PROSPECTUS
NTN COMMUNICATIONS, INC.
5,285,417 Shares of
Common Stock
--------------------
The selling securityholders who are identified in this Prospectus (which term
includes their pledges, donees, transferees or other successors-in-interest) may
offer and sell from time to time up to 5,285,417 shares of common stock of NTN
Communications, Inc. by using this Prospectus. Of these shares, 4,666,667 are
outstanding common stock and 618,750 shares are issuable upon the exercise of
outstanding warrants.
The selling securityholders may offer the shares from time to time through
public or private transactions at prevailing market prices, at prices related to
prevailing market prices or at privately negotiated prices. We will not receive
any proceeds from the sale of these shares by the selling securityholders. For
more information, please refer to "Selling Securityholders" on page 15 of this
Prospectus.
Our common stock is traded on the American Stock Exchange (AMEX) under the
ticker symbol "NTN." On June 5, 2003 the closing price of our common stock, as
reported by the AMEX, was $2.25 per share.
-----------------------
Investing in our common stock involves risks that are described in the "Risk
Factors" section beginning on page 3 of this Prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this Prospectus. Any representation to the contrary is a
criminal offense.
The date of this Prospectus is June 6, 2003.
TABLE OF CONTENTS
Page
Summary.......................................................................1
The Offering..................................................................2
Risk Factors..................................................................3
Recent Company Developments..................................................12
Forward-Looking Statements...................................................14
Use of Proceeds..............................................................14
Selling Securityholders......................................................15
Plan of Distribution.........................................................16
Legal Matters................................................................17
Experts......................................................................17
Where You Can Find More Information..........................................18
SUMMARY
You should read the following summary together with the more detailed
information about our company and the common stock being sold in this offering,
including "Risk Factors" and our consolidated financial statements and related
notes, contained elsewhere in this Prospectus or incorporated by reference.
NTN Communications, Inc., based in Carlsbad, California, develops and
distributes interactive entertainment and a suite of products to manage the
customer experience. We own and operate the largest "out-of-home" interactive
consumer marketing television network in North America.
We operate our businesses principally through two operating segments: the NTN
Network(R) division and our Buzztime Entertainment, Inc.(TM) subsidiary. The NTN
Network division provides entertainment services and on-site communications
products to the hospitality industry. The entertainment services represent a
wide variety of popular interactive games, advertisements and informational
programming delivered daily to consumers in 3,058 restaurants, sports bars and
taverns throughout the United States, as well as hotels, cruise ships and active
adult communities. The division's on-site communications products--primarily
guest and server paging products--are distributed to another 2,800 locations in
the United States. Buzztime operates our live broadcast studio, produces our
trivia and live sports "play-along" content to both the NTN Network and new
consumer interactive platforms, and is developing the Buzztime(R) interactive
television channel.
Unless otherwise indicated, references herein to "NTN," "we," "us" and "our"
include NTN Communications, Inc. and its consolidated subsidiaries. Our
headquarters are located at 5966 La Place Court, Carlsbad, California, telephone
(760) 438-7400.
Our current strategy is to leverage our unique interactive entertainment as a
means of growing our business units--first, as a leading provider of interactive
communications and entertainment offerings to the hospitality industry through
the NTN Network division. Second, as a leading developer and distributor of
interactive entertainment for the in-home market through interactive television
and wireless devices via Buzztime. To accomplish our objectives we are pursuing
strategies to:
o Increase the number of hospitality locations serviced by the NTN
Network and our wholly owned subsidiary NTN Wireless Communications,
Inc. ("NTN Wireless"). We intend to accomplish this increase by
expanding our product offerings to include more value-added services,
adding personnel to our sales force and providing new and updated
content on a regular basis.
o Develop and distribute the Buzztime trivia channel to cable and
satellite operators with the intent to become the first content
provider to deploy a digital interactive television entertainment
channel. We have adapted, or are planning to adapt, our interactive
trivia game show content and technology to the leading interactive
television platforms, to gain market share by partnering with major
industry manufacturers and distributors, and to utilize our broadcast
interactive television studio as a development and production facility
to develop and deepen relationships with media-related companies. We
also plan to continue to support our efforts in early-stage wireless
entertainment through partnerships with leading wireless distributors
and carriers.
o Increase revenues through current and new revenue sources. The
NTN Network receives service revenue from subscribing out-of-home
locations as well as third-party advertising revenue and production
services and royalty revenue from our Canadian licensee. We expect to
continue generating revenue through these sources and, by growing our
customer base, we also expect to see revenue growth in service and
advertising revenue. Similarly, as Buzztime gains distribution with
1
cable television operators, we expect to increase revenue through
three sources: license fees paid by local cable television operators;
fees paid by interactive television home subscribers for premium
services or pay-per-play transactions; and advertising revenue. Both
business units may also explore market opportunities to acquire
complementary businesses to increase revenues and earnings. An example
of a recent acquisition is NTN Wireless, which generated approximately
$2.4 million in revenues through sales of restaurant pagers during the
period from the date of the acquisition in April 2002 through the end
of the year. NTN Wireless is part of our NTN Network business segment.
We have incurred consolidated net losses for most of our operating history and
expect to incur consolidated losses through at least the end of 2003. Recent
losses have been primarily as a result of significant expenditures related to
Buzztime for which no significant revenues have yet been generated.
THE OFFERING
The offering price for the common stock may be the market price for our common
stock prevailing at the time of sale, a price related to the prevailing market
price, at negotiated prices or such other price as the selling securityholders
determine from time to time. The shares offered for resale by this Prospectus
represent approximately 11.4% of our shares outstanding, assuming the exercise
of all warrants held, and being offered for sale pursuant to this Prospectus, by
the selling securityholders but excluding shares issuable under any other
options, warrants or other derivative securities.
