UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2013

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.)
   
  2231 RUTHERFORD ROAD, SUITE 200, CARLSBAD, CALIFORNIA 92008
(Address of principal executive offices) (Zip Code)

 

(760) 476-3543

(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 has submitted electronically and posted on its corporate website, if any, every interactive data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 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 August 14, 2013 the registrant had outstanding 71,725,189 shares of common stock, $.005 par value per share.

 

 

 
 

 

NTN BUZZTIME, INC. AND SUBSIDIARIES

FORM 10-Q

TABLE OF CONTENTS

 

Item

 

  Page  
PART I  
     
1. Financial Statements  
     
  Condensed Consolidated Balance Sheets as of June 30, 2013 (unaudited) and December 31, 2012 1
     
  Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2013 and 2012 (unaudited) 2
     
  Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2013 and 2012 (unaudited) 3
     
  Notes to Condensed Consolidated Financial Statements (unaudited) 4
     
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 10
     
3. Quantitative and Qualitative Disclosures About Market Risk 16
     
4. Controls and Procedures 16
   
PART II  
     
1. Legal Proceedings 17
     
1A. Risk Factors 17
     
2. Unregistered Sales of Equity Securities and Use of Proceeds 17
     
3. Defaults Upon Senior Securities 17
     
4. Mine Safety Disclosures 17
     
5. Other Information 17
     
6. Exhibits 18
     
  Signatures 19

 

 

 

 
 

PART I

Item 1. Financial Statements .

 

NTN BUZZTIME, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value amount)

 

    June 30,     December 31,  
    2013     2012  
ASSETS   (unaudited)          
Current Assets:                
Cash and cash equivalents   $ 1,973     $ 2,721  
Accounts receivable, net of allowances of $139 and $226, respectively     478       610  
Prepaid expenses and other current assets     1,135       898  
Total current assets     3,586       4,229  
Broadcast equipment and fixed assets, net     3,305       3,783  
Software development costs, net of accumulated amortization of $1,979 and $1,774, respectively     2,171       1,980  
Deferred costs     448       600  
Goodwill (Note 3)     1,197       1,265  
Intangible assets, net (Note 3)     363       579  
Other assets     307       220  
Total assets   $ 11,377     $ 12,656  
                 
LIABILITIES AND SHAREHOLDERS' EQUITY                
Current Liabilities:                
Accounts payable and accrued expenses   $ 896     $ 1,087  
Accrued compensation     616       598  
Sales taxes payable     145       197  
Income taxes payable     65       79  
Obligations under capital lease - current portion     34       100  
Deferred revenue     546       919  
Other current liabilities     340       408  
Total current liabilities     2,642       3,388  
Obligations under capital leases, excluding current portion     54       67  
Deferred revenue, excluding current portion     189       188  
Deferred rent     893       949  
Other liabilities     233       170  
Total liabilities     4,011       4,762  
                 
Commitments and contingencies (Note 8)                
                 
Shareholders' Equity:                
Series A 10% cumulative convertible preferred stock, $.005 par value, $156 liquidation preference, 5,000 shares authorized; 156 shares issued and outstanding at June 30, 2013 and December 31, 2012     1       1  
Common stock, $.005 par value, 168,000 and 84,000 shares authorized on June 30, 2013 and December 31, 2012, respectively (Note 14); 71,604 and 71,123 shares issued and outstanding at June 30, 2013 and December 31, 2012, respectively     358       355  
Treasury stock, at cost, 503 shares at June 30, 2013 and December 31, 2012     (456 )     (456 )
Additional paid-in capital     119,007       118,956  
Accumulated deficit     (112,206 )     (111,730 )
Accumulated other comprehensive income (Note 9)     662       768  
Total shareholders' equity     7,366       7,894  
Total shareholders' equity and liabilities   $ 11,377     $ 12,656  

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

1
 

 

NTN BUZZTIME, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share amounts)

 

    Three months ended
June 30, 		    Six months ended
June 30, 		 
    2013     2012     2013     2012  
                         
