarding a liability relating to withholding tax on certain
amounts previously paid to us by the Canadian licensee. Our licensee has been
assessed approximately $649,000 Canadian dollars (equivalent to approximately
$482,000 U.S. dollars as of June 30, 2003) by the Canada Customs and Revenue
Agency, but is in the process of appealing the assessment. If the appeal is
unsuccessful, it is unclear as to what, if any, liability we might have in this
matter. No amounts have been accrued relating to this contingent liability.
8
6. DEFERRED REVENUE - BUZZTIME
In February 2003, we entered into a Trial Agreement with a major cable
operator that involves developing the Buzztime channel for potential deployment
on two different cable technology platforms within that operator's system. The
Trial Agreement runs through December 2004. During the three months ended March
31, 2003, the cable operator paid us an initial non-refundable amount of
$100,000 and the Trial Agreement calls for two additional payments of
approximately $200,000 each if we enter into trials with the operator on each of
the two specified technology platforms. The cable operator has the right under
the Trial Agreement to apply 50% of any amount paid under the agreement against
future development and/or license fees paid by that operator to us for the
carriage of the Buzztime channel through June 2004. During the three and six
month periods ended June 30, 2003, we recognized $46,000 and $50,000,
respectively, of revenue related to this agreement. The remaining 50% of the
initial payment, or $50,000, is reflected as deferred revenue-Buzztime on the
accompanying consolidated balance sheet.
In March 2003, we entered into an agreement with Digeo Interactive LLC
(Digeo), a producer and distributor of iTV products and services to provide
three one-way, single-player games to the subscribers of Charter Digital Cable.
We received an initial payment of $26,000 under the agreement during the three
months ended June 30, 2003. Upon delivery and acceptance of the three games,
Digeo is to pay us an additional $26,000. We expect to recognize this revenue
ratably over the two year life of the Digeo agreement following delivery and
acceptance of the three games. The initial $26,000 payment is reflected as
deferred revenue-Buzztime on the accompanying consolidated balance sheet.
7. BENNETT INVESTMENT
On January 15, 2003, we issued and sold 1,000,000 shares of unregistered
common stock through a private offering to Robert M. Bennett, one of our
directors, at a price per share of $1.00. Pursuant to the terms of the
transaction, upon receipt of $1.0 million from Mr. Bennett, we issued the
unregistered shares along with fully vested warrants to purchase 500,000 shares
of common stock at $1.15 per share, exercisable through January 15, 2008.
8. BUZZTIME CONVERSION
On June 8, 2001, an affiliate of Scientific-Atlanta invested $1,000,000 in
Buzztime for 636,943 shares of its Series A preferred stock, representing 6% of
Buzztime's capitalization on an as-converted basis, and warrants to obtain an
additional 159,236 shares of its Series A preferred stock. Each share of Series
A preferred stock was initially convertible into one share of Buzztime common
stock and entitled to a non-cumulative dividend of 8%, if, and when as declared
by Buzztime's board of directors. The exercise price of the warrants for Series
A preferred stock is $1.57 per share. However, the warrants vest in 10%
increments only as cable system operators sign on by executing a distribution
agreement for the Buzztime channel.
We granted Scientific-Atlanta the right to exchange its shares of Series A
preferred stock into shares of NTN common stock if (i) Buzztime did not obtain
additional equity financing of $2,000,000 before June 8, 2002, (ii) the
liquidation, dissolution or bankruptcy of Buzztime occurred before June 8, 2002,
(iii) the failure of Buzztime to conduct a qualified public offering by June 8,
2004, or (iv) a change in control of Buzztime occurred before June 8, 2002. On
January 16, 2003, Scientific-Atlanta converted its shares of Series A preferred
stock into 1,000,000 shares of NTN common stock at a conversion price of $1.00
per share.
9. SENIOR SUBORDINATED NOTES CONVERSION
On February 1, 2003, $2,000,000 of convertible senior subordinated notes
converted into 1,568,628 shares of our common stock based on the agreed upon
conversion price of $1.275 per share.
10. MEDIA GENERAL INVESTMENT
On May 7, 2003, Media General, Inc., a communications company with
interests in newspapers, television stations, interactive media and diversified
information services, made a $3.0 million strategic investment in NTN. In return
for the investment, we issued and sold 2,000,000 shares of unregistered NTN
common stock through a private offering to Media General at a price per share of
$1.50. Pursuant to the terms of the transaction, upon receipt of $3.0 million
from Media General, we issued the unregistered shares along with fully vested
warrants to purchase 500,000 shares of Buzztime common stock at $3.46 per share,
exercisable through May 7, 2007. In connection with the Buzztime common stock,
the parties agreed that Media General would have co-sale rights and NTN
9
would have certain drag-along rights. Media General has the right to convert
each share of Buzztime common stock into two shares of NTN common stock (subject
to adjustment ) on the second and fourth anniversaries of the transaction date,
in the event of a sale of NTN, upon certain bankruptcy and other insolvency
proceedings of Buzztime, and in certain circumstances if NTN exercises its
drag-along rights. Media General has the further right to convert the warrant to
purchase 500,000 shares of Buzztime common stock into a warrant to purchase
1,000,000 shares of NTN common stock at $1.73 per NTN share (subject to
adjustment) in the event of bankruptcy or insolvency of Buzztime. NTN has the
right to require Media General to convert its equity interests in Buzztime into
equity interests in NTN if there is a sale of NTN.
Additionally, we issued 666,667 shares of unregistered NTN common stock at
$1.50 per share to license selected technology and content from Media General to
add additional game content to the Buzztime interactive television game channel.
The license includes a 5-year exclusive interactive television license to
certain intellectual property, with options to extend the license. The license
was valued preliminarily at $1.0 million.
The June 30, 2003 balance sheet does not reflect the final allocation of
fair value of the Media General transaction consideration to the acquired
licensed technology and content. We are in the process of obtaining third party
information to finalize the allocation which we expect to receive by the end of
the third quarter.
The terms of the transaction called for us to file a resale registration
statement with the Securities and Exchange Commission (SEC) to register the
2,666,667 shares issued to Media General. Subsequent to the transaction, we
filed the resale registration statement on which we also registered the Bennett
shares (note 7) and Scientific-Atlanta conversion shares (note 8) and the SEC
declared effective the resale registration statement in June 2003.
Also in connection with the investment, we agreed to increase the size of
our Board of Directors and appoint Neal F. Fondren, Vice President of Media
General and President of Media General's Interactive Media Division to fill the
vacancy. Media General's ability to maintain that seat on our Board of Directors
is subject to Media General retaining ownership of certain percentages of the
shares they purchased. Media General also received preemptive rights to purchase
on a pro rata basis any new securities that NTN or Buzztime may subsequently
offer. The preemptive rights also are dependent upon Media General maintaining
ownership of certain percentages of the shares they purchased.