2
RISK FACTORS
The shares of common stock being offered involve a high degree of risk. You
should carefully consider the following risk factors and all other information
contained in this Prospectus before you buy shares of our common stock. The
trading price of our common stock could decline due to any of these risks, and
you could lose all or part of your investment.
Risk Factors That May Affect Future Results
Our business, results of operation and financial condition could be adversely
affected by a number of factors, including the following:
We have experienced significant losses and we expect to incur significant net
losses in the future.
We have a history of significant losses, including net losses of $2,189,000 in
2002, $3,656,000 in 2001, and $9,589,000 in 2000, a net loss of $263,000 for the
three months ended March 31, 2003 and an accumulated deficit of $79,342,000 as
of March 31, 2003. We expect to incur significant operating and net losses for
the next four quarters due primarily to our continued development of Buzztime.
Furthermore, we may never achieve profitability, and even if we do, we may not
sustain or increase profitability on a quarterly or annual basis in the future.
Our limited liquidity and capital resources may constrain our ability to operate
and grow our business.
At March 31, 2003, our current assets exceeded our current liabilities by
approximately $2,038,000. Our liquidity and capital resources remain limited and
this may constrain our ability to operate and grow our business.
We have a revolving line of credit agreement originally with Coast Business
Credit, which provides for borrowings of up to $2,250,000 and which expires on
June 30, 2004. Our availability under the line of credit may be reduced if our
monthly collections fall below certain levels. As of April 30, 2003, the maximum
amount of $2,250,000 was available to us and approximately $1,946,000 was
outstanding under the line of credit. The line of credit is secured by
substantially all of our assets. Any reduction in availability under our line of
credit may further constrain our liquidity.
On February 7, 2003, Coast and its parent company, Southern Pacific Bank, were
seized by the Federal Deposit Insurance Corporation (FDIC). The FDIC is
currently acting as a trustee for Coast and is in the process of selling off
Coast's loan portfolio to other lending institutions. We were informed on May
14, 2003 that our credit line had been purchased by GF Asset Management, LLC, a
subsidiary of General Electric Capital Corporation. There could be some delays
in funding during the transition period, but we do not expect the delays to
impact us significantly.
We will require additional financing to implement our plan to significantly
expand the digital interactive television network, including the planned two-way
satellite rollout, and to develop Buzztime into a leading content provider for
interactive television platforms. Our requirements for additional financing in
2003 will depend upon the growth of our two business segments. In a low growth
scenario (for example, net site growth of 100 sites in the NTN Network and a
number of commercial trials of the Buzztime initiative), utilization of our line
of credit is expected to be sufficient to cover our financing requirements. If
we desire to grow more rapidly in either or both segments, then we will require
additional financing in 2003. If we are unsuccessful in obtaining financing,
some initiatives relating to those higher growth opportunities may have to be
curtailed or deferred. We may not be able to obtain additional financing on
terms favorable to us, or at all. If we receive additional equity financing, it
3
could be dilutive to our stockholders. Any debt financing, if available, may
involve covenants limiting or restricting our operations or future
opportunities.
New products and rapid technological change may render our operations obsolete
or noncompetitive.
If we do not compete successfully in the development of new products and keep
pace with rapid technological change, we will be unable to achieve profitability
or sustain a meaningful market position. The interactive entertainment and game
industry is becoming highly competitive and subject to rapid technological
changes when compared to other industries. We are aware of other companies that
are introducing interactive game products on interactive platforms that allow
players to compete across the nation. Some of these companies may have
substantially greater financial resources and organizational capital than we do,
which could allow them to identify emerging trends. In addition, changes in
customer tastes may render our network, its content and our technology obsolete
or noncompetitive.
The emergence of new entertainment products and technologies, changes in
consumer preferences and other factors may limit the life cycle of our
technologies and any future products and services we develop. Accordingly, our
future performance will depend on our ability to:
o identify emerging technological trends in our market;
o identify changing consumer needs, desires or tastes;
o develop and maintain competitive technology, including new product
and service offerings;
o improve the performance, features and reliability of our products
and services, particularly in response to technological changes and
competitive offerings; and
o bring technology to the market quickly at cost-effective prices.
We may not be successful in developing and marketing new products and services
that respond to technological and competitive developments and changing customer
needs. Such products and services may not gain market acceptance. Any
significant delay or failure in developing new or enhanced technology, including
new product and service offerings, could result in a loss of actual or potential
market share and a decrease in revenues.
If we fail to manage our growth effectively, we may lose business and experience
reduced profitability.
Continued implementation of our business plan requires an effective planning and
management process. Our anticipated future growth will continue to place a
significant strain on our management systems and resources. If we are to grow
successfully, we must:
o improve our operational, administrative and financial systems;
o expand, train and manage our workforce; and
o attract and retain qualified management and technical personnel.
The interactive gaming and entertainment industry is highly competitive.
The entertainment business is highly competitive. We compete with other
companies for total entertainment related revenues in the marketplace. Our
network programming competes generally with broadcast television, direct
4
satellite programming, pay-per-view, other content offered on cable television,
and other forms of entertainment. Furthermore, certain of our competitors have
greater financial and other resources available to them. The entrance of motion
picture, cable and television companies in the interactive entertainment and
multimedia industries will likely intensify competition in the future. In
January 1999, The Walt Disney Company introduced interactive programming
broadcast in conjunction with live sporting and other events which competes
directly with our programming. We do not know of any direct impact on our
operations to date.