Revenues   $ 5,532     $ 6,015     $ 11,648     $ 12,081  
Operating expenses:                                
Direct operating costs (includes depreciation and amortization of $514 and $559 for the three months ended June 30, 2013 and 2012, respectively, and $1,104 and $1,108 for the six months ended June 30, 2013 and 2012, respectively.)     1,485       1,554       3,485       3,171  
Selling, general and administrative     3,982       4,913       8,265       10,185  
Depreciation and amortization (excluding depreciation and amortization included in direct operating costs)     180       191       379       365  
Total operating expenses     5,647       6,658       12,129       13,721  
Operating loss     (115 )     (643 )     (481 )     (1,640 )
Other income (expense), net     21       (2 )     26       (34 )
Loss before income taxes     (94 )     (645 )     (455 )     (1,674 )
(Provision) benefit for income taxes     (5 )     12       (13 )     (4 )
Net loss   $ (99 )   $ (633 )   $ (468 )   $ (1,678 )
                                 
Net loss per common share - basic and diluted   $ (0.00 )   $ (0.01 )   $ (0.01 )   $ (0.02 )
                                 
Weighted average shares outstanding - basic and diluted     71,062       70,506       70,962       67,512  

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

 

2
 

 

NTN BUZZTIME, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

    Six months ended
June 30, 		 
    2013     2012  
Cash flows provided by (used in) operating activities:                
Net loss   $ (468 )   $ (1,678 )
Adjustments to reconcile net loss to net cash provided by operating activities:                
Depreciation and amortization     1,483       1,473  
Provision for doubtful accounts     11       39  
Stock-based compensation     53       137  
Loss from disposition of equipment and capitalized software     92       1  
Changes in assets and liabilities:                
Accounts receivable     120       71  
Prepaid expenses and other assets     (325 )     62  
Accounts payable and accrued expenses     (333 )     (229 )
Income taxes payable     (10 )     12  
Deferred costs     151       385  
Deferred revenue     (372 )     113  
Deferred rent     (56 )     211  
Net cash provided by operating activities     346       597  
Cash flows provided by (used in) investing activities:                
Capital expenditures     (285 )     (819 )
Software development expenditures     (794 )     (718 )
Acquisitions     –       (50 )
Changes in restricted cash     –       50  
Net cash used in investing activities     (1,079 )     (1,537 )
Cash flows provided by (used in) financing activities:                
Proceeds from rights offering, net     –       2,310  
Proceeds from notes payable     128       –  
Payments on note payable     (20 )     (19 )
Principal payments on capital lease     (72 )     (172 )
Tax withholding related to net-share settlements of restricted stock units     (7 )     –  
Net cash (used in) provided by financing activities     29       2,119  
Net (decrease) increase in cash and cash equivalents     (704 )     1,179  
Effect of exchange rate on cash     (44 )     (4 )
Cash and cash equivalents at beginning of period     2,721       1,374  
Cash and cash equivalents at end of period   $ 1,973     $ 2,549  
                 
Supplemental disclosures of cash flow information:                
Cash paid during the period for:                
Interest   $ 12     $ 25  
                 
Income taxes   $ 23     $ 43  
                 
Supplemental disclosure of non-cash investing and financing activities:                
                 
Issuance of common stock in lieu of payment of preferred dividends   $ 8     $ 8  
                 
Issuance of common stock in connection with acquisition   $ 1     $ –  

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

3
 

 

NTN BUZZTIME, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

(Unaudited)

 

(1) BASIS OF PRESENTATION

 

Description of Business

 

NTN Buzztime, Inc. (the “Company”) was incorporated in Delaware in 1984 as Alroy Industries and changed its corporate name to NTN Communications, Inc. in 1985. The Company changed its name to NTN Buzztime, Inc. in 2005 to better reflect the growing role of the Buzztime consumer brand.

 

The Company provides marketing services through interactive game content for hospitality venues that offer the games free to their patrons. The Company has evolved from a content developer and distributor to an interactive entertainment network provider that helps the hospitality venues that subscribe to the Company’s network acquire, engage and retain their patrons. The Company primarily generates revenues by charging subscription fees for its service to its network subscribers and from the sale of advertising aired on in-venue screens as well as in conjunction with customized games. The Company’s games are currently available in over 3,300 locations in the U.S. and Canada.

 

Basis of Accounting Presentation

 

The accompanying unaudited interim condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial statements and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the accompanying condensed consolidated financial statements include all adjustments that are necessary, which are of a normal and recurring nature, for a fair presentation for the periods presented of the financial position, results of operations and cash flows of the Company 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., all of which, other than NTN Canada, Inc., are dormant subsidiaries. All significant intercompany transactions have been eliminated in consolidation.

 

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, 2012. The accompanying condensed balance sheet as of December 31, 2012 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. The results of operations for the three and six months ended June 30, 2013 are not necessarily indicative of the results to be anticipated for the entire year ending December 31, 2013, or any other period.