11. AMERICAN STOCK EXCHANGE LISTING
On May 1, 2003, we received a letter from the American Stock Exchange
(AMEX) stating that NTN is now in compliance with AMEX listing standards. In our
SEC filings over the past year, we have disclosed that we needed to achieve $6
million of shareholders' equity to be in compliance with AMEX listing standards.
However, as a result of new AMEX rules effective January 2003, the AMEX
determined that we were in compliance with their listing standards. The new
rules permit a company to remain listed on AMEX if it, like NTN, has a total
market capitalization of at least $50 million, has at least 1.1 million shares
publicly held, has a market value of publicly held shares of at least $15
million and has a minimum of 400 round lot shareholders.
In the event we no longer satisfy the requirements of the new rule (from
subsequent changes in market capitalization or otherwise), we would be subject
to other AMEX listing requirements for companies that have not reported profits
during the past five years. As of June 30, 2003, we had also met the requirement
of $6 million of shareholders' equity.
12. SUBSEQUENT EVENTS
On July 17, 2003 we paid off our revolving line of credit with GF Asset
Management, LLC, a subsidiary of GE Capital. The amount paid was approximately
$1,411,000 which is net of a 5% settlement discount of approximately $104,000.
The existing line of credit was replaced on July 16, 2003 with a line of
credit of $1,000,000 with Pacific Mercantile Bank. Interest on the line is based
on an independent index which is the highest rate on corporate loans posted by
at least 75% of the USA's thirty largest banks known as The Wall Street
Journal's Prime rate (currently 4%). The interest rate to be applied to the
unpaid principal balance is 2% over the index, with an initial rate of interest
of 6%. The entire outstanding principal balance on the line must be repaid for a
period of thirty consecutive days during each fiscal year and matures on July
16, 2004. The line is secured by all inventories, equipment, accounts receivable
and various other assets.
On July 31, 2003, we acquired all of the assets and certain liabilities of
Breakaway International, Inc. (Breakaway), a privately held leading provider of
restaurant industry hardware and software enterprise solutions. We acquired
Breakaway's assets for $25,000 in
10
cash, $2.275 million in shares of unregistered NTN common stock and the
assumption of certain liabilities. NTN will pay additional contingent earn-out
amounts in NTN common stock and/or cash over the next three years, provided that
certain targets for earnings before taxes are met for the acquired assets. The
targeted amounts increase by 25% each year. NTN also entered into employment
agreements with five of the executives of Breakaway.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Forward Looking Statements
THIS QUARTERLY REPORT ON FORM 10-Q, INCLUDING MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTAINS
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934. THESE
FORWARD-LOOKING STATEMENTS REFLECT FUTURE EVENTS, RESULTS, PERFORMANCE,
PROSPECTS AND OPPORTUNITIES, INCLUDING STATEMENTS RELATED TO OUR STRATEGIC
PLANS, CAPITAL EXPENDITURES, INDUSTRY TRENDS AND FINANCIAL POSITION OF NTN
COMMUNICATIONS, INC. AND ITS SUBSIDIARIES. FORWARD-LOOKING STATEMENTS ARE BASED
ON INFORMATION CURRENTLY AVAILABLE TO US AND OUR CURRENT EXPECTATIONS,
ESTIMATES, FORECASTS, AND PROJECTIONS ABOUT THE INDUSTRIES IN WHICH WE OPERATE
AND THE BELIEFS AND ASSUMPTIONS OF MANAGEMENT. WORDS SUCH AS "EXPECTS,"
"ANTICIPATES," "COULD," "TARGETS," "PROJECTS," "INTENDS," "PLANS," "BELIEVES,"
"SEEKS," "ESTIMATES," "MAY," "WILL," "WOULD," VARIATIONS OF SUCH WORDS, AND
SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. IN
ADDITION, ANY STATEMENTS WHICH REFER TO PROJECTIONS OF OUR FUTURE FINANCIAL
PERFORMANCE, OUR ANTICIPATED GROWTH AND TRENDS IN OUR BUSINESSES, AND OTHER
CHARACTERIZATIONS OF FUTURE EVENTS OR CIRCUMSTANCES, ARE FORWARD-LOOKING
STATEMENTS. READERS ARE CAUTIONED THAT THESE FORWARD-LOOKING STATEMENTS ARE ONLY
PREDICTIONS AND ARE SUBJECT TO RISKS, UNCERTAINTIES, AND ASSUMPTIONS THAT MAY BE
DIFFICULT TO PREDICT. THEREFORE, ACTUAL RESULTS MAY DIFFER MATERIALLY AND
ADVERSELY FROM THOSE EXPRESSED IN ANY FORWARD-LOOKING STATEMENTS. FACTORS THAT
MIGHT CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO,
THOSE DISCUSSED IN OUR ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2002 UNDER THE SECTION ENTITLED "RISK FACTORS," AND IN OTHER
REPORTS WE FILE WITH THE SECURITIES AND EXCHANGE COMMISSION FROM TIME TO TIME.
WE UNDERTAKE NO OBLIGATION TO REVISE OR UPDATE PUBLICLY ANY FORWARD-LOOKING
STATEMENT FOR ANY REASON.
GENERAL
We operate our businesses principally through two operating segments: the
NTN Hospitality Technologies division and our Buzztime Entertainment, Inc.
subsidiary ("Buzztime"). The NTN Hospitality Technologies division provides
entertainment promotional services and on-site communications products to the
hospitality industry. Buzztime operates our live broadcast studio, produces our
trivia and live sports "play-along" content to both the NTN Network and new
consumer interactive platforms, and is selling the Buzztime(R) interactive
television channel to U.S. cable TV operators.
THE NTN HOSPITALITY TECHNOLOGIES DIVISION
The NTN Hospitality Technologies division (the "Division") is one of our
two primary business segments We provide consumer-oriented interactive
communications and entertainment products to the out-of-home hospitality
industry including restaurants, sports bars, taverns, cruise ships, hotels and
active adult communities who are looking for a competitive point-of-difference
to attract and retain customers. The Division is composed of the NTN Network,
NTN Wireless and as of July 31, 2003, NTN Software Solutions.
We have maintained a unique and preemptive position in the hospitality
industry for over 18 years as a promotional platform providing interactive
trivia and play-along sports programming. Having now diversified our product
line, we believe that strong growth opportunities exist by offering our
interactive communications and entertainment services across an installed client
base of nearly 10,000 sites.
