ntn_10q-093008.htm
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 September 30, 2008
Commission
file number 001-11460
NTN
Buzztime, Inc.
(Exact
name of registrant as specified in its charter)
|
DELAWARE
|
31-1103425
|
|
(State
of incorporation)
|
(I.R.S.
Employer Identification No.)
|
|
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 such filing
requirements for the past 90 days. YES x NO ¨
Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer
|
¨
|
Accelerated
filer
|
¨
|
|
|
|
|
|
|
Non-accelerated
filer
|
¨ (Do not check if
a smaller reporting company)
|
Smaller reporting company
|
x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). YES ¨ NO x
As of
November 6, 2008 the registrant had outstanding 55,652,908 shares of common
stock, $.005 par value.
NTN
BUZZTIME, INC. AND SUBSIDIARIES
FORM
10-Q
TABLE OF
CONTENTS
|
Item
|
|
Page
|
|
PART
I
|
|
|
|
|
|
|
1.
|
Financial
Statements
|
|
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets as of September 30, 2008 (unaudited)
and December 31, 2007
|
1
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Operations for the three and nine months ended
September 30, 2008 and 2007 (unaudited)
|
2
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Comprehensive (Loss) Income for the three and
nine months ended September 30, 2008 and 2007 (unaudited)
|
3
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows for the nine months ended September
30, 2008 and 2007 (unaudited)
|
4
|
|
|
|
|
|
|
Notes
to Condensed Consolidated Financial Statements
|
6
|
|
|
|
|
|
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
15
|
|
|
|
|
|
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
24
|
|
|
|
|
|
4.
|
Controls
and Procedures
|
25
|
|
|
|
|
PART II
|
|
|
|
|
|
|
1.
|
Legal
Proceedings
|
25
|
|
|
|
|
|
1A.
|
Risk
Factors
|
25
|
|
|
|
|
|
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
26
|
|
|
|
|
|
3.
|
Defaults
Upon Senior Securities
|
26
|
|
|
|
|
|
4.
|
Submission
of Matters to a Vote of Security Holders
|
26
|
|
|
|
|
|
5.
|
Other
Information
|
26
|
|
|
|
|
|
6.
|
Exhibits
|
26
|
|
|
|
|
|
|
Signatures
|
27
|
PART
I
NTN
BUZZTIME, INC. AND SUBSIDIARIES
(Unaudited)
(In thousands,
except share data)
| |
|
September 30,
2008
|
|
|
December 31,
2007
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
5,257 |
|
|
$ |
10,273 |
|
|
Restricted
cash
|
|
|
36 |
|
|
|
55 |
|
|
Accounts
receivable, net of allowances of $279 and $396,
respectively
|
|
|
862 |
|
|
|
1,354 |
|
|
Investments
available-for-sale
|
|
|
87 |
|
|
|
264 |
|
|
Prepaid
expenses and other current assets
|
|
|
592 |
|
|
|
745 |
|
|
Assets
held for sale (Note 14)
|
|
|
- |
|
|
|
212 |
|
|
Total
current assets
|
|
|
6,834 |
|
|
|
12,903 |
|
|
Broadcast
equipment and fixed assets, net
|
|
|
3,659 |
|
|
|
4,101 |
|
|
Software
development costs, net
|
|
|
983 |
|
|
|
895 |
|
|
Deferred
costs
|
|
|
1,397 |
|
|
|
1,204 |
|
|
Goodwill
|
|
|
1,215 |
|
|
|
1,285 |
|
|
Intangible
assets, net
|
|
|
234 |
|
|
|
318 |
|
|
Other
assets
|
|
|
146 |
|
|
|
154 |
|
|
Total
assets
|
|
$ |
14,468 |
|
|
$ |
20,860 |
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
739 |
|
|
$ |
831 |
|
|
Accrued
expenses
|
|
|
1,379 |
|
|
|
908 |
|
|
Sales
tax payable
|
|
|
1,122 |
|
|
|
982 |
|
|
Accrued
salaries
|
|
|
518 |
|
|
|
357 |
|
|
Accrued
vacation
|
|
|
408 |
|
|
|
447 |
|
|
Income
tax payable
|
|
|
58 |
|
|
|
36 |
|
|
Deferred
revenue
|
|
|
810 |
|
|
|
972 |
|
|
Liabilities
of discontinued operations (Note 14)
|
|
|
- |
|
|
|
672 |
|
|
Total
current liabilities
|
|
|
5,034 |
|
|
|
5,205 |
|
|
Deferred
revenue, excluding current portion
|
|
|
82 |
|
|
|
87 |
|
|
Total
liabilities
|
|
|
5,116 |
|
|
|
5,292 |
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (Note 10)
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity:
|
|
|
|
|
|
|
|
|
|
Series
A 10% cumulative convertible preferred stock, $.005 par value, $161
liquidation preference, 5,000,000 shares authorized; 161,000 shares issued
and outstanding at September 30, 2008 and December 31,
2007
|
|
|
1 |
|
|
|
1 |
|
|
Common
stock, $.005 par value, 84,000,000 shares authorized; 55,657,000 and
55,640,000 shares issued and outstanding at September 30, 2008 and
December 31, 2007, respectively
|
|
|
277 |
|
|
|
277 |
|
|
Treasury
stock, at cost, 503,000 shares at September 30, 2008 and 454,000
shares at December 31, 2007
|
|
|
(456 |
) |
|
|
(444 |
) |
|
Additional
paid-in capital
|
|
|
113,200 |
|
|
|
112,942 |
|
|
Accumulated
deficit
|
|
|
(104,646 |
) |
|
|
(98,870 |
) |
|
Accumulated
other comprehensive income (Note 11)
|
|
|
976 |
|
|
|
1,662 |
|
|
Total
shareholders’ equity
|
|
|
9,352 |
|
|
|
15,568 |
|
|
Total
shareholders’ equity and liabilities
|
|
$ |
14,468 |
|
|
$ |
20,860 |
|
See
accompanying notes to unaudited condensed consolidated financial
statements.
NTN
BUZZTIME, INC. AND SUBSIDIARIES
(Unaudited)
(In
thousands, except share data)
|
|
|
Three months
ended
|
|
|
Nine months
ended
|
|
|
|
|
September 30,
2008
|
|
|
September 30,
2007
|
|
|
September 30,
2008
|
|
|
September 30,
2007
|
|
|
Revenues
|
|
$ |
6,772 |
|
|
$ |
7,476 |
|
|
$ |
20,971 |
|
|
$ |
22,849 |
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct
operating costs (includes depreciation and amortization of $619 and $879
for the three months ended September 30, 2008 and 2007, respectively,
and depreciation and amortization of $2,004 and $2,577 for the nine months
ended September 30, 2008 and 2007, respectively)
|
|
|
1,971 |
|
|
|
2,249 |
|
|
|
6,095 |
|
|
|
6,675 |
|
|
Impairment
of intangible asset
|
|
|
- |
|
|
|
968 |
|
|
|
- |
|
|
|
968 |
|
|
Selling,
general and administrative
|
|
|
5,724 |
|
|
|
5,816 |
|
|
|
19,941 |
|
|
|
17,186 |
|
|
Depreciation
and amortization (excluding depreciation and amortization included in
direct operating costs)
|
|
|
133 |
|
|
|
129 |
|
|
|
400 |
|
|
|
421 |
|
|
Restructuring
costs (Note 13)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
478 |
|
|
Total
operating expenses
|
|
$ |
7,828 |
|
|
$ |
9,162 |
|
|
$ |
26,436 |
|
|
$ |
25,728 |
|
|
Operating
loss
|
|
$ |
(1,056 |
) |
|
$ |
(1,686 |
) |
|
$ |
(5,465 |
) |
|
$ |
(2,879 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
27 |
|
|
|
107 |
|
|
|
129 |
|
|
|
253 |
|
|
Interest
expense
|
|
|
(4 |
) |
|
|
(5 |
) |
|
|
(4 |
) |
|
|
(26 |
) |
|
Other
income
|
|
|
69 |
|
|
|
2 |
|
|
|
69 |
|
|
|
83 |
|
|
Total
other income
|
|
$ |
92 |
|
|
$ |
104 |
|
|
$ |
194 |
|
|
$ |
310 |
|
|
Loss
from continuing operations before income taxes
|
|
$ |
(964 |
) |
|
$ |
(1,582 |
) |
|
$ |
(5,271 |
) |
|
$ |
(2,569 |
) |
|
Provision
for income taxes
|
|
|
68 |
|
|
|
35 |
|
|
|
173 |
|
|
|
188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
$ |
(1,032 |
) |
|
$ |
(1,617 |
) |
|
$ |
(5,444 |
) |
|
$ |
(2,757 |
) |
|
Income
(loss) from discontinued operations, net of tax (including gain on sale of
NTN Wireless of $396 for the nine months ended September 30,
2007)
|
|
|
175 |
|
|
|
(168 |
) |
|
|
(332 |
) |
|
|
(349 |
) |
|
Net
loss
|
|
$ |
(857 |
) |
|
$ |
(1,785 |
) |
|
$ |
(5,776 |
) |
|
$ |
(3,106 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations, basic and diluted
|
|
$ |
(0.02 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.10 |
) |
|
$ |
(0.05 |
) |
|
Income
(loss) from discontinued operations, basic and diluted
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
|
Net
loss
|
|
$ |
(0.02 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.11 |
) |
|
$ |
(0.06 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
55,196 |
|
|
|
56,000 |
|
|
|
55,195 |
|
|
|
55,148 |
|
See
accompanying notes to unaudited condensed consolidated financial
statements.
NTN
BUZZTIME, INC. AND SUBSIDIARIES
Condensed
Consolidated Statements of Comprehensive Loss
(Unaudited)
(In
thousands)
|
|
|
Three months ended
|
|
|
Nine months
ended
|
|
|
|
|
September
30,
2008
|
|
|
September 30,
2007
|
|
|
September 30,
2008
|
|
|
September 30,
2007
|
|
|
Net
loss
|
|
$ |
(857 |
) |
|
$ |
(1,785 |
) |
|
$ |
(5,776 |
) |
|
$ |
(3,106 |
) |
|
Other
comprehensive (loss) income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
(177 |
) |
|
|
501 |
|
|
|
(509 |
) |
|
|
1,464 |
|
|
Unrealized
holding loss on investment available-for-sale
|
|
|
(58 |
) |
|
|
(48 |
) |
|
|
(177 |
) |
|
|
(24 |
) |
|
Other
comprehensive (loss) income
|
|
$ |
(235 |
) |
|
$ |
453 |
|
|
$ |
(686 |
) |
|
$ |
1,440 |
|
|
Comprehensive
loss
|
|
$ |
(1,092 |
) |
|
$ |
(1,332 |
) |
|
$ |
(6,462 |
) |
|
$ |
(1,666 |
) |
See
accompanying notes to unaudited condensed consolidated financial
statements.