 

The United States dollar is the Company’s functional currency, except for its operations in Canada where the functional currency is the Canadian dollar. The financial position and results of operations of the Company’s foreign subsidiaries are measured using the foreign subsidiary’s local currency as the functional currency. In accordance with ASC No. 830, Foreign Currency Matters , revenues and expenses of the Company’s foreign subsidiaries have been translated into U.S. dollars at weighted average exchange rates prevailing during the period. Assets and liabilities have been translated at the rates of exchange on the balance sheet date. The resulting translation gain and loss adjustments are recorded as a separate component of shareholders’ equity, unless there is a sale or complete liquidation of the underlying foreign investments. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. For the three months ended June 30, 2013 and 2012, the Company recorded $8,000 and $14,000 in foreign currency gains, respectively, and for the six months ended June 30, 2013 and 2012, the Company recorded $15,000 in foreign currency gains and $5,000 in foreign currency losses, respectively. These foreign currency gains and losses were due to settlements of intercompany transactions, re-measurement of intercompany balances with the Company’s Canadian subsidiary and other non-functional currency denominated transactions, which are included in other income (expense), net in the accompanying statements of operations. Exchange rate fluctuations between the United States dollar and Canadian dollar may affect the Company’s results of operations and period-to-period comparisons of its operating results. The Company does not currently engage in hedging or similar transactions to reduce these risks. For the three and six months ended June 30, 2013, the net impact to the Company’s results of operations from the effect of exchange rate fluctuations was immaterial when compared to the exchange rates for the three and six months ended June 30, 2012.

 

4
 

 

(2) Basic and Diluted Earnings Per Common Share

 

The Company computes basic and diluted earnings per common share in accordance with the provisions of ASC No. 260, 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 dilution of securities that could share in earnings. Total options, warrants, convertible preferred stock and restricted stock units that were excluded from computing diluted net loss per common share represented approximately 7,574,000 and 7,677,000 shares as of June 30, 2013 and 2012, respectively, as their effect was anti-dilutive.

 

(3) GOODWILL AND OTHER INTANGIBLE ASSETS

 

Goodwill

 

The Company’s goodwill balance relates to the purchase of NTN Canada. The Company performed its quarterly qualitative assessment of goodwill impairment for NTN Canada as of June 30, 2013 and determined that there were no indications of impairment.

 

Other Intangible Assets

 

The Company has other intangible assets comprised predominantly of developed technology, trivia databases, trademarks, and acquired customer relationships. All intangible assets are amortized on a straight line basis. The useful lives of the assets reflect the estimated period of time and method by which the underlying intangible asset benefits will be realized. Amortization expense relating to all intangible assets totaled $105,000 and $94,000 for the three months ended June 30, 2013 and 2012, respectively, and $215,000 and $187,000 for the six months ended June 30, 2013 and 2012, respectively.

 

(4) SOFTWARE DEVELOPMENT COSTS

 

The Company capitalizes costs related to the development of certain of its software products in accordance with ASC No. 350, Intangibles – Goodwill and Other . Amortization expense relating to capitalized software development costs totaled $205,000 and $173,000 for the three months ended June 30, 2013 and 2012, respectively, and $450,000 and $330,000 for the six months ended June 30, 2013 and 2012, respectively. As of June 30, 2013 and December 31, 2012, approximately $808,000 and $156,000, respectively, of capitalized software costs were not subject to amortization as the development of various software projects was not complete.

 

The Company performed its quarterly review of software development projects for the three and six months ended June 30, 2013, and determined to abandon various software development projects that it concluded were no longer a current strategic fit or for which the Company determined that the marketability of the content had decreased due to obtaining additional information regarding the specific purpose for which the content was intended. As a result, the Company recognized an impairment loss of $27,000 and $92,000 for the three and six months ended June 30, 2013, which is included in selling, general and administrative expenses. There were no impairment losses recognized for the three and six months ended June 30, 2012.

 

(5) FAIR VALUE OF FINANCIAL INSTRUMENTS

 

ASC No. 820, Fair Value Measurements and Disclosures, applies to certain assets and liabilities that are being measured and reported on a fair value basis.  Broadly, the ASC No. 820 framework requires fair value to be determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants.  ASC No. 820 also establishes a fair value hierarchy for ranking the quality and reliability of the information used to determine fair values. This hierarchy is as follows:

 

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.

 

5
 

 

Assets and Liabilities that are Measured at Fair Value on a Recurring Basis:

 

The Company does not have assets or liabilities that are measured at fair value on a recurring basis.