We have adopted the mission to become the leader in providing distributed
network systems comprised of interactive entertainment and marketing
communications services to the out-of-home commercial market, focusing first on
the hospitality industry. As such, the Division is evolving from one that
provides a single product--interactive entertainment located primarily in the
bar area--to one that provides a full-service suite of products and services
across the establishment. These products and services include wireless
commercial communication services, additional entertainment services and
devices, interactive employee training and an expanded set of member
services--including emerging stored value gift and loyalty card programs.
Providing this expanded array of products will allow us to offer additional
value to, and grow revenues in, our primary markets, as well as to expand the
market to include hospitality venues such as fine dining, QSR (Quick Serve
Restaurants, e.g. fast food) and family dining formats that are
11
beyond our traditional customer base of casual dining, sports bars and taverns.
A secondary aspect of our business involves selling advertising and other
marketing communications services to national, regional and local advertisers
that wish to reach restaurant patrons who are either playing or watching NTN's
interactive content.
BUZZTIME ENTERTAINMENT
Buzztime, our wholly owned subsidiary, was incorporated in the state of
Delaware in December 1999 with the objective of creating new revenue from
distributing NTN's content library to several interactive consumer platforms,
with a primary focus on interactive television. Most of our interactive content
and Play Along TV(TM) technology is now owned or licensed by Buzztime. Buzztime
specializes in real-time, mass-participation games and entertainment that are
produced specifically for interactive television including the Buzztime
interactive trivia channel for cable television and satellite television
services. We manage one of the world's largest trivia game show libraries from
our interactive television broadcast studio where we also produce our live,
Predict the Play(R) interactive television sports games and real-time viewer
polls. Buzztime is developing and distributing the Buzztime Channel with the
intent to become the first broadly available interactive television game channel
on U.S. cable and satellite systems.
We launched the Buzztime trivia channel in June 2002 in York, Pennsylvania
on the Susquehana Cable ("SusCom") system. We believe this was the first
deployment of a real-time, two-way cable channel in the U.S. that operated on
commercially deployed digital set-top boxes. In April 2003, we launched the
second deployment of the channel in Portland, Maine on the Time Warner cable
system. In June 2003, we launched our third deployment on SusCom's Williamsport,
Pennsylvania system. In addition, Buzztime remains the primary content provider
to the NTN Hospitality Technologies division and currently works with leading
companies such as Scientific-Atlanta, Inc., The National Football League (NFL),
Liberate Technologies, Microsoft Corporation's MSNTV and others to bring
consumers real-time interactive entertainment.
CORPORATE BUSINESS STRATEGIES
Our objective is to leverage our unique interactive entertainment as a
means of growing our two business segments--first, through the NTN Hospitality
Technologies division, as a leading provider of interactive communications and
entertainment offerings to the hospitality industry and second, via Buzztime, as
a leading developer and distributor of interactive entertainment for the in-home
market through interactive television and wireless devices. To accomplish our
objectives:
o We are pursuing strategies to increase revenues through current and new
revenue sources. The NTN Hospitality Technologies division receives
service revenue from subscribing out-of-home locations, advertising and
licensing revenue from third parties, and revenue from the sale of
communications products. We expect to continue generating revenue
through these sources by growing our customer base, cross-selling our
products to our nearly 10,000 customers, and providing new and updated
products and services on a regular basis.
o We plan to further develop and distribute the Buzztime trivia channel
to cable and satellite operators with the intent to become the first
nationally deployed interactive television game channel. As we gain
distribution with cable television operators, we expect to increase
revenue through three sources: license fees paid by local cable
television operators; fees paid by interactive television home
subscribers for premium services or pay-per-play transactions; and
advertising revenue. Having now become the first U.S. content provider
to deploy a two-way interactive television entertainment channel, we
have adapted or are planning to adapt our interactive trivia game show
content and technology to all leading interactive television platforms,
to gain market share by partnering with major industry manufacturers
and distributors, and to utilize our broadcast interactive television
studio as a development and production facility to develop and deepen
relationships with media-related companies. We also plan to continue to
support our efforts in early-stage wireless entertainment through
partnerships with leading wireless distributors and carriers.
o Both business segments may also explore market opportunities to acquire
complementary businesses to increase revenues and earnings. An example
is our 2002 acquisitions that created NTN Wireless, which generated
approximately $2.4 million in revenues from April through December 2002
through sales of restaurant pagers; and our recent acquisition of the
assets of Breakaway International. Both entities are now part of our
NTN Hospitality Technologies division business segment.
There can be no assurance, however, that we will be successful in executing
this strategy.
12
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2003 AND JUNE 30, 2002
Operations for the three months ended June 30, 2003 resulted in a net loss
of $840,000 compared to a net loss of $898,000 for the three months ended June
30, 2002.
REVENUES
Total revenues increased by $543,000 or 9%, to $6,701,000 for the three
months ended June 30, 2003 from $6,158,000 for the three months ended June 30,
2002. This increase was primarily due to increases in NTN Hospitality
Technologies division revenues as shown in the following table:
THREE MONTHS ENDED
JUNE 30
---------------------------
2003 2002
------------ ------------
NTN Hospitality Technologies Division Revenues $ 6,640,000 $ 6,128,000
Buzztime Revenues 58,000 27,000
Other Revenues 3,000 3,000
------------ ------------
Total Revenues $ 6,701,000 $ 6,158,000
============ ============
NTN Hospitality Technologies division revenues increased by $512,000 or 8%,
to $6,640,000 for the three months ended June 30, 2003 from $6,128,000 for the
three months ended June 30, 2002. The increase is primarily related to an
increase in NTN Wireless sales of approximately $302,000 and an increase in site
related revenues.
Buzztime revenues were $58,000 for the three months ended June 30, 2003,
compared to $27,000 for the three months ended June 30, 2002 due to the
recognition of revenue in 2003 under a Trial Agreement with a major cable
operator.
OPERATING EXPENSES
Direct operating costs decreased by $129,000 or 5%, to $2,488,000 for the
three months ended June 30, 2003 from $2,617,000 for the three months ended June
30, 2002. Depreciation expense decreased $114,000 due to some of the digital
broadcast equipment becoming fully depreciated, offset by an increase in
amortization for Buzztime software. Marketing site visits decreased
approximately $93,000 due to a scheduled reduction in the onsite visits to the
sites. Playmaker repairs decreased $50,000 as more repairs were completed
in-house. These increases were offset by an increase in NTN Wireless cost of
goods sold of approximately $211,000 which is consistent with the increase in
NTN Wireless revenue.