NTN
BUZZTIME, INC. AND SUBSIDIARIES
(Unaudited)
(In
thousands)
| |
|
|
Nine months
ended
|
|
| |
|
|
September 30,
2008
|
|
|
September 30,
2007
|
|
|
Cash
flows (used in) provided by operating activities:
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
$ |
(5,776 |
) |
|
$ |
(3,106 |
) |
|
Loss
from discontinued operations, net of tax
|
|
|
|
332 |
|
|
|
349 |
|
|
Loss
from continuing operations
|
|
|
$ |
(5,444 |
) |
|
$ |
(2,757 |
) |
|
Adjustments
to reconcile net loss to net cash (used in) provided by operating
activities
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
|
2,404 |
|
|
|
2,998 |
|
|
Provision
for doubtful accounts
|
|
|
|
463 |
|
|
|
284 |
|
|
Impairment
of intangible asset
|
|
|
|
- |
|
|
|
968 |
|
|
Stock-based
compensation
|
|
|
|
260 |
|
|
|
466 |
|
|
Loss
(gain) from disposition of equipment and capitalized
software
|
|
|
|
384 |
|
|
|
(171 |
) |
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
|
31 |
|
|
|
283 |
|
|
Prepaid
expenses and other assets
|
|
|
|
154 |
|
|
|
280 |
|
|
Accounts
payable and accrued expenses
|
|
|
|
268 |
|
|
|
(789 |
) |
|
Income
taxes payable
|
|
|
|
2 |
|
|
|
(12 |
) |
|
Deferred
costs
|
|
|
|
(198 |
) |
|
|
265 |
|
|
Deferred
revenue
|
|
|
|
(564 |
) |
|
|
(658 |
) |
|
Net
cash (used in) provided by operating activities from continuing
operations
|
|
|
|
(2,240 |
) |
|
|
1,157 |
|
|
Discontinued
operations
|
|
|
|
9 |
|
|
|
(1,501 |
) |
|
Net
cash used in operating activities
|
|
|
|
(2,231 |
) |
|
|
(344 |
) |
|
Cash
flows (used in) provided by investing activities:
|
|
|
|
|
|
|
|
|
|
|
Purchases
of broadcast equipment and fixed assets
|
|
|
|
(1,759 |
) |
|
|
(383 |
) |
|
Software
development expenditures
|
|
|
|
(649 |
) |
|
|
(432 |
) |
|
Deposits
on broadcast equipment
|
|
|
|
- |
|
|
|
(161 |
) |
|
Proceeds
from sale of equipment and other assets
|
|
|
|
- |
|
|
|
363 |
|
|
Restricted
cash
|
|
|
|
16 |
|
|
|
6 |
|
|
Net
cash used in investing activities from continuing
operations
|
|
|
|
(2,392 |
) |
|
|
(607 |
) |
|
Discontinued
operations
|
|
|
|
20 |
|
|
|
2,397 |
|
|
Net
cash (used in) provided by investing activities
|
|
|
|
(2,372 |
) |
|
|
1,790 |
|
|
Cash
flows (used in) provided by financing activities:
|
|
|
|
|
|
|
|
|
|
|
Principal
payments on capital lease
|
|
|
|
(11 |
) |
|
|
(351 |
) |
|
Settlement
of stock option
|
|
|
|
- |
|
|
|
(40 |
) |
|
Purchases
of treasury stock
|
|
|
|
(12 |
) |
|
|
(444 |
) |
|
Proceeds
from exercise of warrants and options
|
|
|
|
- |
|
|
|
651 |
|
|
Net
cash used in financing activities
|
|
|
|
(23 |
) |
|
|
(184 |
) |
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
|
(4,626 |
) |
|
|
1,262 |
|
|
Effect
of exchange rate on cash
|
|
|
|
(390 |
) |
|
|
735 |
|
|
Cash
and cash equivalents at beginning of period
|
|
|
|
10,273 |
|
|
|
8,774 |
|
|
Cash
and cash equivalents at end of period
|
|
|
$ |
5,257 |
|
|
$ |
10,771 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
$ |
4 |
|
|
$ |
25 |
|
|
Income
taxes
|
|
|
$ |
163 |
|
|
$ |
283 |
|
NTN
BUZZTIME, INC. AND SUBSIDIARIES
Condensed
Consolidated Statements of Cash Flows
(Unaudited)
(In
thousands)
(continued)
| |
|
|
Nine months
ended
|
|
| |
|
|
|
September 30,
2008
|
|
|
|
September 30,
2007
|
|
|
Supplemental
disclosure of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
Reclassification
of investment to accounts receivable
|
|
|
$ |
- |
|
|
$ |
69 |
|
|
Reclassification
of royalty receivable to prepaid maintenance contracts
|
|
|
$ |
- |
|
|
$ |
73 |
|
|
Reclassification
of deposits for equipment placed in service
|
|
|
$ |
- |
|
|
$ |
524 |
|
|
Unrealized
holding loss on investments available-for-sale
|
|
|
$ |
(177 |
) |
|
$ |
(24 |
) |
|
Equipment
acquired under capital lease
|
|
|
$ |
43 |
|
|
$ |
- |
|
|
Sale
of certain assets of Interactive Events business in lieu of severance
payment
|
|
|
$ |
- |
|
|
$ |
100 |
|
See
accompanying notes to unaudited condensed consolidated financial
statements.
NTN
BUZZTIME, INC. AND SUBSIDIARIES
(Unaudited)
(1) BASIS
OF PRESENTATION
Description
of Business
The
Company historically has operated principally through two operating divisions:
Entertainment and Hospitality. The Entertainment division generates revenue
primarily from the Buzztime iTV Network which distributes an interactive
television promotional game network to restaurants, sports bars, taverns and
pubs in North America. Additionally, the Company generates royalty revenue by
distributing its game content and technology to other third-party consumer
platforms, including cable television, satellite television, online, retail
games and toys, airlines and books. Additionally, revenue is generated from
advertising revenues sold for distribution via the television
network.
The
Hospitality division is comprised of NTN Wireless Communications, Inc. (“NTN
Wireless”) and NTN Software Solutions, Inc. (“Software Solutions”). In 2006, the
Company determined that the operation of the Hospitality division was not a
strategic fit with its core business and committed to a divestiture plan. These
operations have been reclassified as discontinued operations for all periods
presented. NTN Wireless provided revenues from producing and distributing guest
and server paging systems to restaurants and other markets. Software Solutions
developed and distributed customer management software to manage reservations
and table service in restaurants. Software Solutions also provided professional
help desk services and outsourced software development and support and
maintenance services.
On
March 30, 2007, the Company completed the sale of substantially all of the
assets of NTN Wireless. On October 25, 2007, the Company sold certain
intellectual property assets of Software Solutions pursuant to an Asset Purchase
Agreement, and in a separate agreement with a customer, the Company discontinued
the outsourced software development. Additionally, the Company completed the
wind down of its professional help desk and support and maintenance services
during the third quarter of 2008 (see Note 14).
Basis
of Accounting Presentation
In the
opinion of management, the accompanying condensed consolidated financial
statements include all adjustments that are necessary for a fair presentation
for the periods presented of the financial position, results of operations and
cash flows of NTN Buzztime, Inc. and its wholly-owned subsidiaries: IWN, Inc.,
IWN, L.P., Buzztime Entertainment, Inc., NTN Wireless Communications, Inc., NTN
Software Solutions, Inc., NTN Canada, Inc., and NTN Buzztime, Ltd. Interim
results are not indicative of fiscal year-end results. Unless otherwise
indicated, references to “Buzztime”, “we”, “us” and “our” include the Company
and its consolidated subsidiaries.
IWN,
Inc., IWN, L.P. and Buzztime Entertainment, Inc. are dormant subsidiaries. As of
December 31, 2006, the Company’s Hospitality division was classified as
discontinued operations in accordance with the provisions of Statement of
Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, (see Discontinued Operations—Note 14). The
operating results for these businesses have been separately classified and
reported as discontinued operations in the condensed consolidated financial
statements.
These
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto contained in the
Company’s annual report on Form 10-K for the fiscal year ended December 31,
2007. The results of operations for the three and nine months ended
September 30, 2008 are not necessarily indicative of the results to be
anticipated for the entire year ending December 31, 2008, or any other
period.
Reclassifications
Certain
reclassifications have been made to the consolidated balance sheet and statement
of cash flows for the year ended December 31, 2007 and the nine months
ended September 30, 2007, respectively, to conform to the 2008
presentation. The company reclassified the consolidated statement of operations
for the three and nine months ended September 30, 2007 to conform to the
2008 presentation.
(2) CASH
AND CASH EQUIVALENTS
Statement
of Financial Accounting Standards (SFAS) No. 95, Statement of Cash Flows,
defines “cash and cash equivalents” as any short-term, highly liquid investment
that is both readily convertible to known amounts of cash and so near their
maturity that they present insignificant risk of changes in value because of
changes in interest rates. For the purpose of financial statement presentation,
the Company has applied the provisions of SFAS No. 95, as it considers all
highly liquid investment instruments with original maturities of three months or
less or any investment redeemable without penalty or loss of interest to be cash
equivalents.
As of
September 30, 2008 and December 31, 2007, the Company had
approximately $3,656,000 and $4,587,000, respectively, in Canadian dollars
invested in a Canadian Variable Rate Guaranteed Investment Contract. The
contract, when initiated, had a one year term, however, the security can be
redeemed at any time without penalty or loss of interest; therefore, management
has classified this security as a cash equivalent as the security is highly
liquid.
The
remaining cash equivalents are deposited in an overnight interest-bearing sweep
depository account.
The
restricted cash balance at September 30, 2008 and December 31, 2007
represents cash invested in an interest-bearing restricted account at a Canadian
bank that collateralizes a letter of credit issued by that bank in favor of the
landlord of the Company’s Canadian office.
(3)
COMMON STOCK
On
April 5, 2007, the Company’s Board of Directors authorized a Stock
Repurchase Plan, whereby management is authorized to repurchase up to a maximum
of $3,500,000 of the Company’s Common Stock from time to time in the open market
at prevailing market prices or in privately negotiated transactions over an
eighteen month period which expired on October 4, 2008. During the quarter ended
September 30, 2008, the Company purchased approximately 49,400 shares for a
total of $12,250. In addition, the Company purchased approximately
454,000 shares for a total of $444,000 during 2007. In total, the
Company has purchased approximately 503,000 shares for a total of
$456,000.
(4)
EARNINGS PER SHARE
The
Company computes basic and diluted earnings per share in accordance with the
provisions of Statement of Financial Accounting Standards (SFAS) No. 128,
Earnings per Share.
Basic earnings per share excludes the dilutive effects of options, warrants and
other convertible securities. Diluted earnings per share reflects the potential
dilutions of securities that could share in our earnings. Options, warrants,
convertible preferred stock and deferred stock units representing approximately
7,055,000 and 9,363,000 as of September 30, 2008 and 2007, respectively,
were excluded from the computations of diluted net loss per common share as
their effect was anti-dilutive.
(5)
GOODWILL AND OTHER INTANGIBLE ASSETS
The
Company’s goodwill balance relates to the purchase of NTN Canada. The Company
performed its annual test for goodwill impairment for NTN Canada as of
September 30, 2008, using a test approach consistent to that used as of
September 30, 2007, which is described in the 2007 10-K. It was
determined that there were no indications of impairment at September 30,
2008.
(6)
INVESTMENTS AVAILABLE-FOR-SALE
Investment
securities consist of equity securities, which are classified as
available-for-sale securities. Available-for-sale securities are recorded at
fair value and unrealized holding gains and losses are excluded from earnings
and are reported as a separate component of comprehensive income until realized.
Realized gains and losses from the sale of available-for-sale securities are
determined on a specific-identification basis. A decline in the market value of
any available-for-sale security below cost that is deemed to be
other-than-temporary, results in a reduction in the carrying amount to fair
value. Any resulting impairment is charged to other income (expense) and a new
cost basis for the security is established.
The one
investment available-for-sale that the Company holds is a 2,518,000 share
investment in its Australian licensee eBet Limited (eBet), an Australian gaming
technology corporation. The Company’s original cost basis in the eBet shares is
AUD$0.50 per share. The Company’s initial investment in 1999 was for 4,000,000
shares and at various points in 2000, the Company sold 1,481,000 eBet shares,
leaving its existing holding of 2,518,000 shares, which represents less than
1.0% of eBet’s current shares outstanding.
The
Company performed an evaluation in the second quarter of 2006 and concluded that
the decline in value of its investment in eBet was other-than-temporary and
incurred an impairment loss of $652,000 to reflect the investment at its fair
value which was trading at AUD$0.09. The value of the investment decreased
$58,000 for the three months ended September 30, 2008 and decreased
$177,000 for the nine months ended September 30, 2008. These
declines are recorded as other comprehensive income (loss) on the Company’s
consolidated balance sheet (see Note 11). The Company will continue
to monitor this investment for any indications that the additional decline in
value is other-than-temporary ultimately resulting in additional
impairments.