 

Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis:

 

Certain assets are measured at fair value on a non-recurring basis and are subject to fair value adjustments only in certain circumstances. Included in this category are goodwill written down to fair value when determined to be impaired, acquired assets and long-lived assets including capitalized software that are written down to fair value when they are held for sale or determined to be impaired.  The valuation methods for goodwill, assets and liabilities resulting from acquisitions, and long-lived assets involve assumptions concerning interest and discount rates, growth projections, and/or other assumptions of future business conditions.  As all of the assumptions employed to measure these assets and liabilities on a nonrecurring basis are based on management’s judgment using internal and external data, these fair value determinations are classified in Level 3 of the valuation hierarchy.

 

There were no transfers between fair value measurement levels during the three or six months ended June 30, 2013.

 

(6) STOCK-BASED COMPENSATION

 

The Company records stock-based compensation in accordance with ASC No. 718 , Compensation – Stock Compensation .  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 ASC No. 718. 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.

 

The following weighted-average assumptions were used for grants issued during the three and six months ended June 30, 2013 and 2012 under the ASC No. 718 requirements.

 

    Three months ended June 30,   Six months ended June 30,
    2013   2012   2013   2012
Weighted-average risk-free rate   0.55%   0.55%   0.56%   0.67%
Weighted-average volatility   79.47%   96.21%   79.80%   96.10%
Dividend yield   0.00%   0.00%   0.00%   0.00%
Expected life   4.92 years   5.38 years   4.82 years   6.11 years

 

ASC No. 718 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 the three months ended June 30, 2013 and 2012 was $27,000 and $60,000, respectively, and $53,000 and $137,000 for the six months ended June 30, 2013 and 2012, respectively, and is expensed in selling, general and administrative expenses and credited to additional paid-in-capital. The Company granted 798,000 and 60,000 stock options during the three months ended June 30, 2013 and 2012, respectively, and 1,128,000 and 110,000 stock options during the six months ended June 30, 2013 and 2012, respectively.

 

(7) NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS

 

Notes Payable

 

In May 2013, the Company entered into a financing agreement with a lender under which the Company may borrow up to $500,000 to purchase certain equipment. In August 2013, the maximum amount the Company may borrow was increased to $1,000,000. The Company may borrow amounts in tranches as needed. Each tranche bears interest at 8.32% and is payable in 36 equal monthly installments. The lender has a first security interest in the equipment purchased with the funds borrowed under the agreement. As of June 30, 2013, the Company borrowed approximately $128,000, which is recorded in other current liabilities and other liabilities on the accompanying consolidated balance sheet. As of June 30, 2013, $128,000 remained outstanding.

 

6
 

 

In July 2011, the Company entered into an equipment financing agreement with a bank in the amount of $123,000, which is recorded in other current liabilities and other liabilities in the accompanying consolidated balance sheet. The amounts borrowed were used to finance certain equipment purchases and other services related to the relocation of the Company’s Carlsbad, California office. The amount borrowed bears interest at 5.85% and is collateralized by a first priority security interest in the equipment purchased. The amount borrowed is payable over a 36 month period in equal payments of $3,705, which includes interest, until fully paid in August 2014. As of June 30, 2013, approximately $50,000 remained outstanding.

 

Capital Lease Obligations

 

The Company has capital lease obligations, one of which is a $1,000,000 equipment lease facility entered into with an equipment leasing company in October 2009. The terms of this agreement allowed for use of the facility for 24 months and for use of the facility in multiple tranches with each individual tranche having a 24 month term. As of June 30, 2013, the Company had utilized $743,000 of this facility, which has been accounted for as a capital lease. As of June 30, 2013, $17,000 remained outstanding for those tranches that have not yet expired under this facility. Pursuant to the terms of the agreements related to this facility, the Company has given the equipment leasing company notice of its intent to terminate each individual lease that was reaching the 24 month term as well as its intent to purchase the equipment under the expiring lease at fair market value.

 

(8) COMMITMENTS AND CONTINGENCIES

 

Sales and Use Tax

 

From time to time, state tax authorities will make inquiries as to whether or not a portion of the Company’s 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 subject more activities to tax. The Company evaluates such inquiries on a case-by-case basis and has favorably resolved the majority of these tax issues in the past without any material adverse consequences.