We also compete with other content and services available to consumers through
online services. The expanded use of online networks and the Internet provide
computer users with an increasing number of alternatives to video games and
entertainment software. With this increasing competition and rapidly changing
factors, we must be able to compete in terms of technology, content and
management strategy. If we fail to provide quality services and products, we
will lose revenues to other competitors in the entertainment industry. Increased
competition may also result in price reductions, fewer customer orders, reduced
gross margins, longer sales cycles, reduced revenues and loss of market share.
If our intellectual property does not adequately protect our proprietary rights
and intellectual property, our business could be seriously damaged.
We rely on a combination of trademarks, copyrights and trade secret laws to
protect our proprietary rights in some of our products. Furthermore, it is our
policy that all employees and consultants involved in research and development
activities sign nondisclosure agreements. Our competitors may, however,
misappropriate our technology or independently develop technologies that are as
good as or better than ours. Our competitors may also challenge or circumvent
our proprietary rights. If we have to initiate or defend against an infringement
claim in the future to protect our proprietary rights, the litigation over such
claims could be time-consuming and costly to us, adversely affecting our
financial condition.
From time to time, we hire or retain employees or external consultants who may
work for other companies developing products similar to those offered by us.
These former employers may claim that our products are based on their products
and that we have misappropriated their intellectual property. Any such
litigation could prevent us from exploiting our patent portfolio and cause us to
incur substantial costs, which in turn could materially adversely affect our
business.
We may be liable for the content we make available on the Internet.
We make content available on our web sites and on the web sites of our
advertisers and distribution partners. The availability of this content could
result in claims against us based on a variety of theories, including
defamation, obscenity, negligence or copyright or trademark infringement. We
could also be exposed to liability for third party content accessed through the
links from our web sites to other web sites. We may incur costs to defend
ourselves against even baseless claims, and our financial condition could be
materially adversely affected if we are found liable for information that we
make available. Implementing measures to reduce our exposure may require us to
spend substantial resources and may limit the attractiveness of our services to
users.
We may face exposure on sales and/or use taxes in various states.
Over the past several years, state tax authorities have made inquiries as to
whether or not our services might require the collection of sales and use taxes
from customers in those states. We evaluate such inquiries on a case-by-case
basis and have favorably resolved these tax issues in the past without any
material adverse consequences. However, in the current difficult economic
climate, many states are expanding their interpretation of their sales and use
5
tax statutes to derive additional revenue. While in the past our sales and use
tax expenses have not been material, it is likely that such expenses will grow
in the future.
Our games and game shows are subject to gaming regulations.
We operate online games of skill and chance that, in some instances, reward
prizes. These games are regulated in many jurisdictions. The selection of
prizewinners is sometimes based on chance, although none of our games require
any form of monetary payment. The laws and regulations that govern these games,
however, are subject to differing interpretations in each jurisdiction and are
subject to legislative and regulatory change in any of the jurisdictions in
which we offer our games. If such changes were to happen, we may find it
necessary to eliminate, modify or cancel certain components of our products that
could result in additional development costs and/or the possible loss of
revenue.
We are currently involved in litigation matters that could materially impact our
profitability.
We are involved in two pending lawsuits in Canada, both involving Interactive
Network, Inc. Both NTN and Interactive Network have asserted claims involving
patent infringement and validity and certain other proprietary rights. These
actions relate only to the broadcast of the NTN Network to subscribers of our
Canadian licensee and do not extend to our network operations in the United
States or elsewhere. To date, Interactive Networks has deposited a total of
$140,000 in Canadian dollars with the Canadian court in compliance with the
court's order as security for costs to be incurred by us in defense of the
action. We are awaiting assignment of a trial date and have been advised that
the Canadian court is currently scheduling trials for the 2004 calendar. We
intend to continue to defend the action vigorously.
On March 21, 2003, Long Range Systems, Inc. (LRS) filed in the United States
District Court, Northern District of Texas, a patent infringement complaint
against our NTN Wireless subsidiary. This complaint alleged trade dress and
patent infringement and unfair competition. This complaint relates to our repair
and replacement activities of LRS pagers, which is not a significant percentage
of our NTN Wireless business. On May 9, 2003, we filed with the court a motion
to dismiss the LRS complaint.
On or about April 23, 2003, we filed a complaint in the Superior Court of the
State of California, County of San Diego, against LRS alleging defamation and
trade libel, intentional interference with prospective economic advantage,
Lanham Act (trademark violations) and California unfair competition. Our
complaint alleges that LRS made false statements in its complaint and press
release regarding our products infringing LRS patents, that LRS intentionally
made false statements to disrupt our business relationships with our clients,
and that LRS registered the domain name www.ntnwireless.com in violation of our
trademark rights.
The foregoing claims may not be decided in our favor and we are not insured
against claims made. During the pendency of these claims, we will continue to
incur the costs of our legal defense.
If our chief executive officer leaves us, our business may be adversely
affected.
Our success greatly depends on the efforts of our chief executive officer,
Stanley B. Kinsey. Our ability to operate successfully will depend significantly
on his services and contributions. Mr. Kinsey's employment agreement with NTN
was amended on May 21, 2003 to provide for an extended term ending January 31,
2004 as well as an increase in annual salary and a grant of options to purchase
up to 400,000 shares of common stock. Our business and operations may be
adversely affected if he were to leave.
6
Risks Factors Associated With The NTN Network
Our Canadian licensee has not yet converted to our new digital network.
Our Canadian licensee to date has declined to convert its approximately 500
hospitality sites to our new digital network and, as a result, remains on our
old DOS network. We now have converted all but 66 of our domestic hospitality
sites to our new digital network and we intend to discontinue our old DOS
network in December 2004.
If our Canadian licensee continues to refuse to convert to our new digital
network through the time we discontinue our DOS network in June 2004, this will
materially negatively impact their business and, therefore, our licensing
revenue may decline significantly as well. For the year ended December 31, 2002,
we received approximately $1,161,000 in license royalties from our Canadian
licensee.