Selling, general and administrative expenses increased by $646,000 or 16%,
to $4,631,000 for the three months ended June 30, 2003 from $3,985,000 for the
three months ended June 30, 2002. Bad debt expense increased $181,000 due to an
increase in terminated sites in 2003. Professional fees increased $97,000 due to
an increase in legal expenses. Marketing expenses increased $56,000 due to
additional trade shows and advertising materials for NTN Wireless. Commission
expense increased $45,000 directly related to the increase NTN Wireless revenue.
Various other expenses increased due to an increase in office space related to
the expiration of our tenant sublease.
Depreciation and amortization not related to direct operating costs
decreased $124,000, or 33%, to $257,000 for the three months ended June 30, 2003
from $381,000 for the three months ended June 30, 2002 due to certain assets
becoming fully depreciated.
Research and development expenses increased $81,000 to $87,000 for the
three months ended June 30, 2003 compared to $6,000 for the three months ended
June 30, 2002, due primarily to the development of the digital network and VSAT
initiatives.
INTEREST EXPENSE
Interest expense decreased 39% to $74,000 for the three months ended June
30, 2003, compared to $121,000 for the three months ended June 30, 2002,
primarily due to the conversion of the senior subordinated convertible notes on
February 1, 2003.
MINORITY INTEREST AND TAXES
On January 16, 2003 Scientific-Atlanta converted its Buzztime preferred
stock investment into NTN common stock, thereby eliminating its minority
interest. Minority interest in loss of consolidated subsidiary was $52,000 for
the three months ended June 30, 2002.
13
The NTN Hospitality Technologies division expects to report taxable income
for the year ended December 31, 2003. For federal income tax reporting purposes
and in unitary states where NTN Hospitality Technologies may file on a combined
basis, taxable losses incurred by Buzztime should be sufficient to offset NTN
Hospitality Technologies' taxable income. In states where separate filing is
required, NTN Hospitality Technologies will likely incur a state tax liability.
As a result, NTN Hospitality Technologies recorded a state tax provision of
$7,000 in the second quarter of 2003. No state tax provision was recorded in the
second quarter of 2002.
SIX MONTHS ENDED JUNE 30, 2003 AND JUNE 30, 2002
Operations for the six months ended June 30, 2003 resulted in a net loss of
$1,103,000 compared to a net loss of $1,064,000 for the six months ended June
30, 2002.
REVENUES
Total revenues increased by $1,985,000 or 16%, to $14,040,000 for the six
months ended June 30, 2003 from $12,055,000 for the six months ended June 30,
2002. This increase was primarily due to NTN Hospitality Technologies division
revenues as shown in the following table:
SIX MONTHS ENDED
JUNE 30
---------------------------
2003 2002
------------ ------------
NTN Hospitality Technologies Division Revenues $ 13,970,000 $ 11,967,000
Buzztime Revenues 65,000 83,000
Other Revenues 5,000 5,000
------------ ------------
Total Revenues $ 14,040,000 $ 12,055,000
============ ============
NTN Hospitality Technologies division revenues increased by $2,003,000 or
17%, to $13,970,000 for the six months ended June 30, 2003 from $11,967,000 for
the six months ended June 30, 2002. The increase is primarily related to an
increase in sales of $2.0 million by the NTN Wireless business formed in the
second quarter of 2002 after we acquired the assets of two companies in the
restaurant wireless paging industry. NTN Hospitality Technologies site revenues
increased by approximately $130,000 due to an increase in the average billing
rate per site. Advertising revenue decreased approximately $280,000 for the six
months ended June 30, 2003 compared to the six months ended June 30, 2002.
Buzztime revenues were $65,000 for the six months ended June 30, 2003,
compared to $83,000 for the six months ended June 30, 2002 due to the
recognition of revenue in 2003 under a Trial Agreement with a major cable
operator and to the expiration of certain contracts during 2002.
OPERATING EXPENSES
Direct operating costs increased by $705,000 or 15%, to $5,492,000 for the
six months ended June 30, 2003 from $4,787,000 for the six months ended June 30,
2002. The increase is primarily due to an increase in NTN Wireless cost of goods
sold of approximately $1.3 million which is consistent with the increase in NTN
Wireless revenue. Excluding the NTN Wireless cost of goods sold, our direct
operating costs decreased by $607,000 for the six months ended June 30, 2003.
Marketing site visit expense decreased by $214,000 due to a scheduled reduction
in the onsite visits to the sites. Depreciation expense decreased $224,000 due
to some of the digital broadcast equipment becoming fully depreciated, offset by
an increase in amortization for Buzztime software.
Selling, general and administrative expenses increased by $1,345,000 or
18%, to $8,739,000 for the six months ended June 30, 2003 from $7,394,000 for
the six months ended June 30, 2002. Selling, general and administrative expenses
included an increase in payroll and related expenses of approximately $386,000
as the head count increased, which includes the addition of the NTN Wireless
employees and Buzztime employees to support their initiatives. Marketing
expenses increased $203,000 due to additional trade shows and advertising
materials for NTN Wireless in addition to other client promotions. Professional
fees increased approximately $190,000 due to an increase in legal expenses.
Travel and entertainment increased approximately $88,000 related to NTN Wireless
and increased travel to support the Buzztime initiatives and deployment of the
Buzztime channel. Bad debt expense increased $118,000 due to an increase in
terminated sites in 2003. Various other expenses increased due to an increase in
office space related to the expiration of our tenant sublease.
Depreciation and amortization not related to direct operating costs
decreased $199,000, or 26%, to $579,000 for the six months ended June 30, 2003
from $778,000 for the six months ended June 30, 2002 due to certain assets
becoming fully depreciated.
14
Research and development expenses increased $155,000 to $164,000 for the
six months ended June 30, 2003, compared to $9,000 for the six months ended June
30, 2002, due primarily to the development of the digital network and VSAT
initiatives.
INTEREST EXPENSE
Interest expense decreased 34% to $167,000 for the six months ended June
30, 2003, compared to $254,000 for the six months ended June 30, 2002, primarily
due to the conversion of the senior subordinated convertible notes on February
1, 2003.
MINORITY INTEREST AND TAXES
Minority interest in loss of consolidated subsidiary decreased to $10,000
for the six months ended June 30, 2003, compared to $97,000 for the six months
ended June 30, 2002. On January 16, 2003 Scientific-Atlanta converted its
Buzztime preferred stock investment into NTN common stock, thereby eliminating
its minority interest.
NTN Hospitality Technologies expects to report taxable income for the year
ended December 31, 2003. For federal income tax reporting purposes and in
unitary states where NTN Hospitality Technologies may file on a combined basis,
taxable losses incurred by Buzztime Entertainment should be sufficient to offset
NTN Hospitality Technologies' taxable income. In states where separate filing is
required, NTN Hospitality Technologies will likely incur a state tax liability.