 

The Company is involved in ongoing sales tax inquiries with certain states and provinces. As a result of those inquiries, the Company recorded a total net liability of $29,000 and $70,000 as of June 30, 2013 and December 31, 2012, respectively, which is included in the sales taxes payable balance in the accompanying consolidated balance sheets. Based on the guidance set forth by ASC No. 450, Contingencies, management has deemed the likelihood as reasonably possible that it will be required to pay all or part of these assessments.

 

(9) ACCUMULATED OTHER COMPREHENSIVE INCOME

 

Accumulated other comprehensive income includes the accumulated gains or losses from foreign currency translation adjustments. The Company translated the assets and liabilities of its Canadian statement 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. As of June 30, 2013 and December 31, 2012, $662,000 and $768,000 of foreign currency translation adjustments were recorded in accumulated other comprehensive income, respectively.

 

(10) RECENT ACCOUNTING PRONOUNCEMENTS

 

In July 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") No. 2013-11, Income Taxes (Topic 740 ). This update improves the reporting for unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The update is expected to reduce diversity in practice by providing guidance on the presentation of unrecognized tax benefits and will better reflect the manner in which an entity would settle at the reporting date any additional income taxes that would result from the disallowance of a tax position when net operating loss carryforwards, similar tax losses, or tax credit carryforwards exist. The update is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013, which for the Company is January 1, 2014. The Company does not anticipate that adopting this update will have a material impact on its consolidated financial statements.

 

In April 2013, the FASB issued ASU No. 2013-07, Presentation of Financial Statements (Topic 205) - Liquidation Basis of Accounting . This update addresses the requirements and methods of applying the liquidation basis of accounting and the disclosure requirements within ASC Topic 205 for the purpose of providing consistency among liquidating entities reporting under U.S. GAAP. Generally, this update provides guidance for the preparation of financial statements and disclosures when liquidation is imminent. This update is effective for periods beginning after December 15, 2013, which for the Company is January 1, 2014. The Company does not anticipate that adopting this update will have a material impact on its consolidated financial statements.

 

7
 

 

In March 2013, FASB issued ASU No. 2013-05, Foreign Currency Matters. The amendments in this update resolve the diversity in practice about whether current literature applies to the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. In addition, the amendments in this update resolve the diversity in practice for the treatment of business combinations achieved in stages (sometimes also referred to as step acquisitions) involving a foreign entity. This update is effective prospectively for fiscal years, and interim reporting periods within those years, beginning after December 15, 2013, which for the Company is January 1, 2014. The Company does not anticipate that adopting this update will have a material impact on its consolidated financial statements.

 

In February 2013, the FASB issued ASU No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income . The amendments in this update require an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under GAAP to be reclassified in its entirety to net income. For other amounts that are not required under GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under GAAP that provide additional detail about those amounts. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is reclassified to a balance sheet account instead of directly to income or expense in the same reporting period. This update was effective on a prospective basis for reporting periods beginning after December 15, 2012, which for the Company was January 1, 2013. Adopting this update did not have a material impact on the Company’s consolidated financial statements.

 

(11) CONCENTRATIONS OF RISK

 

Significant Customer

 

Buffalo Wild Wings together with its franchisees is a significant customer of the Company. For the three months ended June 30, 2013 and 2012, approximately 27% and 23%, respectively, of the Company’s total revenue was generated from this national chain. For the six months ended June 30, 2013 and 2012, approximately 25% and 23%, respectively, of the Company’s revenue was generated from this chain. As of June 30, 2013 and December 31, 2012, approximately $108,000 and $123,000, respectively, was included in accounts receivable from this customer.

 

Single Source Playmaker Supplier

 

The Company currently purchases its Classic playmakers from an unaffiliated manufacturer located in Taiwan pursuant to a supply agreement dated April 23, 2007, the term of which automatically renews for one year periods. The Company purchases certain next generation, or Next-Gen, playmaker tablet equipment from an unaffiliated manufacturer located in China, and it purchases its Next-Gen playmaker tablets from another unaffiliated manufacturer. The Company currently does not have alternative sources for its Classic or Next-Gen playmakers or its Next-Gen playmaker equipment. Management believes other manufacturers could be identified to produce the playmaker, playmaker tablets and playmaker equipment on comparable terms. A change in manufacturers, however, could cause delays in supply and may have an adverse effect on the Company’s operations. As of June 30, 2013 and December 31, 2012, approximately $28,000 and $15,000, respectively, were included in accounts payable or accrued expenses for these suppliers.