(7) FAIR
VALUE OF FINANCIAL INSTRUMENTS
The
Company adopted Statement of Financial Accounting Standards No. 157 (“SFAS
No. 157”) as of January 1, 2008. SFAS No. 157 applies to
certain assets and liabilities that are being measured and reported on a fair
value basis. SFAS No. 157 defines fair value, establishes a framework
for measuring fair value in accordance with generally accepted accounting
principles, and expands disclosure about fair value measurements. This
Statement enables the reader of the financial statements to assess the inputs
used to develop those measurements by establishing a hierarchy for ranking the
quality and reliability of the information used to determine fair values. The
Statement requires that assets and liabilities carried at fair value will be
classified and disclosed in one of the following three categories:
Level 1:
Quoted market prices in active markets for identical assets or
liabilities.
Level 2:
Observable market based inputs or unobservable inputs that are corroborated by
market data.
Level 3:
Unobservable inputs that are not corroborated by market data.
The fair
value of the Company’s investment in eBet Limited is determined based on quoted
market prices, which is a Level 1 classification. The Company records the
investment on the balance sheet at fair value with changes in fair value
recorded as a component of other comprehensive income (loss) in the consolidated
balance sheet (see Note 11).
(8)
SOFTWARE DEVELOPMENT COSTS
The
Company capitalizes costs related to the development of certain software
products for the Entertainment division in accordance with SOP No. 98-1,
Accounting for the Costs of
Software Developed or Obtained for Internal Use. Amortization of costs
related to interactive programs is recognized on a straight-line basis over
three years. Amortization expense relating to capitalized software development
costs totaled $87,000 and $104,000 for the three months ended September 30,
2008 and 2007, respectively, and $267,000 for the nine months ended
September 30, 2008 and 2007. As of September 30, 2008 and
December 31, 2007, approximately $405,000 and $388,000, respectively, of
capitalized software costs was not subject to amortization as the development of
various software projects was not complete.
The
Company performed quarterly reviews of software development projects to
determine if any impairment exists. In March 2008, the Company
decided to abandon various software development projects that were determined to
no longer fit with the current strategy or for which it was determined that the
marketability of the content had decreased due to obtaining additional
information regarding the specific industry for which the content was intended.
As a result, an impairment of $292,000 was recognized which was included in
selling, general, and administrative expenses for the nine months ended
September 30, 2008. There were no such impairments for the three
months ended September 30, 2008. The Company incurred an $11,000
impairment during the three months ended September 30, 2007 and $140,000 for the
nine months ended September 30, 2007.
(9)
STOCK-BASED COMPENSATION
The
Company records stock-based compensation in accordance with SFAS No. 123R
and SAB No. 107, Share
Based Payment. The Company estimates the fair value of stock options
using the Black-Scholes option pricing model. The fair value of stock
options granted is recognized as expense over the requisite service period.
Stock-based compensation expense for all share-based payment awards is
recognized using the straight-line single-option method.
The
Company uses the historical stock price volatility as an input to value its
stock options under SFAS No. 123R. The expected term of stock options
represents the period of time options are expected to be outstanding, and is
based on observed historical exercise patterns of the Company, which the Company
believes are indicative of future exercise behavior. For the risk-free interest
rate, the Company uses the observed interest rates appropriate for the term of
time options are expected to be outstanding. The dividend yield assumption is
based on the Company’s history and expectation of dividend payouts.
Stock
Option Activity
The
following table summarizes stock option activity for the nine months ended
September 30, 2008:
|
|
|
Shares
|
|
|
Weighted average
exercise
price
|
|
|
Outstanding as of
December 31, 2007
|
|
|
7,781,000 |
|
|
$ |
1.30 |
|
|
Granted
|
|
|
667,000 |
|
|
|
|
|
|
Exercised
|
|
|
— |
|
|
|
|
|
|
Forfeited
or expired
|
|
|
(2,097,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
as of September 30, 2008
|
|
|
6,351,000 |
|
|
$ |
1.19 |
|
The
weighted-average fair value per share of the options granted during the three
months ended September 30, 2008 and 2007, respectively, and nine months
ended September 30, 2008 and September 30, 2007, respectively, as
computed using the Black-Scholes pricing model were $0.18, $0.51, $0.20 and
$0.56, respectively. The following weighted-average assumptions were used
for grants issued for the three and nine months ended September 30, 2008
and 2007, respectively, under the SFAS No. 123R
requirements:
|
|
|
Three
months ended
September 30,
|
|
|
Nine
months ended
September 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Weighted
average risk-free interest rate
|
|
|
2.94% |
|
|
|
4.52% |
|
|
|
3.21% |
|
|
|
4.60% |
|
|
Weighted
average volatility
|
|
|
67.12% |
|
|
|
55.66% |
|
|
|
60.58% |
|
|
|
56.39% |
|
|
Forfeiture
rate
|
|
|
17.63% |
|
|
|
0.00% |
|
|
|
17.63% |
|
|
|
1.30% |
|
|
Expected
life
|
|
4.61
years
|
|
|
5 years
|
|
|
4.49
years
|
|
|
5 years
|
|
|
Dividend
yield
|
|
|
0.00% |
|
|
|
0.00% |
|
|
|
0.00% |
|
|
|
0.00% |
|
SFAS
No. 123R requires forfeitures to be estimated at the time of grant and
revised if necessary in subsequent periods if actual forfeiture rates differ
from those estimates. Forfeitures were estimated based on historical activity
for the Company. Stock-based compensation expense for employees was $41,000 and
$260,000 for the three and nine months ended September 30, 2008,
respectively, and $174,000 and $507,000 for the three and nine months ended
September 30, 2007, respectively, and is recorded in selling, general and
administrative expenses based upon the departments to which substantially all of
the associated employees report.
As of
September 30, 2008, the Company had $717,000 of unrecognized compensation
expense related to outstanding unvested options, net of estimated forfeitures,
to be recognized over a weighted-average period of 2.76 years.
Deferred
Stock Unit Activity
The
Company granted 137,000 deferred stock units with performance based accelerated
vesting provisions during the quarter ended September 30, 2008. Those
provisions are based on certain revenue targets for the Company which could
result in accelerated vesting of up to 50% of the total award. The Company
has evaluated the likelihood of attaining the performance based targets and they
are not considered probable, therefore, accelerated expense was not
recorded. The Company will continue to monitor its revenue results and
should any estimates made regarding the satisfaction of those performance based
conditions change at any time during the estimated requisite period, an
adjustment will be calculated and recorded in accordance with SFAS No.
123R.
(10)
CONTINGENCIES
The
Company is subject to litigation from time to time in the ordinary course of
business. There can be no assurance that any or all of the following claims will
be decided in the Company’s favor and the Company is not insured against all
claims made. During the pendency of such claims, the Company will continue to
incur the costs of its legal defense.
Recent
Legal Action
On
October 17, 2008, Trinad Capital Master Fund, Ltd. filed a “books and
records” proceeding in the Delaware Chancery Court under Section 220 of the
Delaware Corporation Law asking the Court to require the Company to produce
certain documents and records for inspection. Demands for information
under that law must, among other things, be made with appropriate specificity
and must be for a proper purpose. The Company intends to vigorously
defend this claim with respect to information it believes has not been requested
with appropriate specificity or for a proper purpose as required by the law. As
of September 30, 2008, Trinad Capital Master Fund, Ltd. owned 12.2% of our
common stock.
Sales
and Use Tax
From time
to time, state tax authorities will make inquiries as to whether or not a
portion of our services require the collection of sales and use taxes from
customers in those states. Many states have expanded their interpretation of
their sales and use tax statutes to derive additional revenue. While in the past
our sales and use tax assessments have not been significant to the Company’s
operations, it is likely that such expenses will increase in the
future.
The
Company evaluates such inquiries on a case-by-case basis and has favorably
resolved tax issues in the past without any material adverse consequences.
During 2003, the state of Texas, our largest state in terms of Buzztime iTV
Network sites, began a sales tax audit. It concluded that the Company’s services
are subject to sales taxes on an amusement services basis. On January 12,
2004, the state assessed the Company for approximately $1,115,000 for the five
year audit period ended December 31, 2002. The Company has objected to this
approach since its services are provided to the consumers for free as a
promotional service, which the Company believes falls outside the definition of
amusement services as defined by the Texas Tax Code. In August 2006 the Company
received a written response from the State Attorney’s office indicating that the
State agreed that the Company’s services do not constitute taxable amusement
services. However, the State adopted a new position whereby it concluded that
the Company provides taxable cable television services. Based
on that new position, on December 4, 2007, the Company received a second
assessment of approximately $715,000 based on an audit covering the period
January 1, 2003 through March 31, 2007. The Company continues to
believe that it provides interactive game services for the purpose of providing
a vehicle for its customers to promote their businesses. The Company also
believes that these services do not constitute cable broadcast
services. However, due to the broad definition included within the
Texas Tax Code to determine what types of activities fall into that definition,
the Company has been engaged in ongoing settlement discussions with
Texas. The Company believes it has adequately reserved for its
exposure and further believes a settlement will be reached by December 31,
2008.
The
Company is currently undergoing sales tax audits in several States. As a result
of those audits, the Company has received assessments in the aggregate of
$601,000 from the states of Minnesota and Ohio. The Company has received
assessments in the past from certain states, including Ohio, and successfully
defended its position resulting in little or no tax liability. Based on the
guidance set forth by SFAS No. 5, Accounting for Contingencies,
management has deemed the likelihood that it will be forced to pay an assessment
as reasonably possible.
Based on
the Company’s assessment of its total sales tax exposure, the Company has
recorded a $1,036,000 sales tax reserve which is included in the Company’s sales
tax payable account as of September 30, 2008. As of December 31, 2007,
the Company had recorded an $883,000 sales tax reserve which was included in the
Company’s sales tax payable account.
(11)
ACCUMULATED OTHER COMPREHENSIVE INCOME
Accumulated
other comprehensive income is the combination of accumulated net unrealized
gains or losses on investments available-for-sale and the accumulated gains or
losses from foreign currency translation adjustments. The Company translated the
assets and liabilities of its Canadian and United Kingdom statements of
financial position into U.S. dollars using the period end exchange rate. Revenue
and expenses were translated using the weighted-average exchange rates for the
reporting period.
During
the third quarter of 2007, the Company recorded the cumulative effect of a
foreign currency translation error, in the amount of $614,000. The error, of
which $385,000 related to periods prior to December 31, 2006, has been
reflected in comprehensive income for the year ended December 31, 2007. The
Company has determined that the cumulative adjustment is immaterial to all
periods affected and does not have any effect on net loss, retained earnings nor
earnings per share. As a result, the Company concluded that it is not necessary
to amend prior filings; however, the Company has adjusted accumulated other
comprehensive income for the quarters ended March 31 and June 30,
2007. For the three and nine months ended September 30, 2008 and 2007, the
components of accumulated other comprehensive income were as
follows:
|
|
|
Three months
ended
|
|
|
Nine months
ended
|
|
|
|
|
September 30,
2008
|
|
|
September 30,
2007
|
|
|
September 30,
2008
|
|
|
September 30,
2007
|
|
|
Beginning
balance
|
|
$ |
1,211,000 |
|
|
$ |
1,188,000 |
|
|
$ |
1,662,000 |
|
|
$ |
201,000 |
|
|
Foreign
currency translation adjustment
|
|
|
(177,000 |
) |
|
|
501,000 |
|
|
|
(509,000 |
) |
|
|
1,464,000 |
|
|
Unrealized
loss during period in investment available-for-sale
|
|
|
(58,000 |
) |
|
|
(48,000 |
) |
|
|
(177,000 |
) |
|
|
(24,000 |
) |
|
Ending
balance
|
|
$ |
976,000 |
|
|
$ |
1,641,000 |
|
|
$ |
976,000 |
|
|
$ |
1,641,000 |
|
(12)
RECENT ACCOUNTING PRONOUNCEMENTS
In
September 2006 the Financial Accounting Standards Board (FASB) issued SFAS
No. 157, Fair Value
Measurements, which is effective for fiscal years beginning after
November 15, 2007. SFAS No. 157 provides a definition of fair value,
establishes acceptable methods of measuring fair value, and expands disclosure
for fair value measurements. The principles apply under accounting
pronouncements which require measurement of fair value and do not require any
new fair value measurements in accounting pronouncements where fair value is the
relevant measurement attribute. On February 12, 2008, the FASB issued SFAS
No. 157-2 deferring the effective date of SFAS No. 157 to
November 15, 2008 for non financial assets and liabilities. The adoption of
SFAS No. 157-2, ultimately deferring the adoption of SFAS No. 157, has
not had a material impact on the condensed consolidated financial statements
(see Note 7).