We depend on a single supplier of Playmakers(R).
We currently purchase our 900-megahertz Playmakers from Climax Technology Co.
Ltd., an unaffiliated Taiwanese manufacturer. We are currently soliciting bids
for the manufacture of our Playmakers. Unless and until we succeed in
establishing additional manufacturing relationships, we will continue to depend
on our current sole source supplier of Playmakers. If we lose our supplier, our
growth may be slowed until an alternative supplier is identified.
Communication failures with our subscriber locations could result in the
cancellation of subscribers and a decrease in our revenues.
We rely on both satellite and telephone systems to communicate with our
subscriber locations. We transmit our data to our hospitality customer sites via
PanAmSat's Galaxy IIIR satellite. Interruption in communications with our
subscriber locations under either system could decrease customer loyalty and
satisfaction and result in a cancellation of our services. We are continually
reviewing alternative telephone service providers and establishing contingency
plans; however, such alternative providers and contingency plans have not been
finalized.
In the event that we were forced to switch to another satellite, we would incur
significant costs associated with re-pointing our satellite receivers. In
addition, we could experience higher operating costs to transmit data to our
customers via telephone lines and the Internet during the transition period.
Another potential risk is the possibility that our government could pre-empt our
satellite for national security reasons, as the United States satellite
operators are federally licensed. This would appear to be unlikely as our
government has a strong communications infrastructure in place domestically.
Also, it is likely the satellite would not be at risk of being damaged by any of
the physical aspects of the war due to the fact that the satellite orbits over
22,000 miles above the earth.
We may sell equity interests in Buzztime to third parties, which could result in
the loss of control of Buzztime or devaluation of our equity interest in
Buzztime.
In June 2001, we sold a 6% interest in Buzztime to an affiliate of
Scientific-Atlanta, a leading cable television set-top box manufacturer. While
Scientific-Atlanta's investment position was converted to our common stock in
January 2003, we believe there may be divergent investment preferences between
the strategies pursued by the NTN Network and Buzztime and may decide in the
future to continue to raise additional financing by issuing and selling equity
interests in Buzztime to third parties. To enhance the ability of Buzztime to
raise such financing, we have previously contributed and may contribute in the
7
future some of our assets to Buzztime in order to allow the development of a
distinct identity that we believe is necessary for it to effectively grow as a
separate concern. These assets include our extensive trivia game show library
and our interactive play-along sports games and related intangible assets.
From an operational standpoint, we could lose control of Buzztime. If we lose
control, Buzztime may no longer provide adequate support and resources for
content and programming for the NTN Network, affecting the ability of the NTN
Network to continue its operations. From a financial viewpoint, we could
undervalue the stock of Buzztime when selling it to third parties or undervalue
assets transferred to Buzztime and this could devalue your holdings in NTN
because we would not receive the fair value for our interest in Buzztime.
Risk Factors Associated With Buzztime
If our new Buzztime programming is not accepted by consumers, we are not likely
to generate significant revenues or become profitable.
The new Buzztime channel faces risks as to whether consumers will accept
interactive television products and the trivia programming produced by Buzztime.
If interactive television does not become a successful, scaleable medium or if
consumers do not accept trivia and play-along sports games, then we will be
unable to draw revenues from advertising, direct-marketing of third-party
products, subscription fees and pay-per-play fees. Until a sufficient market
develops for the digital set-top boxes enabled to run our interactive television
game applications, our profit potential is uncertain and we may also face
competition from companies developing and marketing stand-alone game products
and services. We will also be unable to attract local cable operators to add
Buzztime programming as a channel to their service.
The market for interactive television games and services is new and may not
develop as anticipated.
The interactive television market currently is small and emerging. Our success
will depend on the growth and development of this market in the United States
and it will depend upon the commercialization and broad acceptance by consumers
and businesses of a wide variety of interactive television products. Demand and
market acceptance of recently introduced products and services are subject to a
high level of uncertainty and, as a result, our profit potential is unproven. In
addition, the potential size of this new market opportunity and the timing of
its development and deployment are currently uncertain. Development schedules of
interactive television offered by our competitors have been delayed or refocused
as the industry evolves. If the market for interactive television does not
develop or develops more slowly than anticipated, our revenues will not grow as
fast as anticipated, if at all.
The adoption of incompatible standards could render our products obsolete or
non-competitive.
If a new digital set-top box standard is defined, we do not know whether our
products will be compatible with such a standard once it is defined. The
establishment of multiple standards could hurt our business and significantly
increase our expenses, particularly if our products require significant
redevelopment in order to conform to the newly established standards. Any delay
or failure on our part to respond quickly, cost-effectively and sufficiently to
these developments could render our existing products and services obsolete and
cause us not to be competitive, resulting in a decrease in our revenues without
a corresponding decrease in our expenses. We may have to incur substantial
expenditures to modify or adapt our products or services to respond to these
developments. We must be able to incorporate new technologies into the products
we design and develop in order to address the increasingly complex and varied
needs of our customer base.
8
Increasing government regulation could cause demand for our products and
services to decline significantly.
We are subject not only to regulations applicable to businesses generally, but
also laws and regulations that apply directly to the industry of interactive
television products. Although there are currently few such laws and regulations,
state and federal governments may adopt a number of these laws and regulations
governing any of the following issues:
o user privacy;
o copyrights;
o consumer protection;
o the media distribution of specific material or content; and
o the characteristics and quality of interactive television products
and services.
One or more states or the federal government could enact regulations aimed at
companies, like us, which provide interactive television products. The
likelihood of such regulation being enacted will increase as interactive
television becomes more pervasive and affects the daily lives of more people.