 

(12) GEOGRAPHICAL INFORMATION

 

Geographic breakdown of the Company’s revenue for the three and six months ended June 30, 2013 and 2012 is as follows:

 

    Three months ended
June 30, 		    Six months ended
June 30, 		 
    2013     2012     2013     2012  
United States   $ 5,213,000     $ 5,640,000     $ 10,984,000     $ 11,316,000  
Canada     319,000       375,000       664,000       765,000  
Total revenue   $ 5,532,000     $ 6,015,000     $ 11,648,000     $ 12,081,000  

 

8
 

 

Geographic breakdown of the Company’s long-term tangible assets as of June 30, 2013 and December 31, 2012 is as follows:

 

    June 30,
2013 		    December 31,
2012 		 
United States   $ 3,291,000     $ 3,767,000  
Canada     14,000       16,000  
Total assets   $ 3,305,000     $ 3,783,000  

 

(13) RIGHTS OFFERING

 

In February 2012, the Company completed a rights offering to its stockholders of record as of February 2, 2012. The Company issued a total of 2,070,719 shares of its common stock at a subscription price of $0.25 per share. In connection with the rights offering, the Company entered into an investment agreement with Matador Capital Partners, LP, or Matador. Mr. Jeffrey A. Berg, one of the Company’s directors and its Interim Chief Executive Officer, is the managing member of the general partner of Matador. Under the terms of the investment agreement, upon expiration of the rights offering, Matador purchased for $0.25 per share 8,000,000 shares of the Company’s common stock not subscribed for and purchased by holders upon exercise of their subscription rights. The Company received gross proceeds of $2.5 million from the rights offering and under the investment agreement.

 

(14) CAPITAL STOCK

 

At the Company's 2013 annual meeting of stockholders held on June 7, 2013, the Company’s stockholders approved an amendment to the Company’s restated certificate of incorporation to increase the number of total authorized shares from 94,000,000 to 178,000,000 and to increase the number of authorized shares of common stock from 84,000,000 to 168,000,000. The Company filed a certificate of amendment of the restated certificate of incorporation of the Company with the Delaware Secretary of State on June 11, 2013 to effect such amendment and it was effective on that same date.

 

 

 

9
 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations .

 

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q (including, but not limited to, the following discussion of our financial condition and results of operations) and the documents incorporated herein by reference contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements reflect future events, results, performance, prospects and opportunities, including statements related to our strategic plans and targets, revenue generation, product availability and offerings, reduction in cash usage, reliance on cash on hand and cash from operations, capital needs, capital expenditures, industry trends and financial position of NTN Buzztime, Inc. and its subsidiaries (“we,” “us,” or the “Company”). 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 business, 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, 2012, under the section entitled “Risk Factors,” and in other reports we file with the Securities and Exchange Commission from time to time. Readers are urged not to place undue reliance on the forward-looking statements contained in this report or incorporated by reference herein, which speak only as of the date of this report. Except as required by law, we do not undertake any obligation to revise or update any such forward-looking statement to reflect future events or circumstances.

 

You should read the following discussion of our financial condition and results of operations in conjunction with the consolidated financial statements and the notes to those statements included elsewhere in this report.

 

Our trademarks, trade names and service marks referenced herein include Buzztime, iTV Network, Playmaker and Stump! Trivia. Each other trademark, trade name or service mark appearing in this quarterly report belongs to its owner.

 

OVERVIEW

 

We provide marketing services through interactive game content for hospitality venues that offer the games free to their patrons. We have evolved from a content developer and distributor to an interactive entertainment network provider that helps the hospitality venues that subscribe to our network acquire, engage and retain their patrons. Our mission is to entertain consumers in ways that create long term value for our customers. Built on an extended network platform, our entertainment system has historically allowed multiple players to interact at the venue, but it also enables competition between different venues, referred to as massively multiplayer gaming. We continue to develop a new network architecture, technology platform and player engagement paradigm, which we currently refer to as our next generation product line, or Next-Gen.

 

We primarily generate revenues by charging subscription fees for our service to our network subscribers and from the sale of advertising aired on in-venue screens as well as in conjunction with customized games. Our games are currently available in over 3,300 locations in the U.S. and Canada, where they are shown on approximately 10,000-15,000 screens daily. Approximately 40% of our network subscriber venues are related to national and regional restaurants and include Buffalo Wild Wings, Beef O’Brady’s , Old Chicago, Black Angus, Boston Pizza, Native New Yorker, T.G.I. Friday’s and Hooters.