In
February 2007 the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities—including an amendment of SFAS
No. 115, Accounting for
Certain Investments in Debt and Equity Securities, which applies to all
entities with available-for-sale and trading securities. This Statement permits
entities to choose to measure many financial instruments and certain other items
at fair value. The objective is to improve financial reporting by providing
entities with the opportunity to mitigate volatility in reported earnings caused
by measuring related assets and liabilities differently without having to apply
complex hedge accounting provisions. This Statement is effective as of the
beginning of an entity’s first fiscal year that begins after November 15,
2007. Early adoption is permitted as of the beginning of a fiscal year that
begins on or before November 15, 2007, provided the entity also elects to
apply the provisions of SFAS No. 157, Fair Value Measurements.
The adoption of SFAS No.159 has not had a material impact on the condensed
consolidated financial statements.
In
December 2007 the FASB issued SFAS No. 141R, a revision of SFAS
No. 141, Business
Combinations, which applies to all acquiring entities. This Statement
establishes principles and requirements for how the acquirer is to recognize and
measure in its financial statements the identifiable assets acquired, the
liabilities assumed, and any noncontrolling interest in the acquiree, and how to
recognize and measure the goodwill acquired in the business combination or a
gain from a bargain purchase. The objective is to improve the relevance,
representational faithfulness, and comparability of the information that a
reporting entity provides in its financial reports about a business combination
and its effects. This Statement applies prospectively to business combinations
for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. The Company is in
the process of evaluating the impact of adopting SFAS No. 141R on its financial
position, results of operations and cash flows.
Also, in
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interest in
Consolidated Financial Statements, an amendment of ARB No. 51, Consolidated Financial Statements,
which applies to all entities that prepare consolidated financial
statements that have an outstanding noncontrolling interest in one or more
subsidiaries or that deconsolidate a subsidiary. The objective is to improve the
relevance, comparability, and transparency of the financial information that a
reporting entity provides in its consolidated financial statements. The
Statement requires entities that have noncontrolling interests to clearly
identify in the financial statements their noncontrolling interest and the
respective net income. Additionally, the provision requires that all changes in
ownership of noncontrolling interests be treated as equity transactions and any
subsidiaries that are deconsolidated are required to be measured at fair value
and such valuation is to be used in determining the gain or loss on the
deconsolidation. This Statement is applied prospectively and is effective for
fiscal years, and interim periods within those fiscal years, beginning on or
after December 15, 2008. The Company currently does not have any
noncontrolling interests in its subsidiaries.
In April
2008 the FASB posted FASB Staff Position (FSP) FAS 142-3, Determination of the Useful Life of
Intangible Assets. This FSP amends the factors that should be considered
in developing renewal or extension assumptions used to determine the useful life
of a recognized intangible asset under FASB No. 142, Goodwill and Other Intangible
Assets. The intent of this FSP is to improve the consistency between the
useful life of a recognized intangible asset under FASB No. 142 and the
period of expected cash flows used to measure the fair value of the asset under
FASB No. 141R, Business
Combinations, and other U.S. generally accepted accounting principles.
This FSP is effective for financial statements issued for fiscal years beginning
after December 15, 2008, and interim periods within those fiscal years. The
Company is in the process of determining the effect, if any, the adoption of the
FSP will have on its condensed consolidated financial
statements.
In March
2008 the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities – an amendment of FASB Statement
No. 133, which requires companies to provide additional disclosures
about its objectives and strategies for using derivative instruments, how the
derivative instruments and related hedged items are accounted for under SFAS
No. 133, Accounting for
Derivative Instruments and Hedging Activities, and related
interpretations, and how the derivative instruments and related hedged items
affect the Company’s financial statements. SFAS No. 161 also requires
companies to disclose information about credit risk-related contingent features
in their hedged positions. SFAS No. 161 is effective for fiscal years and
interim periods beginning after November 15, 2008 and is required to be
adopted by the Company beginning in the first quarter of fiscal 2009. Although
the Company will continue to evaluate the application of SFAS No. 161,
management does not currently believe adoption will have a material impact on
the Company’s financial condition or operating results.
In May
2008 the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles, (“SFAS No. 162”), which becomes
effective 60 days following the SEC’s approval of the Public Company
Accounting Oversight Board (“PCAOB”) amendments to US Auditing Standards (“AU”)
Section 411, The Meaning
of Present Fairly in Conformity With Generally Accepted Accounting
Principles. SFAS No. 162 identifies the sources of accounting
principles and the framework for selecting the principles to be used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with US GAAP. This standard is not expected to have an
impact on the Company’s financial position, results of operations or cash
flow.
In June
2008 the FASB Emerging Issues Task Force (“EITF”) reached a consensus on EITF
Issue No. 08-3, Accounting by Lessees for
Maintenance Deposits under Lease Agreements (“EITF No. 08-3”). EITF
No. 08-3 provides that all nonrefundable maintenance deposits paid by a
lessee, under an arrangement accounted for as a lease, should be accounted for
as a deposit. When the underlying maintenance is performed, the deposit is
expensed or capitalized in accordance with the lessee’s maintenance accounting
policy. Once it is determined that an amount on deposit is not probable of being
used to fund future maintenance expense, it is recognized as additional rent
expense at that time. EITF No. 08-3 is effective for the Company on
January 1, 2009. The Company is currently evaluating the impact of adopting
EITF No. 08-3 on the Company’s financial position, results of operations
and cash flows.
In June
2008 the EITF reached a consensus on EITF Issue No. 08-4, Transition Guidance for Conforming
Changes to EITF Issue No. 98-5, Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios (“EITF No. 08-4”). Subsequent to the issuance of
EITF No. 98-5, certain portions of the guidance contained in EITF
No. 98-5 were nullified by EITF Issue No. 00-27, Application of EITF Issue
No. 98-5, ‘Accounting for Convertible Securities with Beneficial Conversion
Features or Contingently Adjustable Conversion Ratios’ (“EITF
No. 00-27”). EITF No. 08-4 specifically addresses the conforming
changes to EITF Issue No. 98-5 and provides transition guidance for the
conforming changes. EITF No. 08-4 is effective for the Company for the
fiscal year ending December 31, 2008. The Company is currently evaluating
the impact of adopting EITF No. 08-4 on the Company’s financial position,
results of operations and cash flows.
(13)
RESTRUCTURING
In
January 2007 the Company restructured its Canadian operations to reduce costs
and streamline operations. The restructuring involved a reduction of 10
employees, moving the operation to a smaller facility and subleasing the
previously occupied facility until the end of the original lease. Along with the
restructuring, the Company sold certain assets and granted a license for the
related licensed materials of its Interactive Events business to a former
employee. The communication date to the employees was January 11, 2007. The
Company accounted for restructuring costs pursuant to SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. SFAS No. 146 requires that a liability
for costs associated with an exit or disposal activity be recognized when the
liability is incurred, as opposed to when there is a commitment to a
restructuring plan. Severance for involuntary employee terminations was accrued
as of the communication date and the costs to exit certain lease obligations
were accrued as of March 31, 2007. Moving, relocation and other associated
costs related to the restructuring were expensed as incurred. The restructuring
costs are comprised of the following for the three and nine months ended
September 30, 2007:
|
|
|
Three months
ended
|
|
|
Nine months
ended
|
|
|
|
|
September 30,
2007
|
|
|
September 30,
2007
|
|
|
Severance
for involuntary employee terminations
|
|
$ |
- |
|
|
$ |
337,000 |
|
|
Costs
to exit certain contractual and lease obligations
|
|
|
- |
|
|
|
99,000 |
|
|
Moving,
relocation and other associated costs
|
|
|
- |
|
|
|
51,000 |
|
|
Total
restructuring costs
|
|
$ |
- |
|
|
$ |
487,000 |
|
Approximately
$9,000 was capitalized as leasehold improvements. Costs to exit lease
obligations include the difference in the net present value of the lease
payments in excess of the sublease payments to be received. The Company has a
reserve of approximately $45,000 and $50,000 as of September 30, 2008 and
December 31, 2007, respectively. The Company expects to complete the
utilization of the reserve related to this restructuring by December 2014, the
date the lease expires. The restructuring accrual is included in accrued
expenses.
During
the quarter ended September 30, 2008, the Company ceased its operations in the
United Kingdom which involved the termination of six employees, relocation of
nearly all assets to the United States and disposal of certain other assets. The
communication to the employees occurred in July 2008. In accordance with SFAS
No. 146, Accounting for
Costs Associated with Exit or Disposal Activities, nearly all costs
incurred as a result of this exit activity were reflected in the quarter ended
September 30, 2008. The Company recorded severance costs of
approximately $150,000 and expects to incur an additional $15,000 to relocate
the assets remaining in the UK, as of September 30, 2008, and cover other
minimal expenses. No additional expenses are expected in any future
periods.
(14)
DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE
In
November 2006 the Company began to actively pursue the sale of its Hospitality
division comprised of NTN Wireless and Software Solutions. In the fourth quarter
of 2006, the Company applied the provisions of SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, to certain of its assets which were held
for sale. SFAS No. 144 requires that a long-lived asset classified as held
for sale, be measured at the lower of its carrying amount or fair value, less
costs to sell, and that the Company ceases depreciation, depletion and
amortization. As of December 31, 2006, the Hospitality division’s assets
have been classified as held for sale and the respective assets were revalued as
of December 31, 2006. Depreciation on these assets ceased effective
December 31, 2006.
On
March 30, 2007 the Company completed the sale of substantially all of the
assets of NTN Wireless for $2.4 million and recognized a gain, net of tax, of
approximately $396,000. On October 25, 2007, the Company sold certain
intellectual property assets of Software Solutions pursuant to an Asset Purchase
Agreement, and in a separate agreement with a customer, the Company discontinued
the outsourced software development it was providing. The Company completed its
wind down of the professional help desk and support and maintenance services
during the third quarter of 2008. The intellectual property sold constituted
substantially all of the remaining operating assets of the Company’s Hospitality
division, which had originally consisted of its Software Solutions and Wireless
communications businesses. The Company has accounted for its Hospitality
division as a reportable segment and presented its operations as discontinued
operations since the fourth quarter of 2006. The Company recognized
approximately $65,000 in other income related to discontinuing the outsourcing
of software development and a loss of approximately $62,000 for the sale of the
Company’s intellectual property assets during the fourth quarter of 2007. The
Company does not expect to incur any additional expenses related to the help
desk and support and maintenance function in subsequent periods.