Any such legislation or regulation could dampen the growth of the industry of
interactive television. If such a reduction in growth occurs, demand for our
products and services may decline significantly.
On January 18, 2001, the Federal Communications Commission issued a notice of
inquiry concerning interactive television. The notice raised a series of
questions that suggest that cable systems might be regarded as essential, open
platforms of spectrum for non-discriminatory third-party access, rather than
facilities-based providers competing in a wider market. The notice sought
comments on the nature of interactive television and whether cable systems will
be a "superior platform" for providing interactive television. The notice asked
very detailed questions, many of which arise from a common regulatory premise:
whether cable operators who are affiliated with interactive television providers
should not be permitted to "discriminate" in favor of their own interactive
television services with respect to spectrum usage and whether interactive
television providers affiliated with cable operators may need to be subjected to
non-discrimination rules so that they may not obtain leverage from any exclusive
arrangement they would otherwise negotiate with popular programmers. The outcome
of the notice will determine whether or not a subsequent rulemaking will be held
in order to create regulations for the interactive television industry. Any
regulation of this industry could impact on Buzztime and its operations.
We may have difficulty recruiting professionals for our business.
Our business requires experienced programmers, creative designers, and
application developers. Our success will depend on identifying, hiring, training
and retaining such experienced, knowledgeable professionals. We must recruit
talented professionals in order for our business to grow. There is significant
competition for employees with the skills required to develop the products and
perform the services we offer. There can be no assurance that we will be able to
attract a sufficient number of qualified employees in the future to sustain and
grow our business, or that we will be successful in motivating and retaining the
employees we are able to attract. If we cannot attract, motivate and retain
qualified professionals, our business, financial condition and results of
operations will suffer.
9
Risks Associated with this Offering
Our common stock could be delisted or suspended from trading on the American
Stock Exchange.
On May 1, 2003, we received a letter from the American Stock Exchange (AMEX)
stating that we are now in compliance with AMEX listing standards. In our SEC
filings over the past year, we have disclosed that we needed to achieve $6
million of shareholders equity to be in compliance with AMEX listing standards.
However, as a result of new AMEX rules effective January 2003, we are now in
compliance. The new rules permit a company, such as NTN, to remain listed on
AMEX if it has a total market capitalization of at least $50 million, has at
least 1.1 million shares publicly held, has a market value of publicly held
shares of at least $15 million and has a minimum of 400 round lot shareholders.
Should, at some future date, we fall out of compliance with the new rules (from
subsequent changes in market capitalization or otherwise), we could remain
compliant by maintaining a level of shareholder's equity of $6 million. If we
otherwise fail to maintain compliance with the AMEX listing standards, our
common stock may not remain listed on AMEX or any other exchange or quotation
system in the future. If our common stock is delisted from AMEX, spreads can
often be higher for securities traded on the over-the-counter market and the
execution time for orders may be longer. Thus, removing our stock from AMEX may
result in decreased liquidity by making the trading of our stock less efficient.
Our stock price has been highly volatile and your investment could suffer a
decrease in value.
The trading price of our common stock has been and may continue to be subject to
wide fluctuations. The stock price may fluctuate in response to a number of
events and factors, such as quarterly variations in operating results,
announcements of technological innovations or new products and media properties
by us or our competitors, changes in financial estimates and recommendations by
securities analysts, the operating and stock price performance of other
companies that investors may deem comparable, and news reports relating to
trends in our markets. In addition, the stock market in general, and the market
prices for Internet-related companies in particular, have experienced extreme
volatility that often has been unrelated to the operating performance of such
companies. These broad market and industry fluctuations may adversely affect the
price of our stock, regardless of our operating performance.
Our charter contains provisions that may hinder or prevent a change in control
of our company, which could result in our inability to approve a change in
control and potentially receive a premium over the current market value of your
stock.
Certain provisions of our certificate of incorporation could make it more
difficult for a third party to acquire control of us, even if such a change in
control would benefit our stockholders. For example, our certificate of
incorporation requires a supermajority vote of at least 80% of the total voting
power, voting together as a single class, to amend certain provisions of such
document, including those provisions relating to:
o the number, election and term of directors;
o the removal of directors and the filling of vacancies; and
o the supermajority voting requirements of our restated certificate
of incorporation.
These provisions could discourage third parties from taking over control of our
company. Such provisions may also impede a transaction in which you could
receive a premium over then current market prices and your ability to approve a
transaction that you consider in your best interests.
10
If the shares of our common stock eligible for future sale are sold, the market
price of our common stock may be adversely affected.
Future sales of substantial amounts of our common stock in the public market or
the anticipation of such sales could have a material adverse effect on
then-prevailing market prices. As of April 30, 2003, there were approximately
9,825,000 shares of common stock reserved for issuance upon the exercise of
outstanding stock options at exercise prices ranging from $0.45 to $4.9375 per
share. As of April 30, 2003, there were also outstanding warrants to purchase an
aggregate of approximately 2,532,000 shares of common stock at exercise prices
ranging from $0.50 to $3.75 per share. Additionally, we have approximately $14
million of common stock remaining under our existing shelf registration for
possible future sale.
The foregoing options and warrants could adversely affect our ability to obtain
future financing or engage in certain mergers or other transactions, since the
holders of these options and warrants can be expected to exercise them at a time
when we would be able to obtain additional capital through a new offering of
securities on terms more favorable than those provided by such options and
warrants. For the life of such options and warrants, the holders are given the
opportunity to profit from a rise in the market price of our common stock
without assuming the risk of ownership. To the extent the trading price of our
common stock at the time of exercise of any such options or warrants exceeds the
exercise price, such exercise will have a dilutive effect on our stockholders.