As a result, NTN Hospitality Technologies recorded a state tax provision of
$15,000 in the first half of 2003. No state tax provision was recorded in the
first half of 2002.
EBITDA
Our earnings before interest, taxes, depreciation and amortization
("EBITDA") decreased by $221,000 to $223,000 for the three months ended June 30,
2003 from EBITDA of $444,000 for the three months ended June 30, 2002. Our
EBITDA decreased by $531,000 to $1,126,000 for the six months ended June 30,
2003 from EBITDA of $1,657,000 for the six months ended June 30, 2002.
EBITDA is not intended to represent a measure of performance in accordance
with generally accepted accounting principles ("GAAP"). Nor should EBITDA be
considered as an alternative to statements of cash flows as a measure of
liquidity. EBITDA is included herein because we believe that financial analysts,
lenders, investors and other interested parties find it to be a useful tool for
measuring the operating performance of companies like NTN that carry significant
levels of non-cash depreciation and amortization charges in comparison to their
GAAP earnings.
The following table reconciles our net loss per GAAP to EBITDA:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
-------------------------- ----------------------------
2003 2002 2003 2002
------------ ------------ ------------- -------------
EBITDA CALCULATION
Net loss per GAAP $ (840,000) $ (898,000) $ (1,103,000) $ (1,064,000)
Interest expense (net) 71,000 119,000 164,000 248,000
Depreciation and amortization 985,000 1,223,000 2,050,000 2,473,000
Income taxes 7,000 -- 15,000 --
------------ ------------ ------------- -------------
EBITDA $ 223,000 $ 444,000 $ 1,126,000 $ 1,657,000
============ ============ ============= =============
On a segment basis, our two segments generated EBITDA levels as presented below:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2003 JUNE 30, 2003
-------------------------------------- --------------------------------------
EBITDA CALCULATION: HOSPITALITY HOSPITALITY
TECHNOLOGIES BUZZTIME TOTAL TECHNOLOGIES BUZZTIME TOTAL
------------ ------------ ------------ ------------ ------------ ------------
Net income (loss) $ 108,000 $ (948,000) $ (840,000) $ 788,000 $(1,891,000) $ (1,103,000)
Interest expense (net) 71,000 -- 71,000 164,000 -- 164,000
Depreciation and amortization 838,000 147,000 985,000 1,759,000 291,000 2,050,000
Income taxes 7,000 -- 7,000 15,000 -- 15,000
------------ ------------ ------------ ------------ ------------ ------------
EBITDA $ 1,024,000 $ (801,000) $ 223,000 $ 2,726,000 $(1,600,000) $ 1,126,000
============ ============ ============ ============ ============ ============
15
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2003 JUNE 30, 2003
-------------------------------------- --------------------------------------
EBITDA CALCULATION: HOSPITALITY HOSPITALITY
TECHNOLOGIES BUZZTIME TOTAL TECHNOLOGIES BUZZTIME TOTAL
------------ ------------ ------------ ------------ ------------ ------------
Net income (loss) $ (84,000) $ (814,000) $ (898,000) $ 460,000 $(1,524,000) $ (1,064,000)
Interest expense (net) 119,000 -- 119,000 248,000 -- 248,000
Depreciation and amortization 1,067,000 156,000 1,223,000 2,118,000 355,000 2,473,000
Income taxes -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
EBITDA $ 1,102,000 $ (658,000) $ 444,000 $ 2,826,000 $(1,169,000) $ 1,657,000
============ ============ ============ ============ ============ ============
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2003, we had cash and cash equivalents of $3,810,000 and
working capital (current assets in excess of current liabilities) of $3,899,000,
compared to cash and cash equivalents of $577,000 and working capital of
$564,000 at December 31, 2002. Net cash provided by operations was $790,000 for
the six months ended June 30, 2003 and $667,000 for the six months ended June
30, 2002. Depreciation, amortization and other non-cash charges offset the net
loss in each period.
Net cash used in investing activities was $740,000 for the six months ended
June 30, 2003 compared with $660,000 for the six months ended June 30, 2002.
Included in net cash used in investing activities for the six months ended June
30, 2003 was $496,000 in capital expenditures, $136,000 in capitalized software
development expenditures and $108,000 for deposits on broadcast equipment.
Net cash provided by financing activities was $3,183,000 for the six months
ended June 30, 2003 and net cash used in financing activities was $173,000 for
the six months ended June 30, 2002. The cash provided by financing activities
for the six months ended June 30, 2003 included $3,748,000 of proceeds from
issuance of common stock net of offering expenses and $258,000 of proceeds from
the exercise of warrants. These proceeds were partially offset by cash used in
financing activities which included $464,000 of net principal payments on the
revolving line of credit and $359,000 of principal payments on capital leases
and notes payable.
BENNETT INVESTMENT
On January 15, 2003, we issued and sold 1,000,000 shares of unregistered
common stock through a private offering to Robert M. Bennett, one of our
directors, at a price per share of $1.00. Pursuant to the terms of the
transaction, upon receipt of $1.0 million from Mr. Bennett, we issued the
unregistered shares along with fully vested warrants to purchase 500,000 shares
of common stock at $1.15 per share, exercisable through January 15, 2008.
CONVERTIBLE SENIOR SUBORDINATED NOTES
On February 1, 2003, $2,000,000 of convertible senior subordinated notes
converted into 1,568,628 shares of our common stock based on the agreed
conversion price of $1.275 per share.
REVOLVING LINE OF CREDIT
On February 4, 2003, we amended our revolving line of credit with Coast
Business Credit ("Coast") to extend the maturity date on the line of credit from
June 30, 2003 to June 30, 2004. The amendment also eliminated the previously
scheduled March 31, 2003 $250,000 paydown on the line of credit, deleted the
trailing cash flow multiplier element of the borrowing base and modified the
cash flow oriented covenants. We agreed to pay Coast a renewal fee of $30,000 on
July 1, 2003 in association with this amendment. There were no changes to the
interest rate in this amendment.
On February 7, 2003, Coast and its parent company, Southern Pacific Bank,
were seized by the Federal Deposit Insurance Corporation (the "FDIC"). The FDIC
is currently acting as a trustee for Coast and is in the process of selling off
Coast's loan portfolio to other lending institutions. We were informed on May
14, 2003 that our credit line had been purchased by GF Asset Management, LLC, a
subsidiary of GE Capital.
On July 17, 2003 we paid off our revolving line of credit with GF Asset
Management, LLC, a subsidiary of GE Capital. The amount paid was approximately
$1,411,000 which is net of a 5% settlement discount of approximately $104,000.