The
operating results for the Hospitality division have been separately classified
and reported as discontinued operations in the consolidated statements of
operations as follows:
|
|
|
Three months
ended
|
|
|
Nine months
ended
|
|
|
|
|
September
30,
2008
|
|
|
September
30,
2007
|
|
|
September
30,
2008
|
|
|
September
30,
2007
|
|
|
Operating
revenues
|
|
$ |
- |
|
|
$ |
910,000 |
|
|
$ |
21,000 |
|
|
$ |
4,414,000 |
|
|
Operating
expenses
|
|
|
2,000 |
|
|
|
1,078,000 |
|
|
|
530,000 |
|
|
|
5,127,000 |
|
|
Operating
loss
|
|
$ |
(2,000 |
) |
|
$ |
(168,000 |
) |
|
$ |
(509,000 |
) |
|
$ |
(713,000 |
) |
|
Gain
on sale of assets
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
396,000 |
|
|
Other
income (expense)
|
|
|
177,000 |
|
|
|
— |
|
|
|
177,000 |
|
|
|
(3,000 |
) |
|
Income
(loss) before income taxes
|
|
$ |
175,000 |
|
|
$ |
(168,000 |
) |
|
$ |
(332,000 |
) |
|
$ |
(320,000 |
) |
|
Income
tax expense
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
29,000 |
|
|
Income
(loss) from discontinued operations, net of tax
|
|
$ |
175,000 |
|
|
$ |
(168,000 |
) |
|
$ |
(332,000 |
) |
|
$ |
(349,000 |
) |
The
Company accounted for the dissolution of the help desk and support and
maintenance operation pursuant to the provisions of SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. SFAS No. 146 requires that a liability
for costs associated with an exit or disposal activity be recognized when the
liability is incurred, as opposed to when there is a commitment to disposing a
business segment. Severance for involuntary employee terminations is expensed
over the requisite service period in which it is earned as certain employees are
required to continue to render service until the Company has fulfilled its
obligations under existing customer contracts. Moving, relocation and other
associated costs related to the dissolution are expensed as incurred. The
Company did not incur severance expenses for involuntary employee terminations
during the three months ended September 30, 2008 and incurred $60,000 for the
nine months ended September 30, 2008, and approximately $37,000 was accrued
as of December 31, 2007. There were no additional costs accrued
as of September 30, 2008.
The
Company recorded income from discontinued operations, net of tax, of
approximately $175,000 during the three months ended September 30,
2008. That income was substantially due to the reversal of certain
customer and warranty related reserves that management deemed no longer
necessary, based largely on historical claim activity indicating that the
probability of the Company realizing these reserves in future periods is
remote.
A summary
of the components of assets and liabilities of discontinued operations on NTN
Buzztime’s consolidated balance sheets as of September 30, 2008 and
December 31, 2007 is as follows:
|
|
|
September 30,
2008
|
|
|
December 31,
2007
|
|
|
Assets
held for sale:
|
|
|
|
|
|
|
|
Current
assets
|
|
$ |
- |
|
|
$ |
192,000 |
|
|
Broadcast
equipment and fixed assets
|
|
|
- |
|
|
|
20,000 |
|
|
Total
assets of discontinued operations
|
|
$ |
- |
|
|
$ |
212,000 |
|
|
Liabilities
of discontinued operations:
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
- |
|
|
|
672,000 |
|
|
Total
liabilities of discontinued operations
|
|
$ |
- |
|
|
$ |
672,000 |
|
|
Net
assets of discontinued operations
|
|
$ |
- |
|
|
$ |
(460,000 |
) |
(15)
GEOGRAPHICAL INFORMATION
In 2007
and the first half of 2008, the Company marketed its products in the United
States, Canada, and the United Kingdom. The table below contains information
about these geographical areas in which the Company operated. Revenues are
attributed to the Buzztime iTV Network in these areas. Long-lived assets are
based on location of domicile. In December 2003 the Company began operations in
Canada by acquiring most of the operating assets, certain liabilities and the
operations of NTN Interactive Network, Inc, its Canadian licensee, from its
parent, Chell Group Corporation Inc. In March 2005 the Company launched the
Buzztime iTV Network product in the United Kingdom under the brand Buzztime
Network. In the third quarter of 2008, the Company ceased its
operations in the United Kingdom.
|
|
|
Three months
ended
|
|
|
Nine months
ended
|
|
|
|
|
September
30,
2008
|
|
|
September
30,
2007
|
|
|
September
30,
2008
|
|
|
September
30,
2007
|
|
|
Revenues
by geographical area:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$ |
5,952,000 |
|
|
$ |
6,455,000 |
|
|
$ |
18,142,000 |
|
|
$ |
19,745,000 |
|
|
Canada
|
|
|
820,000 |
|
|
|
908,000 |
|
|
|
2,652,000 |
|
|
|
2,789,000 |
|
|
United
Kingdom
|
|
|
- |
|
|
|
113,000 |
|
|
|
177,000 |
|
|
|
315,000 |
|
|
Total
revenue
|
|
$ |
6,772,000 |
|
|
$ |
7,476,000 |
|
|
$ |
20,971,000 |
|
|
$ |
22,849,000 |
|
|
|
|
September 30,
2008
|
|
|
December 31,
2007
|
|
|
Assets
by geographical area:
|
|
|
|
|
|
|
|
United
States
|
|
$ |
7,636,000 |
|
|
$ |
11,075,000 |
|
|
Canada
|
|
|
6,649,000 |
|
|
|
8,936,000 |
|
|
United
Kingdom
|
|
|
183,000 |
|
|
|
637,000 |
|
|
Total
assets
|
|
$ |
14,468,000 |
|
|
$ |
20,648,000 |
|
(16)
SIGNIFICANT CUSTOMER
For the
three and nine months ended September 30, 2008, the Company generated
approximately 11% and 12% of revenue from a national chain, Buffalo Wild Wings
together with its franchises. For the three and nine months ended
September 30, 2007, the Company generated approximately 11% and 10% of
revenue from that chain. As of September 30, 2008 and 2007, approximately
$158,000 and $96,000, respectively, were included in accounts receivable from
this customer.
CAUTION
CONCERNING 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
Buzztime, 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, 2007, under the section entitled “Risk Factors,” and in
Item 1A of Part II of this Quarterly Report on Form 10-Q, 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.
OVERVIEW
We
historically have operated principally through two operating divisions:
Entertainment and Hospitality. The Entertainment division generates revenue
primarily from the Buzztime iTV Network which distributes an interactive
television promotional game network to restaurants, sports bars, taverns and
pubs, primarily in North America. Additionally, we generate royalty revenue by
distributing our game content and technology to other third-party consumer
platforms, including cable television, satellite television, online, retail
games and toys, airlines and books. Additional revenue is generated from
advertising revenues sold for distribution via the interactive television
network.
The
Hospitality division has been discontinued. It was comprised of NTN Wireless
Communications, Inc. (“NTN Wireless”) and NTN Software Solutions, Inc.
(“Software Solutions”). In 2006, we determined that the operation of the
Hospitality division was not a strategic fit with our core business and
committed to a divestiture plan. These operations have been reclassified as
discontinued operations for all periods presented. NTN Wireless provided
revenues from producing and distributing guest and server paging systems to
restaurants and other markets. Software Solutions developed and distributed
customer management software to manage reservations and table service in
restaurants. Software Solutions also provided professional help desk services
and outsourced software development and support and maintenance
services.
On
March 30, 2007, we completed the sale of substantially all of the assets of
NTN Wireless. On October 25, 2007, we sold certain intellectual property
assets of Software Solutions pursuant to an Asset Purchase Agreement, and in a
separate agreement with a customer, we discontinued the outsourced software
development. Additionally, the Company completed the wind down of its
professional help desk and support and maintenance services during the third
quarter of 2008. We do not expect to incur any additional expenses
related to the help desk and support and maintenance function in subsequent
periods.
Restructuring
of Operations
In
January 2007 we restructured our Canadian operations to reduce our costs and
streamline operations. The restructuring involved a reduction of ten employees,
moving the operation to a smaller facility and subleasing the previously
occupied facility until the end of the original lease. Along with the
restructuring, we sold certain assets and granted a license for the related
licensed materials of our Interactive Events business to a former
employee.
During
the third quarter of 2008, we ceased our operations in the United Kingdom. The
closure of operations involved the termination of six employees, relocation of
nearly all assets to the United States and disposal of certain other assets. As
of September 30, 2008, nearly all activities related to this closure had taken
place and nearly all costs directly related to the closure of operations had
been incurred. As of the date we ceased operations, UK operations
accounted for less than 1% of the total subscriber sites.
The
Entertainment Division
The
out-of-home Buzztime iTV Network has maintained a unique and preemptive position
in the hospitality industry for over 20 years as a promotional platform
providing interactive entertainment to patrons in restaurants and sports bars.
The iTV Network distributes a wide variety of engaging interactive multi-player
games, including trivia quiz shows, play-along sports programming, casino-style
and casual games to our Network Subscribers. Patrons use our wireless game
controllers, or Playmakers, to play along with the Buzztime games which are
displayed on television screens. Buzztime players can compete with other players
within their hospitality venue and also against players in other Network
Subscriber venues.
We target
national and regional hospitality chains as well as local independent
hospitality venues that desire a competitive point-of-difference to attract and
retain customers. As of September 30, 2008, we had 3,438 United States
Network subscribers and 307 Canadian subscribers. Approximately 29% of our
Network subscribers come from leading national chains in the casual-dining
restaurant segment such as Buffalo Wild Wings, TGI Friday’s, Applebee’s and
Damon’s Grill.
Through
the transmission of interactive game content stored on a site server at each
location, our Buzztime iTV Network enables single-player and multi-player
participation as part of local, regional, national or international competitions
supported with prizes and player recognition. Our Buzztime iTV Network also
earns revenue from advertising and marketing services to companies seeking to
reach the millions of consumers that visit the Buzztime iTV Network’s
venues.
We also
generate revenue from distributing and licensing our Buzztime-branded content
and related technology to consumer platforms, with a focus on interactive
networks such as cable TV, satellite TV and mobile phones. Our distribution
efforts focus on licensing real-time, mass-participation games such as trivia,
head-to-head multi-player games such as Texas Hold’em and single-player games
such as solitaire. Our incremental licensing revenue derived from cable
television, satellite television, mobile phones, home electronic games, cards
and books. The game content is designed for broad audiences and includes trivia
quiz shows, real-time sports prediction games that are played along with live
televised sporting events, multi-player card and billiard games as well as
single-player card, arcade, puzzle and board games.
Our games
have been available as a two-way cable TV game service since June 2002.
Currently, our games (including trivia, Texas Hold’em, Buzztime Billiards and
assorted single-player games) are licensed to eight cable systems including
Comcast and Blue Ridge Communications and are available to the digital cable
subscribers for free. Our games are also available as a premium monthly
subscription service to Echostar DISH and Bell ExpressVu satellite customers in
the U.S. and Canada, respectively. We also have license arrangements with Cadaco
for retail electronic and card games and Square One Publishers for the Buzztime
Trivia Book Series. Revenue from our distribution division is derived primarily
from license fees and royalties from third-party licensees who distribute
Buzztime content to end-users, as well as from third-party development and
production fees.
The
Hospitality Division (Discontinued Operations)
NTN
Wireless earned revenue from the sale of on-site wireless paging products
primarily to restaurants but also hospitals, church and synagogue nurseries,
salons, business offices and retail establishments in North America. In
restaurants, these products were provided to customers while waiting for a table
and activated to let them know when their table is ready, as well as to
restaurant staff to alert them to certain issues, such as when hot food is ready
to be served.
Software
Solutions generated revenue from the licensing of proprietary seating management
and reservation management systems software to restaurants, casinos and other
venues. Software Solutions also provided professional help desk services and
outsourced software development and support and maintenance services to Domino’s
Pizza and their franchisees and other quick service restaurant
locations.
Web
Site Access to SEC Filings
We
maintain an Internet website at www.buzztime.com. We make
available free of charge on our Internet website our annual reports on
Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, amendments to those reports filed or furnished pursuant to
Section 13(a) of the Exchange Act and certain other filings as soon as
reasonably practicable after we electronically file such material with, or
furnish it to, the SEC.
Materials
we file with the SEC may be read and copied at the SEC’s Public Reference Room
at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of
the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.