11
RECENT COMPANY DEVELOPMENTS
Bennett Investment
On January 15, 2003, we issued and sold 1,000,000 shares of restricted
common stock through a private offering to Robert M. Bennett, one of our
directors, at a price per share of $1.00. Pursuant to the terms of the
transaction, upon receipt of $1.0 million from Mr. Bennett, we issued the
restricted shares along with fully vested warrants to purchase 500,000 shares of
common stock at $1.15 per share, exercisable through January 15, 2008. No
commissions or placement agent fees were paid in connection with the offering.
Convertible Senior Subordinated Notes
On February 1, 2003, $2,000,000 of convertible senior subordinated notes
converted into 1,568,628 shares of our common stock based on the agreed
conversion price of $1.275 per share.
Revolving Line of Credit
On February 4, 2003, we amended our revolving line of credit with Coast
Business Credit ("Coast") to extend the maturity date on the line of credit from
June 30, 2003 to June 30, 2004. The amendment also struck the previously
scheduled March 31, 2003 $250,000 paydown on the line of credit, deleted the
trailing cash flow multiplier element of the borrowing base and modified the
cash flow oriented covenants. We agreed to pay Coast a renewal fee of $30,000 on
July 1, 2003 in association with this amendment. There were no changes to the
interest rate in this amendment.
On February 7, 2003, Coast and its parent company, Southern Pacific Bank,
were seized by the Federal Deposit Insurance Corporation (the "FDIC"). The FDIC
is currently acting as a trustee for Coast and is in the process of selling off
Coast's loan portfolio to other lending institutions. We were informed on May
14, 2003 that our credit line had been purchased by GF Asset Management, LLC, a
subsidiary of General Electric Capital Corporation. There could be some delays
in funding during the transition period, but we do not expect the delays to
impact us significantly.
Investment in Buzztime
On June 8, 2001, an affiliate of Scientific-Atlanta invested $1,000,000 in
Buzztime for 636,943 shares of its preferred stock, representing 6% of
Buzztime's capitalization on an as-converted basis, and warrants to obtain an
additional 159,236 shares of its preferred stock. Each share of Buzztime
preferred stock was initially convertible into one share of Buzztime common
stock and entitled to a non-cumulative dividend of 8%, if, and when, as declared
by Buzztime's board of directors. The exercise price of the Scientific-Atlanta
preferred stock purchase warrants is $1.57 per share. However, the warrants vest
in 10% increments only as cable system operators sign on by executing a
distribution agreement for the Buzztime channel.
In connection with the investment, Buzztime entered into a development,
license and marketing agreement with Scientific-Atlanta to co-develop an
application to enable operation of a Buzztime interactive trivia game show
channel on Scientific-Atlanta's Explorer digital interactive set-top network for
distribution by cable operators to their subscribers. The $1,000,000 in net
proceeds were restricted to only the development of the application for
Scientific-Atlanta and fulfillment of Buzztime's obligations under the
development agreement. In March 2003, we entered into a letter agreement with
Scientific-Atlanta, Inc. providing for termination of certain provisions of the
development, license and marketing agreement as well as for the sale and license
by Scientific-Atlanta to Buzztime of certain equipment and related software and
12
the provision by Scientific-Atlanta to Buzztime of certain training and
application developer support services to enable Buzztime to develop and operate
the Buzztime Channel on Scientific-Atlanta's Explorer set-top network for
distribution by cable operators to their subscribers.
We granted Scientific-Atlanta the right to exchange its shares of Buzztime
preferred stock into shares of NTN common stock if (i) Buzztime did not obtain
additional equity financing of $2,000,000 before June 8, 2002, (ii) the
liquidation, dissolution or bankruptcy of Buzztime before June 8, 2002, (iii)
the failure of Buzztime to conduct a qualified public offering by June 8, 2004,
or (iv) a change in control of Buzztime before June 8, 2002. On January 16,
2003, Scientific-Atlanta converted its shares of Buzztime preferred stock into
our common stock at a conversion price of $1.00 per share.
Increase in Authorized Shares
On May 2, 2003 at our Annual Shareholders' Meeting, a proposal to amend our
restated certificate of incorporation to increase the number of authorized
shares of common stock from 70 million shares to 84 million shares was approved.
Media General Investment
On May 7, 2003, Media General, Inc., a communications company with
interests in newspapers, television stations, interactive media and diversified
information services, made a $3.0 million strategic investment in NTN. This
investment provides us with additional capital. In return for the investment, we
issued and sold 2,000,000 shares of restricted NTN common stock through a
private offering to Media General at a price per share of $1.50. Pursuant to the
terms of the transaction, upon receipt of $3.0 million from Media General, we
issued the restricted shares along with fully vested warrants to purchase
500,000 shares of Buzztime common stock at $3.46 per share, exercisable through
May 7, 2007.
Additionally, we issued 666,667 shares of restricted NTN common stock,
valued at $1.0 million, to license selected technology and content from Media
General to add additional game content to the Buzztime interactive television
game channel. The license includes a 5-year exclusive interactive television
license to certain intellectual property, with options to extend the license.
In connection with the investment, we entered two separate investor rights
agreements with Media General with respect to NTN and Buzztime. Pursuant to the
NTN investor rights agreement, we granted Media General certain preemptive
rights and registration rights with respect to NTN securities and the right to
designate one person to our Board of Directors. We appointed Neal F. Fondren,
Vice President of Media General and President of Media General's Interactive
Media Division to our Board of Directors, to satisfy our obligation under the
agreement.