 

In December 2012, we acquired substantially all of the assets of Interactive Hospitality. We also hired its founder, Barry Chandler, as our Chief Marketing Officer. Interactive Hospitality’s digital media business specializes in creating digital marketing strategies for the hospitality industry. The business assists clients in attracting, engaging and retaining customers through the strategic use of social media. In addition to one-on-one digital strategies that Interactive Hospitality provides its national, regional and local clients, the industry- specific blog, TheBarBlogger.com, is a source for strategies available to independent bars and restaurants. In addition, Interactive Hospitality’s proprietary subscription based management toolkit, ManageYourBar.com, has been used by more than 1,500 bars and restaurants in the U.S. since its launch in 2009.

 

10
 

 

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, stock-based compensation, bad debts, investments, purchase price allocations related to acquisitions, including any earnout liability, impairment of software development costs, goodwill, broadcast equipment, intangible assets and contingencies, including the reserve for sales tax inquiries. We base our estimates on historical experience and on various other assumptions that we believe 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 our financial condition and results and require management’s most subjective judgments.

 

There have been no material changes in our critical accounting policies, estimates and judgments during the three and six months ended June 30, 2013 from those described in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K for the year ended December 31, 2012.

 

RESULTS OF OPERATIONS

 

Three months ended June 30, 2013 compared to the three months ended June 30, 2012

 

We generated a net loss of $99,000 for the three months ended June 30, 2013 compared to a net loss of $633,000 for the three months ended June 30, 2012.

 

Revenue

 

Revenue decreased $483,000, or 8%, to $5,532,000 for the three months ended June 30, 2013 from $6,015,000 for the three months ended June 30, 2012 primarily due to lower average site count of our Network Subscribers, offset by a higher average revenue per unit. Comparative Network Subscriber information for the Buzztime Network is as follows:

 

    Network Subscribers
as of June 30, 		 
    2013     2012  
United States     3,154       3,544  
Canada     198       231  
Total     3,352       3,775  

 

Direct Costs and Gross Margin

 

The following table compares direct costs and gross margin for the three months ended June 30, 2013 and 2012:

 

    For the three months ended
June 30, 		 
    2013     2012  
Revenues   $ 5,532,000     $ 6,015,000  
Direct Costs     1,485,000       1,554,000  
Gross Margin   $ 4,047,000     $ 4,461,000  
                 
Gross Margin Percentage     73%       74%  

 

11
 

 

Gross margin as a percentage of revenue decreased to 73% for the three months ended June 30, 2013 from 74% for the three months ended June 30, 2012. Direct costs decreased $69,000, or 4%, to $1,485,000 for the three months ended June 30, 2013 from $1,554,000 for the three months ended June 30, 2012. The decrease in direct costs was primarily due to decreased service provider fees of $78,000 and decreased depreciation and amortization expense of $45,000 due to assets depreciating faster than replenishment of new assets. These decreases were offset by increased license fees of $26,000, increased freight expense related to our Next-Gen product of $18,000 and other miscellaneous net increases of $10,000.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses decreased $931,000, or 19%, to $3,982,000 for the three months ended June 30, 2013 from $4,913,000 for the same period in 2012.  The decrease was due to decreased payroll and related expense of $842,000 primarily due to decreased headcount and incentive compensation, decreased marketing expenses of $101,000, decreased travel expense of $97,000, decreased service fees of $61,000 primarily due to no longer using a third party to operate our warehouse and decreased bad debt expense of $40,000. These decreases were offset by increased consulting fees of $205,000 for software development and other corporate initiatives.

 

Depreciation and Amortization Expense

 

Depreciation and amortization expense (excluding depreciation and amortization included in direct operating costs) decreased $11,000, or 6%, to $180,000 for the three months ended June 30, 2013 from $191,000 for the same period in 2012, primarily due to assets becoming fully depreciated.

 

Other Income (Expense), Net

 

Other income (expense), net, changed from $2,000 of net expense for the three months ended June 30, 2012 to $21,000 of income for the same period in 2013. This change was primarily due to income recognized from a sublease and sale of certain hardware, offset by decreased foreign currency exchange gains related to the operations of our Canadian subsidiary and lower interest expense due to fewer capital leases outstanding.

 

Income Taxes

 

We expect to incur state income tax liability in 2013 related to our U.S. operations. We also expect to pay income taxes in Canada due to profitability of our Canadian subsidiary. For the three months ended June 30, 2013 and 2012, we recorded a tax provision of $5,000 and a tax benefit of $12,000, respectively. We have established a full valuation allowance for substantially all deferred tax assets, including our net operating loss carryforwards, since we could not conclude that we were more likely than not able to generate future taxable income to realize these assets.