The SEC also maintains an internet website at www.sec.gov that contains
reports, proxy and information statements, and other information regarding our
Company that we file electronically with the SEC.
CRITICAL
ACCOUNTING POLICIES
The
discussion and analysis of our financial condition and results of operations are
based on our condensed consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States (GAAP). 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 ongoing basis, we evaluate our estimates, including those
related to deferred costs and revenues, depreciation of broadcast equipment, the
provision for income taxes including the valuation allowance, bad debts,
investments, intangible assets and contingencies. 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. Critical accounting
policies and estimates are defined as those that are both most important to the
portrayal of the Company’s financial condition and results and require
management’s most subjective judgments.
We
believe that the estimates, assumptions and judgments involved in the accounting
policies described in the “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” section of our most recent Annual Report on
Form 10-K have the greatest potential impact on our financial statements, so we
consider these to be our critical accounting policies.
RESULTS
OF OPERATIONS
Our
Hospitality division is classified as discontinued operations in accordance with
SFAS No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets. The operating
results for these businesses have been separately classified and reported as
discontinued operations in the condensed consolidated financial
statements.
Results
of Continuing Operations
Three
months ended September 30, 2008 compared to the three months ended
September 30, 2007
Continuing
operations, which consists of the Entertainment division, generated a net loss
of $1,032,000 for the three months ended September 30, 2008, compared to
net loss of $1,617,000 for the three months ended September 30,
2007.
Revenue
Revenue
from continuing operations decreased $704,000 or 9%, to $6,772,000 for the three
months ended September 30, 2008 from $7,476,000 for the three months ended
September 30, 2007, due to a reduction in our site count predominately driven by
the closure of our UK operations, the Chapter 7 filing of the company owned
Bennigan’s restaurant chain and changes in our pricing strategy. Comparative
site count information for Buzztime iTV Network is as follows:
|
|
|
Network subscribers
As of September 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
United
States
|
|
|
3,438 |
|
|
|
3,488 |
|
|
Canada
|
|
|
307 |
|
|
|
316 |
|
|
United
Kingdom
|
|
|
- |
|
|
|
68 |
|
|
Total
|
|
|
3,745 |
|
|
|
3,872 |
|
Direct
Costs and Gross Margin
The
following table compares the direct costs and gross margin from continuing
operations for 2008 and 2007:
|
|
|
Three
months ended
September 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Revenue
|
|
$ |
6,772,000 |
|
|
$ |
7,476,000 |
|
|
Direct
costs
|
|
|
1,971,000 |
|
|
|
2,249,000 |
|
|
Gross
margin
|
|
$ |
4,801,000 |
|
|
$ |
5,227,000 |
|
|
Gross
margin percentage
|
|
|
71% |
|
|
|
70% |
|
Gross
margin as a percentage of revenue improved to 71% for the three months ended
September 30, 2008 compared to 70% in the prior year period. The one point
increase in the gross margin percentage is primarily the result of a reduction
in depreciation expense as equipment became fully depreciated.
Selling,
General and Administrative Expenses
Selling,
general and administrative expenses decreased $92,000 or 2%, to $5,724,000 for
the three months ended September 30, 2008 from $5,816,000 for the three months
ended September 30, 2007. Selling, general and administrative expenses
decreased due to several factors. Marketing expenses decreased
$478,000 due to an overall reduction in advertising, trade shows and outsourced
marketing services. These decreases were offset by several
factors. Severance expenses increased $231,000 due to severance
arrangements entered into with senior management and UK employees in connection
with the termination of their employment. Legal expenses increased
$62,000 related to corporate governance matters as well as an ongoing trademark
infringement case we initiated. Lease expenses increased $50,000 due
to operating leases acquired in the current year. Bad debt expense
increased $37,000 related to customer cancellations and the Chapter 7 filing of
the company owned Bennigan’s restaurant chain.
Interest
Income and Expense
Interest
income decreased $80,000, to $27,000 in 2008 from $107,000 in the prior year.
The Company’s average cash balance invested in interest bearing securities
decreased which resulted in less interest income. Interest expense in
2008 remained consistent with the prior year period.
Income
Taxes
We expect
to report a U.S. tax loss for the year ending December 31, 2008. We expect
that we will not incur a federal tax liability, however; we will likely incur a
state tax liability. We also expect to pay income taxes in Canada due to the
profitability of NTN Canada. As a result, we recorded a tax provision of $68,000
for the three months ended September 30, 2008. This was a $33,000 increase
compared to the $35,000 provision for income taxes recorded for the three months
ended September 30, 2007. We continue to provide a 100% valuation allowance
against our deferred tax assets related to certain net operating losses as
realization of such tax benefits is not assessed as more likely than
not.
Results
of Discontinued Operations
Three
months ended September 30, 2008 compared to the three months ended
September 30, 2007
Discontinued
operations generated net income of $175,000 for the three months ended
September 30, 2008 compared to a net loss of $168,000 for the three months
ended September 30, 2007. The operating results of the discontinued
operations are as follows for 2008 and 2007:
|
|
|
Three months
ended
|
|
|
|
|
September
30,
2008
|
|
|
September
30,
2007
|
|
|
Operating
revenues
|
|
$ |
- |
|
|
$ |
910,000 |
|
|
Operating
expenses
|
|
|
2,000 |
|
|
|
1,078,000 |
|
|
Operating
loss
|
|
$ |
(2,000 |
) |
|
$ |
(168,000 |
) |
|
Other
|
|
|
177,000 |
|
|
|
- |
|
|
Income
(loss) from discontinued operations, net of tax
|
|
$ |
175,000 |
|
|
$ |
(168,000 |
) |
On
March 30, 2007, we completed the sale of substantially all of the assets of
NTN Wireless for $2.4 million and recognized a gain, net of tax, of
approximately $396,000. On October 25, 2007, we sold certain intellectual
property assets of Software Solutions pursuant to an Asset Purchase Agreement,
and in a separate agreement with a customer, we discontinued the outsourced
software development it was providing. The intellectual property sold
constituted substantially all of the remaining operating assets of our
Hospitality division, which had originally consisted of our Software Solutions
and Wireless. We have accounted for our Hospitality division as a reportable
segment but we have presented its operations as discontinued operations since
the fourth quarter of 2006. We do not anticipate any further costs related to
the dissolution of the professional help desk and support and maintenance
services.
The
Company recorded income from discontinued operations, net of tax, of
approximately $175,000 during the three months ended September 30,
2008. That income was substantially due to the reversal of certain
customer and warranty related reserves that management deemed no longer
necessary, based largely on historical claim activity indicating that the
probability of the Company realizing these reserves in future periods is
remote.
EBITDA
– Consolidated Operations
Earnings
before interest, taxes, depreciation and amortization, or EBITDA, is not
intended to represent a measure of performance in accordance with accounting
principles generally accepted in the United States (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 it is a measure of
operating performance that financial analysts, lenders, investors and other
interested parties find to be a useful tool for analyzing companies like us that
carry significant levels of non-cash depreciation and amortization charges in
comparison to their GAAP earnings or loss.
The
following table reconciles our consolidated net loss per GAAP to
EBITDA:
|
|
|
Three months
ended
|
|
|
|
|
September
30,
2008
|
|
|
September
30,
2007
|
|
|
Net
loss per GAAP
|
|
$ |
(857,000 |
) |
|
$ |
(1,785,000 |
) |
|
Interest
income, net
|
|
|
(23,000 |
) |
|
|
(102,000 |
) |
|
Depreciation
and amortization
|
|
|
752,000 |
|
|
|
1,008,000 |
|
|
Income
taxes
|
|
|
68,000 |
|
|
|
35,000 |
|
|
EBITDA
|
|
$ |
(60,000 |
) |
|
$ |
(844,000 |
) |
Our
operations generated EBITDA levels as presented below:
|
|
|
Three months
ended September 30, 2008
|
|
|
|
|
Entertainment
|
|
|
Discontinued
operations
|
|
|
Total
|
|
|
Net
loss (income) per GAAP
|
|
$ |
(1,032,000 |
) |
|
$ |
175,000 |
|
|
$ |
(857,000 |
) |
|
Interest
income, net
|
|
|
(23,000 |
) |
|
|
— |
|
|
|
(23,000 |
) |
|
Depreciation
and amortization
|
|
|
752,000 |
|
|
|
— |
|
|
|
752,000 |
|
|
Income
taxes
|
|
|
68,000 |
|
|
|
— |
|
|
|
68,000 |
|
|
EBITDA
|
|
$ |
(235,000 |
) |
|
$ |
175,000 |
|
|
$ |
(60,000 |
) |
|
|
|
Three months
ended September 30, 2007
|
|
|
|
|
Entertainment
|
|
|
Discontinued
operations
|
|
|
Total
|
|
|
Net
loss per GAAP
|
|
$ |
(1,617,000 |
) |
|
$ |
(168,000 |
) |
|
$ |
(1,785,000 |
) |
|
Interest
income, net
|
|
|
(102,000 |
) |
|
|
— |
|
|
|
(102,000 |
) |
|
Depreciation
and amortization
|
|
|
1,008,000 |
|
|
|
— |
|
|
|
1,008,000 |
|
|
Income
taxes
|
|
|
35,000 |
|
|
|
— |
|
|
|
35,000 |
|
|
EBITDA
|
|
$ |
(676,000 |
) |
|
$ |
(168,000 |
) |
|
$ |
(844,000 |
) |
Nine
months ended September 30, 2008 compared to the nine months ended
September 30, 2007
Continuing
operations, which consists of the Entertainment division, generated a net loss
of $5,444,000 for the nine months ended September 30, 2008 compared to net
loss of $2,757,000 for the nine months ended September 30,
2007.
Revenue
Revenue
from continuing operations decreased $1,878,000 or 8%, to $20,971,000 for the
nine months ended September 30, 2008 from $22,849,000 for the nine months ended
September 30, 2007, due to a reduction in our site count predominately driven by
the closure of our UK operations, the Chapter 7 filing of the company owned
Bennigan’s restaurant chain and changes in our pricing strategy. Comparative
site count information for the Buzztime iTV Network is as follows:
|
|
|
Network subscribers
As of
September 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
United
States
|
|
|
3,438 |
|
|
|
3,488 |
|
|
Canada
|
|
|
307 |
|
|
|
316 |
|
|
United
Kingdom
|
|
|
- |
|
|
|
68 |
|
|
Total
|
|
|
3,745 |
|
|
|
3,872 |
|
Direct
Costs and Gross Margin
The
following table compares the direct costs and gross margin from continuing
operations for 2008 and 2007:
|
|
|
Nine
months ended
September 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Revenue
|
|
$ |
20,971,000 |
|
|
$ |
22,849,000 |
|
|
Direct
costs
|
|
|
6,095,000 |
|
|
|
6,675,000 |
|
|
Gross
margin
|
|
$ |
14,876,000 |
|
|
$ |
16,174,000 |
|
|
Gross
margin percentage
|
|
|
71% |
|
|
|
71% |
|
Gross
margin as a percentage remained stable at 71% for the nine months ended
September 30, 2008 and 2007.
Selling,
General and Administrative Expenses
Selling,
general and administrative expenses increased $2,755,000 or 16%, to $19,941,000
for the nine months ended September 30, 2008 from $17,186,000 for the nine
months ended September 30, 2008. Selling, general and administrative
expenses increased due to several factors. Consulting expenses
increased $1,010,000 as the company utilized the services of external
consultants on a number of initiatives. Severance expense increased
$996,000 as a result of the elimination of 22 positions, closing of the UK
office and the departure of the former CEO. Salary expense increased
$368,000 due to changes in the employee mix and related compensation
levels. Legal expenses increased $224,000 related to corporate
governance matters as well as an ongoing trademark infringement case we
initiated. Additionally, bad debt expense increased $178,000 related
to customer cancellations and bankruptcies. Software disposal
expenses increased $152,000 due to impairments on certain projects that were
deemed to no longer fit with our current strategy.