Pursuant to the Buzztime investor rights agreement, Buzztime granted Media
General certain preemptive rights, co-sale rights, and registration rights with
respect to Buzztime securities. Media General also granted NTN certain
drag-along rights and call rights with respect to Media General's holdings of
Buzztime securities. Finally, NTN granted certain exchange rights to Media
General, which gave Media General the right to exchange all or part of its
holdings of Buzztime securities for NTN securities, using an exchange rate of
two shares of NTN common stock for each share of Buzztime common stock (as
adjusted to reflect any stock splits, stock combinations, stock dividends,
mergers or reclassifications affecting the NTN or Buzztime stock). Media General
can only exercise the exchange rights (i) on the second and fourth anniversaries
of the closing, (ii) on a sale of NTN, (iii) upon the bankruptcy, liquidation,
dissolution or other insolvency of Buzztime, and (iv) if NTN exercises its
drag-along rights. Media General may only exercise their exchange rights twice.
NTN has agreed to reserve shares of NTN common stock for issuance under the
13
exchange rights. The rights accorded to Media General (other than the
registration rights) generally expire upon a qualified public offering of
Buzztime or a sale of Buzztime.
Proposed Acquisition
On May 17, 2003, we announced that we had entered into a letter of intent
to acquire the assets and certain liabilities of Breakaway International, Inc.,
a 13-year old company headquartered in Arlington, Texas, which develops and
markets software solutions for the casual dining, fine dining, quick service and
pizza delivery restaurant segments. The acquisition remains subject to a number
of conditions, including completion of due diligence, negotiation of definitive
documents, receipt of all corporate and regulatory approvals and other customary
conditions.
FORWARD-LOOKING STATEMENTS
We make statements in this Prospectus and the documents incorporated by
reference that are considered forward-looking statements under the federal
securities laws. Such forward-looking statements are based on the beliefs of our
management, as well as assumptions made by and information currently available
to them. The words "anticipate," "believe," "may," "estimate," "expect," and
similar expressions, and variations of such terms or the negative of such terms,
are intended to identify such forward-looking statements.
All forward-looking statements are subject to certain risks, uncertainties
and assumptions. Should one or more of these risks or uncertainties materialize,
or should underlying assumptions prove incorrect, our actual results,
performance or achievements could differ materially from those expressed in, or
implied by, any such forward-looking statements. Important factors that could
cause or contribute to such difference include those discussed under "Risk
Factors" in this Prospectus and in our Annual Report on Form 10-K. You should
not place undue reliance on such forward-looking statements, which speak only as
of their date stated. We do not undertake any obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. You should carefully consider the information set forth
under "Risk Factors" in this Prospectus.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares of common
stock offered by the selling securityholders pursuant to this prospectus. We
will receive proceeds if selling securityholders exercise their warrants to
purchase shares of common stock. If the selling securityholders exercise all of
their warrants, the maximum gross proceeds received by us would be approximately
$664,000. When and if we receive these funds, they will be used for general
corporate purposes.
14
SELLING SECURITYHOLDERS
The shares of common stock offered by this Prospectus have been or will be
issued to the selling securityholders (or their assignees) directly by us. The
following table sets forth certain information with respect to the beneficial
ownership of shares of our common stock by the selling securityholders as of May
21, 2003 and the number of shares which may be offered pursuant to this
Prospectus for the account of the selling securityholders or their transferees
from time to time. Except as described in the footnotes to the table, to the
best of our knowledge, none of the selling securityholders has had any position,
office or other material relationship with our company within the past three
years (other than as a security holder).
Number of Maximum Number Number of Percent of
Shares Owned Percent of Class of Shares Which Shares Owned Class Owned
Prior to Owned Before the May Be Sold in After the After the
Selling Securityholder Offering(1) Offering(1)(2) This Offering(1) Offering(1) Offering(1)(2)
---------------------- ----------- -------------- ---------------- ----------- --------------
Media General, Inc. 2,666,667 6% 2,666,667 0 *
Robert M. Bennett(3) 1,779,524 4% 1,500,000 279,524 1%
Scientific-Atlanta 1,000,000 2% 1,000,000 0 *
Strategic Investments,
L.L.C.
Wolfe Axelrod Weinberger 118,750 * 118,750 0 *
Associates LLC(4)
* Less than one percent.
(1) Assumes exercise of all warrants beneficially owned by the selling
securityholders for the maximum number of shares permitted as of May 20, 2003
and assumes that each selling securityholder will sell all shares of our common
stock offered under this Prospectus.
(2) For purposes of calculating the percentage of class, we have excluded
1,913,791 shares of common stock issuable upon the exercise of warrants held by
other stockholders and 9,762,102 shares of common stock reserved for issuance
upon the exercise of options.
(3) Represents 1,139,524 shares of our common stock and 500,000 shares of our
common stock issuable upon the exercise of warrants at an exercise price of
$1.15 per share. The warrants were issued in January 2003 at an exercise price
of $1.15 per share. Also includes 140,000 shares of common stock issuable upon
exercise of stock options.
(4) Represents 118,750 shares of our common stock issuable upon the exercise of
warrants. The warrants were issued in February 2001 at an exercise price of $.75
per share.
15
PLAN OF DISTRIBUTION
The shares of common stock offered hereby may be sold by the selling
securityholders or by their respective pledgees, donees, transferees or other
successors in interest. Such sales may be made at fixed prices that may be
changed, at market prices prevailing at the time of sale, at prices related to
such prevailing market prices, or at negotiated prices. The shares may be sold
by one or more of the following (as well as other methods of sale):
o one or more block trades in which a broker or dealer so engaged will
attempt to sell all or a portion of the shares held by the selling
securityholders as agent, but may position and resell a portion of the
block as principal to facilitate the transaction;
o purchase by a broker or dealer as principal and resale by such broker or
dealer as principal and resale by such broker or dealer for its account
pursuant to this Prospectus;
o ordinary brokerage transactions and transactions in which the broker
solicits purchasers;
o in an exchange distribution in accordance with the rules of the
applicable exchange;
o in the over-the-counter market;
o in private transactions other than in the over-the-counter market or on
an exchange;
o in connection with short sales of shares, to the extent permitted by law;
o by pledge to secure debts and other obligations;
o in connection with the writing of non-traded and exchange-traded call
options, in hedge transactions and in settlement of other transactions in
standardized or over-the-counter options; or
o in a combination of any of the above transactions.