16
The existing line of credit was replaced on July 16, 2003 with a line of
credit of $1,000,000 with Pacific Mercantile Bank. Interest on the line is based
on an independent index which is the highest rate on corporate loans posted by
at least 75% of the USA's thirty largest banks known as The Wall Street
Journal's Prime rate. The interest rate to be applied to the unpaid principal
balance is 2% over the index, with an initial rate of interest of 6%. The entire
outstanding principal balance on the line must be repaid for a period of thirty
consecutive days during each fiscal year and matures on July 16, 2004. The line
is secured by all inventories, equipment, accounts receivable and various other
assets.
INVESTMENT IN BUZZTIME
On June 8, 2001, an affiliate of Scientific-Atlanta invested $1,000,000 in
Buzztime for 636,943 shares of its Series A preferred stock, representing 6% of
Buzztime's capitalization on an as-converted basis, and warrants to obtain an
additional 159,236 shares of its Series A preferred stock. Each share of Series
A preferred stock was initially convertible into one share of Buzztime common
stock and entitled to a non-cumulative dividend of 8%, if, and when as declared
by Buzztime's board of directors. The exercise price of the warrants for Series
A preferred stock is $1.57 per share. However, the warrants vest in 10%
increments only as cable system operators sign on by executing a distribution
agreement for the Buzztime channel.
In connection with the investment, Buzztime entered into a development,
license and marketing agreement with Scientific-Atlanta to co-develop an
application to enable operation of a Buzztime interactive trivia game show
channel on Scientific-Atlanta's Explorer digital interactive set-top network for
distribution by cable operators to their subscribers. The $1,000,000 in net
proceeds were only to be used towards development of the application for
Scientific-Atlanta and fulfillment of Buzztime's obligations under the
development agreement. In March 2003, we entered into a letter agreement with
Scientific-Atlanta, Inc. providing for termination of certain provisions of the
development, license and marketing agreement as well as for the sale and license
by Scientific-Atlanta to Buzztime of certain equipment and related software and
the provision by Scientific-Atlanta to Buzztime of certain training and
application developer support services to enable Buzztime to develop and operate
the Buzztime Channel on Scientific-Atlanta's Explorer set-top network for
distribution by cable operators to their subscribers.
We granted Scientific-Atlanta the right to exchange its shares of Series A
preferred stock into shares of NTN common stock if (i) Buzztime did not obtain
additional equity financing of $2,000,000 before June 8, 2002, (ii) the
liquidation, dissolution or bankruptcy of Buzztime occurred before June 8, 2002,
(iii) the failure of Buzztime to conduct a qualified public offering by June 8,
2004, or (iv) a change in control of Buzztime occurred before June 8, 2002. On
January 16, 2003, Scientific-Atlanta converted its shares of Series A preferred
stock into 1,000,000 shares of NTN common stock at a conversion price of $1.00
per share.
LISTING ON AMERICAN STOCK EXCHANGE
On May 1, 2003, we received a letter from the American Stock Exchange
(AMEX) stating that NTN is now in compliance with AMEX listing standards. In our
SEC filings over the past year, we have disclosed that we needed to achieve $6
million of shareholders' equity to be in compliance with AMEX listing standards.
However, as a result of new AMEX rules effective January 2003, the AMEX
determined that we were in compliance with their listing standards. The new
rules permit a company to remain listed on AMEX if it, like NTN, has a total
market capitalization of at least $50 million, has at least 1.1 million shares
publicly held, has a market value of publicly held shares of at least $15
million and has a minimum of 400 round lot shareholders.
In the event we no longer satisfy the requirements of the new rule (from
subsequent changes in market capitalization or otherwise), we would be subject
to other AMEX listing requirements for companies that have not reported profits
during the past five years. As of June 30, 2003, we had also met the requirement
of $6 million of shareholders' equity.
INCREASE IN AUTHORIZED SHARES
On May 2, 2003 at our Annual Shareholders' Meeting, a proposal to amend our
restated Certificate of Incorporation to increase the number of authorized
shares of common stock from 70 million shares to 84 million shares was approved.
MEDIA GENERAL INVESTMENT
On May 7, 2003, Media General, Inc., a communications company with
interests in newspapers, television stations, interactive media and diversified
information services, made a $3.0 million strategic investment in NTN. In return
for the investment, we issued and sold 2,000,000 shares of unregistered NTN
common stock through a private offering to Media General at a price per share of
$1.50. Pursuant to the terms of the transaction, upon receipt of $3.0 million
from Media General, we issued the unregistered shares
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along with fully vested warrants to purchase 500,000 shares of Buzztime common
stock at $3.46 per share, exercisable through May 7, 2007. In connection with
the Buzztime common stock, the parties agreed that Media General would have
co-sale rights and NTN would have certain drag-along rights. Media General has
the right to convert each share of Buzztime common stock into two shares of NTN
common stock (subject to adjustment ) on the second and fourth anniversaries of
the transactions date, in the event of a sale of NTN, upon certain bankruptcy
and other insolvency proceedings of Buzztime, and in certain circumstances if
NTN exercises its drag-along rights. Media General has the further right to
convert the warrant to purchase 500,000 shares of Buzztime common stock into a
warrant to purchase 1,000,000 shares of NTN common stock at $1.73 per NTN share
(subject to adjustment) in the event of bankruptcy or insolvency of Buzztime.
NTN has the right to require Media General to convert its equity interests in
Buzztime into equity interests in NTN if there is a sale of NTN.
Additionally, we issued 666,667 shares of unregistered NTN common stock at
$1.50 per share to license selected technology and content from Media General to
add additional game content to the Buzztime interactive television game channel.
The license includes a 5-year exclusive interactive television license to
certain intellectual property, with options to extend the license. The license
was valued preliminarily at $1.0 million.
The June 30, 2003 balance sheet does not reflect the final allocation of
fair value of the Media General transaction consideration to the acquired
licensed technology and content. We are in the process of obtaining third party
information to finalize the allocation which we expect to receive by the end of
the third quarter.
The terms of the transaction called for us to file a resale registration
statement with the Securities and Exchange Commission (SEC) to register the
2,666,667 shares issued to Media General. Subsequent to the transaction, we
filed the resale registration statement on which we also registered the Bennett
shares and Scientific-Atlanta conversion shares and the SEC declared effective
the resale registration statement in June 2003.
Also in connection with the investment, we agreed to increase the size of
our Board of Directors and appoint Neal F. Fondren, Vice President of Media
General and President of Media General's Interactive Media Division to fill the
vacancy. Media General's ability to maintain that seat on our Board of Directors
is subject to Media General retaining ownership of certain percentages of the
shares they purchased. Media General also received preemptive rights to purchase
on a pro rata basis any new securities that NTN or Buzztime may subsequently
offer. The preemptive rights also are dependent upon Media General maintaining
ownership of certain percentages of the shares they purchased.