The
above increases were offset by a $275,000 decrease in marketing expenses due to
an overall reduction in advertising, trade shows, and outsourced marketing
services.
Restructuring
Costs
We
recorded restructuring charges totaling $478,000 during the nine months ended
September 30, 2007 in connection with the restructuring of the Canadian
operation to reduce costs and streamline operations. Of this amount,
approximately $337,000 was for one-time termination benefits, $99,000 related to
costs to exit certain contractual and lease obligations and $42,000 for moving
and relocation costs. The restructuring involved a reduction of 10 employees and
leased space.
Depreciation
and amortization
Depreciation
and amortization not related to direct operating costs decreased $21,000 or 5%,
to 400,000 for the nine months ended September 30, 2008 from $421,000 in 2007
due to various fixed assets becoming fully depreciated, thereby reducing our
depreciation in 2008.
Interest
Income and Expense
Interest
income decreased $124,000, to $129,000 for the nine months ended September 30,
2008 from $253,000 in the prior year due to a decrease in our average cash
balance invested. Interest expense decreased $22,000 to $4,000 in
2008 from $26,000 in 2007 due to a decrease in unamortized capitalized
leases.
Income
Taxes
We expect
to report a U.S. tax loss for the year ending December 31, 2008. We expect
that we will not incur a federal tax liability, however; we will likely incur a
state tax liability. We also expect to pay income taxes in Canada due to the
profitability of NTN Canada. As a result, we recorded a tax provision of
$173,000 for the nine months ended September 30, 2008. This was a $15,000
decrease compared to the $188,000 provision for income taxes recorded for the
nine months ended September 30, 2007. We continue to provide a 100%
valuation allowance against our deferred tax assets related to certain net
operating losses as realization of such tax benefits is not assessed as more
likely than not.
Results
of Discontinued Operations
Nine
months ended September 30, 2008 compared to the nine months ended
September 30, 2007
Discontinued
operations generated a net loss of $332,000 for the nine months ended
September 30, 2008 compared to a net loss of $349,000 for the nine months
ended September 30, 2007. The operating results of the discontinued
operations are as follows for 2008 and 2007:
|
|
|
Nine months
ended
|
|
|
|
|
September
30,
2008
|
|
|
September
30,
2007
|
|
|
Operating
revenues
|
|
$ |
21,000 |
|
|
$ |
4,414,000 |
|
|
Operating
expenses
|
|
|
530,000 |
|
|
|
5,127,000 |
|
|
Operating
loss
|
|
$ |
(509,000 |
) |
|
$ |
(713,000 |
) |
|
Gain
on sale of assets
|
|
|
— |
|
|
|
396,000 |
|
|
Income
tax expense
|
|
|
— |
|
|
|
(29,000 |
) |
|
Other
|
|
|
177,000 |
|
|
|
(3,000 |
) |
|
Loss
from discontinued operations, net of tax
|
|
$ |
(332,000 |
) |
|
$ |
(349,000 |
) |
On
March 30, 2007, we completed the sale of substantially all of the assets of
NTN Wireless for $2.4 million and recognized a gain, net of tax, of
approximately $396,000. On October 25, 2007, we sold certain intellectual
property assets of Software Solutions pursuant to an Asset Purchase Agreement,
and in a separate agreement with a customer, we discontinued the outsourced
software development it was providing. The Company completed the wind
down of its professional help desk and support and maintenance services during
the third quarter of 2008. The intellectual property sold constituted
substantially all of the remaining operating assets of our Hospitality division,
which had originally consisted of our Software Solutions and Wireless. We have
accounted for our Hospitality division as a reportable segment but we have
presented its operations as discontinued operations since the fourth quarter of
2006. We do not anticipate any further costs related to the dissolution of the
professional help desk and support and maintenance services.
Moving,
relocation and other associated costs related to the dissolution are expensed as
incurred. Severance expense for involuntary employee terminations was
approximately $60,000 for the nine months ended September 30,
2008.
The
Company recorded a loss from discontinued operations, net of tax, of
approximately $332,000 during the nine months ended September 30,
2008. That loss was substantially due to the wind down activities
associated with the discontinuation of those operations.
EBITDA
– Consolidated Operations
Earnings
before interest, taxes, depreciation and amortization, or EBITDA, is not
intended to represent a measure of performance in accordance with accounting
principles generally accepted in the United States (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 it is a measure of
operating performance that financial analysts, lenders, investors and other
interested parties find to be a useful tool for analyzing companies like us that
carry significant levels of non-cash depreciation and amortization charges in
comparison to their GAAP earnings or loss.
The
following table reconciles our consolidated net loss per GAAP to
EBITDA:
|
|
|
Nine months
ended
|
|
|
|
|
September
30,
2008
|
|
|
September
30,
2007
|
|
|
Net
loss per GAAP
|
|
$ |
(5,776,000 |
) |
|
$ |
(3,106,000 |
) |
|
Interest
income, net
|
|
|
(125,000 |
) |
|
|
(227,000 |
) |
|
Depreciation
and amortization
|
|
|
2,404,000 |
|
|
|
2,998,000 |
|
|
Income
taxes
|
|
|
173,000 |
|
|
|
217,000 |
|
|
EBITDA
|
|
$ |
(3,324,000 |
) |
|
$ |
(118,000 |
) |
Our
operations generated EBITDA levels as presented below:
|
|
|
Nine months
ended September 30, 2008
|
|
|
|
|
Entertainment
|
|
|
Discontinued
operations
|
|
|
Total
|
|
|
Net
loss per GAAP
|
|
$ |
(5,444,000 |
) |
|
$ |
(332,000 |
) |
|
$ |
(5,776,000 |
) |
|
Interest
income, net
|
|
|
(125,000 |
) |
|
|
— |
|
|
|
(125,000 |
) |
|
Depreciation
and amortization
|
|
|
2,404,000 |
|
|
|
— |
|
|
|
2,404,000 |
|
|
Income
taxes
|
|
|
173,000 |
|
|
|
— |
|
|
|
173,000 |
|
|
EBITDA
|
|
$ |
(2,992,000 |
) |
|
$ |
(332,000 |
) |
|
$ |
(3,324,000 |
) |
|
|
|
Nine months
ended September 30, 2007
|
|
|
|
|
Entertainment
|
|
|
Discontinued
operations
|
|
|
Total
|
|
|
Net
loss per GAAP
|
|
$ |
(2,757,000 |
) |
|
$ |
(349,000 |
) |
|
$ |
(3,106,000 |
) |
|
Interest
income, net
|
|
|
(227,000 |
) |
|
|
— |
|
|
|
(227,000 |
) |
|
Depreciation
and amortization
|
|
|
2,998,000 |
|
|
|
— |
|
|
|
2,998,000 |
|
|
Income
taxes
|
|
|
188,000 |
|
|
|
29,000 |
|
|
|
217,000 |
|
|
EBITDA
|
|
$ |
202,000 |
|
|
$ |
(320,000 |
) |
|
$ |
(118,000 |
) |
LIQUIDITY
AND CAPITAL RESOURCES
As of
September 30, 2008, we had cash and cash equivalents of $5,257,000 and
working capital (current assets in excess of current liabilities) of $1,800,000,
compared to cash and cash equivalents of $10,273,000 and working capital of
$7,698,000 as of December 31, 2007. Net cash used in operating activities
was $2,231,000 and $344,000 for the nine months ended September 30, 2008
and 2007, respectively. The increase in cash used in operating activities is
principally due to the net loss generated in the first nine months of
2008.
For the
nine months ended September 30, 2008, net cash used in investing activities
was $2,372,000 compared to net cash provided by investing activities of
$1,790,000 for the nine months ended September 30, 2007. The cash provided
by investing activities in 2007 was primarily due to the proceeds received from
the sale of the NTN Wireless. In addition, cash used in investing
activities for capital expenditures increased $1,593,000 to $2,408,000 during
the nine months ended September 30, 2008 from $815,000 during the nine months
ended September 30, 2007.
Net cash
used in financing activities was $23,000 and $184,000 for the nine months ended
September 30, 2008 and 2007, respectively. The cash used in financing
activities decreased in 2008, largely due to a decrease in the number of
treasury shares purchased, as well as a decrease in payments against capital
leases, offset by the lack proceeds from the exercise of options and warrants in
2008 compared to the same period in 2007.
We
believe existing cash and equivalents, together with funds generated from
operations, will be sufficient to meet our operating cash requirements for the
next 12 months. We have no debt obligations other than capital
leases.
We
currently anticipate investing approximately $300,000 to $400,000 in the fourth
quarter of 2008 for capital equipment necessary to support future growth. Our
actual future capital requirement will depend on a number of factors, including
our success in increasing sales, competition and technological developments as
well as subscriber conversions from satellite to broadband.
RECENTLY
ISSUED ACCOUNTING STANDARDS
Recent Accounting
Pronouncements— In September 2006 the Financial Accounting Standards
Board (FASB) issued SFAS No. 157, Fair Value Measurements,
which is effective for fiscal years beginning after November 15, 2007. SFAS
No. 157 provides a definition of fair value, establishes acceptable methods
of measuring fair value, and expands disclosure for fair value measurements. The
principles apply under accounting pronouncements which require measurement of
fair value and do not require any new fair value measurements in accounting
pronouncements where fair value is the relevant measurement attribute. On
February 12, 2008, the FASB issued SFAS No. 157-2 deferring the
effective date of SFAS No. 157 to November 15, 2008 for non financial
assets and liabilities. The adoption of SFAS No. 157-2, ultimately
deferring the adoption of SFAS No. 157, has not had a material impact on
the condensed consolidated financial statements.
In
February 2007 the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities—including an amendment of SFAS
No. 115, Accounting for
Certain Investments in Debt and Equity Securities, which applies to all
entities with available-for-sale and trading securities. This Statement permits
entities to choose to measure many financial instruments and certain other items
at fair value. The objective is to improve financial reporting by providing
entities with the opportunity to mitigate volatility in reported earnings caused
by measuring related assets and liabilities differently without having to apply
complex hedge accounting provisions. This Statement is effective as of the
beginning of an entity’s first fiscal year that begins after November 15,
2007. Early adoption is permitted as of the beginning of a fiscal year that
begins on or before November 15, 2007, provided the entity also elects to
apply the provisions of SFAS No. 157, Fair Value Measurements.
The adoption of SFAS No.159 has not had a material impact on the condensed
consolidated financial statements.
In
December 2007 the FASB issued SFAS No. 141R, a revision of SFAS
No. 141, Business
Combinations, which applies to all acquiring entities. This Statement
establishes principles and requirements for how the acquirer is to recognize and
measure in its financial statements the identifiable assets acquired, the
liabilities assumed, and any noncontrolling interest in the acquiree, and how to
recognize and measure the goodwill acquired in the business combination or a
gain from a bargain purchase. The objective is to improve the relevance,
representational faithfulness, and comparability of the information that a
reporting entity provides in its financial reports about a business combination
and its effects. This Statement applies prospectively to business combinations
for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. The Company is in
the process of evaluating the impact of adopting SFAS No. 141R on its financial
position, results of operations and cash flows.
Also, in
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interest in
Consolidated Financial Statements, an amendment of ARB No. 51, Consolidated Financial Statements,
which applies to all entities that prepare consolidated financial
statements that have an outstanding noncontrolling interest in one or more
subsidiaries or that deconsolidate a subsidiary. The objective is to improve the
relevance, comparability, and transparency of the financial information that a
reporting entity provides in its consolidated financial statements. The
Statement requires entities that have noncontrolling interests to clearly
identify in the financial statements their noncontrolling interest and the
respective net income. Additionally, the provision requires that all changes in
ownership of noncontrolling interests be treated as equity transactions and any
subsidiaries that are deconsolidated are required to be measured at fair value
and such valuation is to be used in determining the gain or loss on the
deconsolidation. This Statement is applied prospectively and is effective for
fiscal years, and interim periods within those fiscal years, beginning on or
after December 15, 2008. We currently do not have any noncontrolling
interests in our subsidiaries.