The selling securityholders may effect such transactions by selling shares
to or through broker-dealers, and such broker-dealers may receive compensation
in negotiated amounts in the form of discounts, concessions, commissions or fees
from the selling securityholders and/or the purchasers of the shares for whom
such broker-dealers may act as agent or to whom they sell as principal, or both
(which compensation to a particular broker-dealer might be in excess of
customary commissions). Such brokers or dealers or other participating brokers
or dealers and the selling securityholders may be deemed to be "underwriters"
within the meaning of the Securities Act, in connection with such sales.
When a particular offering of common stock is made, if required, we will
distribute a prospectus supplement. That supplement will set forth the names of
the selling securityholders, the aggregate amount and type of shares being
offered, the number of such securities owned prior to and after the completion
of any such offering, and, to the extent required, the terms of the offering,
including the name or names of any underwriters, broker-dealers or agents, any
discounts, commissions and other terms constituting compensation from the
selling securityholders and any discounts, commissions or concessions allowed or
reallowed or paid to broker-dealers.
To the extent provided by law, the selling securityholders may also enter
into hedging transactions with broker-dealers or other financial institutions.
In connection with these transactions, broker-dealers or other
16
financial institutions may engage in short sales of securities in the course of
hedging the positions they assume with selling securityholders. The selling
securityholders may also enter into options or other transactions with
broker-dealers or other financial institutions which require the delivery, to
that broker-dealer or other financial institution, of the securities offered
under this Prospectus. The securities that broker-dealers or other financial
institutions receive in those types of transactions may be resold under this
Prospectus.
Selling securityholders also may resell all or a portion of the shares in
reliance upon Rule 144 under the Securities Act, provided they meet the criteria
and conform to the requirements of that Rule.
We have agreed to bear all costs, expenses and fees in connection with the
registration of the shares of our common stock offered by this Prospectus. We
have also agreed to indemnify the selling securityholders against certain
liabilities, including liabilities arising under the Securities Act.
LEGAL MATTERS
The validity of the shares of common stock intended to be sold pursuant to
this Prospectus will be passed upon for NTN by O'Melveny & Myers LLP.
EXPERTS
The consolidated financial statements of NTN Communications, Inc. and its
subsidiaries as of December 31, 2002 and 2001, and for each of the years in the
three-year period ended December 31, 2002, have been incorporated by reference
herein and in the Registration Statement in reliance upon the report of KPMG
LLP, independent accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
17
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
financial and business information with the SEC. Our SEC filings are available
on the SEC's web site at http://www.sec.gov. You also may read and copy any
document we file at the SEC's public reference rooms in Washington, D.C., New
York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for
further information about their public reference rooms, including copy charges.
You also can obtain information about us from the American Stock Exchange at 86
Trinity Place, New York, New York 10006-1881.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring to those documents. The information incorporated by reference is an
important part of this Prospectus, and information that we file later with the
SEC will automatically update and supersede information in this Prospectus and
in our other filings with the SEC. We incorporate by reference the following
which we have previously filed with the SEC under the Securities Exchange Act of
1934 (File No. 0-19383), other than any information furnished pursuant to Item 9
or Item 12 of Form 8-K or as otherwise permitted by SEC rules and regulations:
o our Annual Report on Form 10-K for the year ended December 31, 2002;
o our Quarter Report on Form 10-Q for the quarter ended March 31, 2003;
o our Current Reports on Form 8-K filed on February 3, 2003, January
22, 2003 and January 15, 2003; and
o the description of our common stock which is contained in
our Registration Statement on Form 8-A.
We also incorporate by reference any future filings we make with the SEC
under Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934
until the selling securityholders sell all of the shares of common stock covered
by this Prospectus.
You may request a copy of these filings at no cost, by writing or calling
us at the following address:
NTN Communications, Inc.
The Campus - 5966 La Place Court
Carlsbad, California 92008
Telephone: (760) 438-7400
Attention: Kathy Miles
You should rely only on the information contained in, or incorporated by
reference into, this Prospectus. We have not authorized anyone to provide you
with additional or different information. You should not assume that the
information in this Prospectus or any document incorporated by reference is
accurate as of any date other than the date of those documents.
You may also obtain from the SEC a copy of the Registration Statement and
exhibits that we filed with the SEC when we registered the shares of common
stock. The Registration Statement may contain additional information that may be
important to you.
18
======================================== ====================================
You should rely only on the information
incorporated by reference, provided in
this Prospectus or any supplement or that
we have referred you to. We have not
authorized anyone else to provide you
with different information. You should NTN COMMUNICATIONS, INC.
not assume that the information in this
Prospectus or any supplement is accurate
as of any date other than the date on the
front of those documents. However, you
should realize that our affairs may have 5,285,417 Shares of
changed since the date of this Prospectus. Common Stock
This Prospectus will not reflect such
changes. You should not consider this
Prospectus to be an offer or solicitation
relating to the securities in any
jurisdiction in which such an offer or
solicitation relating to the securities
is not authorized, if the person making ----------------------
the offer or solicitation is not
qualified to do so, or if it is unlawful PROSPECTUS
for you to receive such an offer or
solicitation. ----------------------
June 6, 2003
========================================= ====================================