BREAKAWAY INTERNATIONAL TRANSACTION
On July 31, 2003, through a newly formed subsidiary, NTN Software
Solutions, Inc., we acquired all of the assets and certain liabilities of
Breakaway International, Inc., a privately held provider of restaurant industry
hardware and software enterprise solutions. We acquired Breakaway's assets for
$25,000 in cash, $2.275 million in shares of unregistered NTN common stock and
the assumption of certain liabilities. We will pay additional contingent
earn-out amounts in NTN common stock and/or cash over the next three years,
provided that certain targets for earnings before taxes are met for the acquired
assets. The targeted amounts increase by 25% each year. We also entered into
employment agreements with five of the executives of Breakaway.
FUTURE FINANCING NEEDS
We believe that the recent $3 million investment by Media General will
satisfy our requirements for additional financing for the next twelve months.
Generally, our financing requirements will depend upon the growth of our two
business segments.
Future capital investment for our new satellite network and for new site
installations, cash used for acquisitions, and expenditures for Buzztime may
cause our cash expenditures to exceed cash inflows, though we currently do not
anticipate using more than $2 million in 2003. We expect the level of
expenditures in Buzztime to increase over the remainder of 2003 as we have
entered the deployment phase with SusCom in York and Williamsport, Pennsylvania
and with Time Warner in Portland, Maine and we continue in the testing phase
with certain other cable operators. However, subject to any unexpected changes
in our business that may occur as a result of a continued economic slowdown, and
unless we incur unanticipated expenses, we believe we will continue generating
adequate cash from the operation of NTN Hospitality Technologies division which,
when combined with cash resources on hand, the combination of the Media General
investment, the Bennett investment and our line of credit, will allow us to
continue to fund Buzztime at least through the third quarter of 2004 at current
operational levels. If current Buzztime Channel sales efforts to cable MSOs (the
largest Multiple System Operators in the United States) succeed as planned and
we enter into field trials with those cable operators, management intends to
aggressively increase Buzztime sales and marketing efforts to more quickly
advance our distribution
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within the U.S. market, which likely will require additional capital in 2004
and/or 2005. We also believe that Buzztime's success in entering into those
field trials with major cable system operators may enhance our ability to raise
additional capital at favorable pricing although there can be no assurance that
will happen.
NTN Hospitality Technologies division has transmitted its data through the
FM2 satellite platform for more than ten years. That arrangement is scheduled to
end in February 2005. We have entered into equipment purchase and satellite
service agreements to convert the Division to a much higher speed, two-way VSAT
(Very Small Aperture Technology) satellite technology over the two-year period
ending February 2005. These agreements are with the same reseller of satellite
services that provided the FM2 satellite platform to us. This anticipated
conversion to a two-way satellite technology will be a significant use of
capital resources. We believe that the conversion of customer locations may
require incremental capital expenditures of $3.0 to $4.5 million and increased
cash operating expenses (including estimated installation costs) of $2.0 to $2.5
million over the two-year conversion period, which will lower our historical
positive cash flow. During the two-year conversion period, we believe that this
conversion will also have a moderately adverse impact on our earnings when
compared with what earnings would be without the expenditures.
Following the two-year conversion period, we believe that the cost of
installing and operating the two-way satellite network will be offset both
through expense reductions and by revenue enhancements. In the longer term, we
believe that this conversion will increase our earnings potential. We currently
project a twenty month payback following conversion to the VSAT technology for
each VSAT customer site.
We are also considering adding to our product line certain other business
applications that are relevant to the hospitality industry. We may add these
incremental hospitality products through reseller arrangements or through
acquisition. We expect the recently completed Breakaway transaction (which is
now our new NTN Software Solutions, Inc. subsidiary) to add positively to our
cash flow, although in the third quarter of 2003 we may invest in certain
integration related items that are not expected to exceed $200,000. Our limited
capital resources may prevent us from making such future product additions or
acquisitions on a cash basis.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to risks related to currency exchange rates, stock market
fluctuations, and interest rates. As of June 30, 2003, we owned common stock of
an Australian company that is subject to market risk. At June 30, 2003, the
carrying value of this investment was $168,000, which is net of a $649,000
unrealized loss. This investment is exposed to further market risk in the future
based on the operating results of the Australian company and stock market
fluctuations. Additionally, the value of the investment is further subject to
changes in Australian currency exchange rates. At June 30, 2003, a hypothetical
10% decline in the value of the Australian dollar would result in a reduction of
$17,000 in the carrying value of the investment.
We have outstanding line of credit borrowings, which bear interest at a
rate equal to the prime rate plus 2.0% per annum, currently equal to 6% per
annum. At June 30, 2003, a hypothetical one-percentage point increase in the
prime rate with the maximum level of $1 million outstanding on our credit line
would result in an increase of $10,000 in annual interest expense for line of
credit borrowings.
ITEM 4. CONTROLS AND PROCEDURES
We maintain "disclosure controls and procedures", as such term is defined
under Exchange Act Rule 13a-15(e), that are designed to ensure that information
required to be disclosed in our Exchange Act reports is recorded, processed,
summarized, and reported within the time periods specified in the SEC's rules
and forms, and that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required disclosures. In
designing and evaluating the disclosure controls and procedures, our management
recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives and our management necessarily was required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and procedures. As
of June 30, 2003, we have carried out an evaluation under the supervision and
with the participation of our management, including our Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and operation of
our disclosure controls and procedures. Based upon their evaluation and subject
to the foregoing, our Chief Executive Officer and Chief Financial Officer
concluded that there were no significant deficiencies or material weaknesses in
the our disclosure controls and procedures and therefore there were no
corrective actions taken.
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There have been no significant changes in our internal controls over
financial reporting or in other factors that could significantly affect these
controls subsequent to the date we completed our evaluation.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
We are subject to litigation from time to time in the ordinary course of
our business. There can be no assurance that any or all of the following claims
will be decided in our favor and we are not insured against all claims made.
During the pendency of such claims, we will continue to incur the costs of our
legal defense.
INTERACTIVE NETWORK, INC.