In April
2008 the FASB posted FASB Staff Position (FSP) FAS 142-3, Determination of the Useful Life of
Intangible Assets. This FSP amends the factors that should be considered
in developing renewal or extension assumptions used to determine the useful life
of a recognized intangible asset under FASB No. 142, Goodwill and Other Intangible
Assets. The intent of this FSP is to improve the consistency between the
useful life of a recognized intangible asset under FASB No. 142 and the
period of expected cash flows used to measure the fair value of the asset under
FASB No. 141R, Business
Combinations, and other U.S. generally accepted accounting principles.
This FSP is effective for financial statements issued for fiscal years beginning
after December 15, 2008, and interim periods within those fiscal years. We
are in the process of determining the effect, if any, the adoption of the FSP
will have on our condensed consolidated financial statements.
In March
2008 the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities – an amendment of FASB Statement
No. 133, which requires companies to provide additional disclosures
about its objectives and strategies for using derivative instruments, how the
derivative instruments and related hedged items are accounted for under SFAS
No. 133, Accounting for
Derivative Instruments and Hedging Activities, and related
interpretations, and how the derivative instruments and related hedged items
affect the Company’s financial statements. SFAS No. 161 also requires
companies to disclose information about credit risk-related contingent features
in their hedged positions. SFAS No. 161 is effective for fiscal years and
interim periods beginning after November 15, 2008 and is required to be
adopted by the Company beginning in the first quarter of fiscal 2009. Although
we will continue to evaluate the application of SFAS No. 161, management
does not currently believe adoption will have a material impact on our financial
condition or operating results.
In May
2008 the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles, (“SFAS No. 162”), which becomes
effective 60 days following the SEC’s approval of the Public Company
Accounting Oversight Board (“PCAOB”) amendments to US Auditing Standards (“AU”)
Section 411, The Meaning
of Present Fairly in Conformity With Generally Accepted Accounting
Principles. SFAS No. 162 identifies the sources of accounting
principles and the framework for selecting the principles to be used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with US GAAP. This standard is not expected to have an
impact on our financial position, results of operations or cash
flow.
In June
2008, the FASB Emerging Issues Task Force (“EITF”) reached a consensus on EITF
Issue No. 08-3, Accounting by Lessees for
Maintenance Deposits under Lease Agreements (“EITF No. 08-3”). EITF
No. 08-3 provides that all nonrefundable maintenance deposits paid by a
lessee, under an arrangement accounted for as a lease, should be accounted for
as a deposit. When the underlying maintenance is performed, the deposit is
expensed or capitalized in accordance with the lessee’s maintenance accounting
policy. Once it is determined that an amount on deposit is not probable of being
used to fund future maintenance expense, it is recognized as additional rent
expense at that time. EITF No. 08-3 is effective for us on January 1,
2009. We are currently evaluating the impact of adopting EITF No. 08-3 on
our financial position, results of operations and cash flows.
In June
2008 the EITF reached a consensus on EITF Issue No. 08-4, Transition Guidance for Conforming
Changes to EITF Issue No. 98-5, Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios (“EITF No. 08-4”). Subsequent to the issuance of
EITF No. 98-5, certain portions of the guidance contained in EITF
No. 98-5 were nullified by EITF Issue No. 00-27, Application of EITF Issue
No. 98-5, ‘Accounting for Convertible Securities with Beneficial Conversion
Features or Contingently Adjustable Conversion Ratios’ (“EITF
No. 00-27”). EITF No. 08-4 is effective for the Company for the fiscal
year ending December 31, 2008. The Company is currently evaluating the
impact of adopting EITF No. 08-4 on the Company’s financial position,
results of operations and cash flows.
We are
exposed to risks related to currency exchange rates, stock market fluctuations,
and interest rates. As of September 30, 2008, we owned common stock of an
Australian company that is subject to market risk. We performed an evaluation in
the second quarter of 2006 and concluded that the decline in value of this
investment was other-than-temporary and recognized an impairment loss of
$652,000 to reflect the investment at its fair value. The value of the
investment has decreased $177,000 for the nine months ended September 30,
2008 and is recorded as other comprehensive income on our consolidated balance
sheet.
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 which would impact the value of the
investment.
Our
interest income is sensitive to changes in the general level of U.S. and
Canadian interest rates, particularly since a significant portion of our
investments are and will be in short-term marketable securities. Due to the
nature and maturity of our short-term investments, we have concluded that there
is no material market risk exposure to our principal. The average redemption
period of our investment portfolio is 30 days. A 1% change in interest rates
would have an effect of approximately $75,000 for a one year
period.
We do not
believe that inflation has had a material impact on our business or operating
results during the periods presented.
We do not
have any derivative financial instruments, nor do we have any speculative or
hedging instruments.
EVALUATION
OF DISCLOSURE CONTROLS AND PROCEDURES
As of the
end of the period covered by this report, our management evaluated our
disclosure controls and procedures (as defined in Securities Exchange Act Rule
13a-15(e)) as to whether such disclosure controls and procedures were effective
in providing reasonable assurance that the information required to be disclosed
by us in reports that we file or submit under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms and ensuring
that information required to be disclosed in the reports that we file or submit
under the Exchange Act is accumulated and communicated to our management,
including the chief executive officer and chief financial officer, as
appropriate to allow timely decisions regarding required disclosure. Based on
our evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that such disclosure controls and procedures were effective as of the
end of the period covered by this report.
Changes
in Internal Control Over Financial Reporting
During
the period convered by this report, we have had no changes in our internal
controls over financial reporting that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
PART
II — OTHER INFORMATION
As of the
end of the period covered by this report, there were no known material legal
proceedings of the kind which would be required to be reported. However, we are
subject to litigation from time to time in the ordinary course of our
business.
Risk
Factors That May Affect Future Results
An
investment in our common stock involves a high degree of risk. You should
consider carefully the risks and uncertainties described under Item 1A of
Part I of our Annual Report on Form 10-K for the year ended
December 31, 2007 together with all other information contained or
incorporated by reference in this report before you decide to invest in our
common stock. Other than the additional risks addressed below, the risks
described in our annual report have not materially changed. If any of the risks
described in our annual report or in this report actually occurs, our business,
financial condition, results of operations and our future growth prospects could
be materially and adversely affected. Under these circumstances, the trading
price of our common stock could decline, and you may lose all or part of your
investment.
We
have incurred litigation and may incur additional litigation or other challenges
related to company control.
Trinad
Capital Master Fund, Ltd., which beneficially owned 12.2% of our common stock as
of September 30, 2008, has written us a series of letters critical of our
company's performance and of certain decisions of our board. Trinad
also attempted to nominate an alternative slate of Board of Directors candidates
for our 2008 annual meeting of stockholders. However, the attempted
nominations were invalid because Trinad did not comply with the advance-notice
requirement in our Bylaws. Trinad asserts it has received evidence
that we and our Board have committed mismanagement, fraud, breach of fiduciary
duty and waste of corporate assets. We believe that Trinad’s concerns
and claims are baseless. Trinad has made various other demands on us
in these letters, and has threatened to take unspecified
action. Trinad’s demands have included demands under Section 220 of
the Delaware General Corporation Law for production of certain documents and
other information concerning our company. We have provided Trinad
with such of the requested information as we believe has been requested with the
appropriate specificity and proper purpose as required under the
law. We have not provided other information and have asked Trinad to
provide additional clarification with respect to some of its
requests.
On
October 17, 2008, Trinad filed a "books and records" proceeding in the Delaware
Chancery Court under Section 220 of the Delaware General Corporation Law asking
the Court to require us to provide Trinad with certain of the requested
information. We intend to vigorously defend this claim with respect
to information that we believe has not been requested with appropriate
specificity or for a proper purpose as required by the law.
Trinad
could decide to expand the current litigation or bring additional litigation
against us and/or against directors and officers whom we are obliged to
indemnify and defend. In addition, Trinad might attempt to wage a
corporate control contest against us and our current Board of
Directors.
The
current litigation and any further litigation and/or control contest could be
significantly expensive and disruptive, could damage our image with customers,
and could destabilize our relationships with key employees. Although
the current litigation does not seek monetary damages, any expanded or further
litigation might seek such damages and, if we and/or any officers or directors
named as defendants were to lose, we might have to pay damages or indemnify such
officers or directors. If we were to lose a control contest, the new
personnel and strategies implemented by Trinad may not be effective, might be
less effective than the present and the changeover would involve significant
disruption. In addition, even if we were to prevail in all respects
or reach a settlement on mutually agreeable terms, the costs and expenses of any
defense and/or settlement could be significant, and the
litigation/control-contest process could be time consuming and could divert our
management and key personnel from our business operations. Any of
these events could harm our business.
Our
management transition creates uncertainties.
Dario
Santana, our former CEO and President, separated from the Company in May 2008.
Currently Michael Fleming is serving as Interim Chief Executive Officer. Changes
in senior management are inherently disruptive, and efforts to implement any new
strategic or operating goals may also prove to be disruptive. Executive
leadership transition periods are often difficult as the new executives gain
detailed knowledge of company operations and due to cultural differences and
friction that may result from changes in strategy and style.
On
April 5, 2007, the Company’s Board of Directors authorized a Stock
Repurchase Plan, whereby management is authorized to repurchase up to a maximum
of $3,500,000 of the Company’s Common Stock from time to time in the open market
at prevailing market prices or in privately negotiated transactions over an
eighteen month period which expired on October 4, 2008. During the quarter ended
September 30, 2008, the Company purchased approximately 49,400 shares for a
total of $12,250. In addition, the Company purchased approximately
454,000 shares for a total of $444,000 during 2007. In total, the
Company has purchased approximately 503,000 shares for a total of
$456,000.
Following
is a summary of stock repurchases made during the three month period ended
September 30, 2008:
|
|
|
Total Number of
Shares Purchased
|
|
Average
Price Paid
Per
Share
|
|
Total Number of
Shares Purchased as
Part
of Publicly
Announced
Plans
|
|
Maximum Dollar Value
of
Shares that May Yet Be
Purchased
under the Plan
|
|
July 1,
2008 – July 31, 2008
|
|
—
|
|
|
—
|
|
—
|
|
$
|
3,056,000
|
|
August 1,
2008 – August 31, 2008
|
|
—
|
|
$
|
—
|
|
—
|
|
$
|
3,056,000
|
|
September 1,
2008 – September 30, 2008
|
|
49,400
|
|
$
|
0.25
|
|
49,400
|
|
$
|
3,043,750
|
|
Total
|
|
49,400
|
|
$
|
0.25
|
|
49,400
|
|
$
|
3,043,750
|
|
Item 3.
|
Defaults Upon Senior
Securities.
|
None
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders.
|
None
|
Item 5.
|
Other
Information.
|
None
Exhibit
Index
|
Exhibit No.
|
|
Description
|
|
|
|
|
|
31.1
|
|
Certification
of principal executive officer pursuant to Rule
13a-14(a)
|
|
|
|
|
|
31.2
|
|
Certification
of principal financial officer pursuant to Rule
13a-14(a)
|
|
|
|
|
|
32.1
|
|
Certification
of principal executive officer pursuant to Rule 13a-14(b) / 18 U.S.C.
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
|
|
|
|
32.2
|
|
Certification
of principal financial officer pursuant to 13a-14(b) / 18 U.S.C. 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
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
BUZZTIME, INC.
|
|
|
|
|
|
Date:
November 7, 2008
|
By:
|
/s/
Kendra Berger
|
|
|
|
Kendra
Berger
|
|
|
|
Chief
Financial Officer
|
|
|
|
(on
behalf of the Registrant, and as its Principal Financial and Accounting
Officer)
|
27