We have been involved as a plaintiff or defendant in various previously
reported lawsuits in both the United States and Canada involving Interactive
Network, Inc. ("IN"). We reached a resolution with IN of all pending disputes in
the United States and agreed to private arbitration regarding any future
licensing, copyright or infringement issues which may arise between us. There
remain two lawsuits involving us, our unaffiliated Canadian licensee and IN,
which were filed in Canada in 1992. The litigation involves licensing and patent
infringement issues. These actions relate only to the broadcast of the NTN
Network to subscribers of our Canadian licensee and do not extend to our network
operations in the United States or elsewhere. In April 2002, Two Way TV (US),
Inc., was created as a joint venture between IN and Two Way TV Limited. Two Way
TV (US) was incorporated in Delaware on January 10, 2000 to develop and market
IN's patent portfolio and Two Way TV Limited's content, technology and patents
for digital interactive services. As a result of a merger with IN, Two Way TV
(US) now owns and controls all of IN's intellectual property. To date, IN has
deposited a total of $140,000 Canadian currency with the Canadian Court in
compliance with Court order as security for costs to be incurred by us in
defense of the action. The Court has assigned a trial date of April 19, 2004. We
intend to continue to defend the action vigorously.
LONG RANGE SYSTEMS
On March 21, 2003, Long Range Systems, Inc. ("LRS") filed, in the United
States District Court, Northern District of Texas, a patent infringement
complaint against our NTN Wireless subsidiary. This complaint alleged trade
dress and patent infringement and unfair competition. On May 9, 2003, we filed
with the court a motion to dismiss the LRS complaint. LRS filed an Amended
Complaint on July 24, 2003 in accordance with the court's ruling on our motion
to dismiss. We do not believe that this matter represents a significant level of
exposure and intend to defend vigorously.
On or about April 23, 2003, we filed a complaint in the Superior Court of
the State of California, County of San Diego, against LRS alleging defamation
and trade libel, intentional interference with prospective economic advantage,
Lanham Act (trademark violations) and California unfair competition. The action
has been transferred to, and is currently pending in, the United States District
Court, Southern District of California. Our complaint alleges that LRS made
false statements in its complaint and press release regarding our products
infringing LRS patents, that LRS intentionally made false statements to disrupt
our business relationships with our clients, and that LRS registered the domain
name: WWW.NTNWIRELESS.COM in violation of our trademark rights. LRS filed a
motion to dismiss our complaint or, in the alternative, to transfer the action
to Texas. In reply to the motion by LRS, on August 1, 2003, we filed an
opposition. The motion is scheduled to be heard by the court on August 15, 2003.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On May 7, 2003, we issued and sold 2,000,000 shares of unregistered NTN
common stock through a private offering to Media General Corporation at a price
per share of $1.50. Pursuant to the terms of the transaction, upon receipt of
$3.0 million from Media General, we issued the unregistered shares along with
fully vested warrants to purchase 500,000 shares of Buzztime common stock at
$3.45 per share, exercisable through May 7, 2007.
Also on May 7, 2003, we issued 666,667 shares of unregistered NTN common
stock to Media General Corporation, valued at $1 million, to license selected
technology and content from Media General. The license includes a 5-year
exclusive interactive television license with options to extend the license.
Each offering and transaction was made without registration under the
Securities Act of 1933, as amended (the "Act") in reliance upon the exemption
from registration afforded by Section 4(2) of the Act and Rule 506 of Regulation
D promulgated thereunder.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
We held our annual meeting of shareholders on May 2, 2003. The results of
the matters voted upon in that meeting were disclosed in our Form 10-Q for the
quarterly period ended March 31, 2003.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
3.1 Certificate of Amendment to Restated Certificate of
Incorporation of NTN Communications, Inc.(1)
4.1 Securities Purchase Agreement, dated May 5, 2003, by and
among NTN Communications, Inc., Buzztime Entertainment, Inc.
and Media General, Inc. (2)
4.2 NTN Investor Rights Agreement, dated May 7, 2003, by and
between NTN Communications, Inc. and Media General, Inc. (2)
4.3 Buzztime Investor Rights Agreement, dated May 7, 2003, by and
among NTN Communications, Inc., Buzztime Entertainment, Inc.
and Media General, Inc. (2)
4.4 Common Stock Purchase Warrant dated May 7, 2003 issued to
Media General, Inc. exercisable for 500,000 shares of common
stock of Buzztime Entertainment, Inc. (2)
31.1 Certification of Chief Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 and Rule 13a-14 of the
Securities Exchange Act of 1934 (1)
31.2 Certification of Chief Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 and Rule 13a-14 of the
Securities Exchange Act of 1934 (1)
32.1 Certification of Chief Executive Officer Pursuant to 18
U.S.C. Section 1350 and Section 906 of the Sarbanes-Oxley Act
of 2002 (1)
32.2 Certification of Chief Financial Officer Pursuant to 18
U.S.C. Section 1350 and Section 906 of the Sarbanes-Oxley Act
of 2002 (1)
- -------------
(1) Filed herewith.
(2) Previously filed as an exhibit to NTN's registration statement on Form
S-3, File No. 333-105429, and incorporated by reference.
(b) Reports on Form 8-K.
On April 30, 2003, we filed a Current Report on Form 8-K (event date April 30,
2003) to report under Item 9 (Regulation FD Disclosure in accordance with SEC
Release No. 33-8216 (March 27, 2003) for information intended to be disclosed
under "Item 12. Results of Operations and Financial Condition").
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NTN COMMUNICATIONS, INC.
Date: August 14, 2003 By: /S/ JAMES B. FRAKES
------------------------------------------
James B. Frakes
Authorized Signatory and Chief
Financial Officer
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
-------- --------------------------------------------------------------
3.1 Certificate of Amendment to Restated Certificate of
Incorporation of NTN Communications, Inc.(1)
4.1 Securities Purchase Agreement, dated May 5, 2003, by and
among NTN Communications, Inc., Buzztime Entertainment, Inc.
and Media General, Inc. (2)
4.2 NTN Investor Rights Agreement, dated May 7, 2003, by and
between NTN Communications, Inc. and Media General, Inc. (2)
4.3 Buzztime Investor Rights Agreement, dated May 7, 2003, by and
among NTN Communications, Inc., Buzztime Entertainment, Inc.
and Media General, Inc. (2)
4.4 Common Stock Purchase Warrant dated May 7, 2003 issued to
Media General, Inc. exercisable for 500,000 shares of common
stock of Buzztime Entertainment, Inc. (2)
31.1 Certification of Chief Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 and Rule 13a-14 of the
Securities Exchange Act of 1934 (1)
31.2 Certification of Chief Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 and Rule 13a-14 of the
Securities Exchange Act of 1934 (1)
32.1 Certification of Chief Executive Officer Pursuant to 18
U.S.C. Section 1350 and Section 906 of the Sarbanes-Oxley Act
of 2002 (1)
32.2 Certification of Chief Financial Officer Pursuant to 18
U.S.C. Section 1350 and Section 906 of the Sarbanes-Oxley Act
of 2002 (1)
- -------------
(1) Filed herewith.
(2) Previously filed as an exhibit to NTN's registration statement on Form
S-3, File No. 333-105429, and incorporated by reference.
23