 

EBITDA

 

Earnings before interest, taxes, depreciation and amortization, or EBITDA, is not intended to represent a measure of performance in accordance with 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 net income or loss calculation in accordance with GAAP.

 

The following table reconciles our consolidated net loss calculated in accordance with GAAP to EBITDA for the three months ended June 30, 2013 and 2012. EBITDA should not be considered as substitutes for, or superior to, net loss calculated in accordance with GAAP.

 

    For the three months ended
June 30, 		 
    2013     2012  
Net loss per GAAP   $ (99,000 )   $ (633,000 )
Interest expense, net     5,000       11,000  
Income taxes     5,000       (12,000 )
Depreciation and amortization     694,000       750,000  
EBITDA   $ 605,000     $ 116,000  

 

12
 

 

Six months ended June 30, 2013 compared to the Six months ended June 30, 2012

 

We generated a net loss of $468,000 for the six months ended June 30, 2013 compared to a net loss of $1,678,000 for the six months ended June 30, 2012.

 

Revenue

 

Revenue decreased $433,000, or 4%, to $11,648,000 for the six months ended June 30, 2013 from $12,081,000 for the six months ended June 30, 2012 primarily due to lower average site count of our Network Subscribers, offset by a higher average revenue per unit and increased advertising revenue.

 

Direct Costs and Gross Margin

 

The following table compares direct costs and gross margin for the six months ended June 30, 2013 and 2012:

 

    For the six months ended
June 30, 		 
    2013     2012  
Revenues   $ 11,648,000     $ 12,081,000  
Direct Costs     3,485,000       3,171,000  
Gross Margin   $ 8,163,000     $ 8,910,000  
                 
Gross Margin Percentage     70%       74%  

 

Gross margin as a percentage of revenue decreased to 70% for the six months ended June 30, 2013 from 74% for the six months ended June 30, 2012. Direct costs increased $314,000, or 10%, to $3,485,000 for the six months ended June 30, 2013 from $3,171,000 for the six months ended June 30, 2012. The increase in direct costs was primarily due to increased equipment expenses, increased license fees and increased freight, offset by decreased service provider fees due to fewer installations.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses decreased $1,920,000, or 19%, to $8,265,000 for the six months ended June 30, 2013 from $10,185,000 for the same period in 2012.  The decrease was due to decreased payroll and related expense of $1,686,000 primarily due to decreased headcount and incentive compensation, decreased marketing expenses of $313,000, decreased travel expense of $250,000, decreased service fees of $54,000 primarily due to no longer using a third party to operate our warehouse, decreased bad debt expense of $28,000 and decreased net miscellaneous expenses of $68,000. These decreases were offset by increased consulting fees of $387,000 for software development and other corporate initiatives and increased software impairment expense of $92,000.

 

Depreciation and Amortization Expense

 

Depreciation and amortization expense (excluding depreciation and amortization included in direct operating costs) increased $14,000, or 4%, to $379,000 for the six months ended June 30, 2013 from $365,000 for the same period in 2012, primarily due to increased amortization expense of $55,000 related to acquired assets, offset by decreased expense of $41,000 due to other assets becoming fully depreciated.

 

Other Income (Expense), Net

 

Other income (expense), net, changed from $34,000 of net expense for the six months ended June 30, 2012 to $26,000 of income for the same period in 2013. This change was primarily due to income recognized from a sublease and sale of certain hardware, less interest expense due to fewer capital leases, and increased foreign currency exchange gains related to the operations of our Canadian subsidiary and lower interest expense due to fewer capital leases outstanding.

 

Income Taxes

 

For the six months ended June 30, 2013 and 2012, we recorded a net tax provision of $13,000 and $4,000, respectively.

 

13
 

 

EBITDA

 

EBITDA is not intended to represent a measure of performance in accordance with 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 for the six months ended June 30, 2013 and 2012.

 

    For the six months ended
June 30, 		 
    2013     2012  
Net loss per GAAP   $ (468,000 )   $ (1,678,000 )
Interest expense, net     12,000       24,000  
Income taxes     13,000       4,000  
Depreciation and amortization     1,483,000       1,473,000  
EBITDA   $ 1,040,000     $ (177,000 )

 

LIQUIDITY AND CAPITAL RESOURCES

 

As of June 30, 2013, we had cash and cash equivalents of $1,973,000 compared to cash and cash equivalents of $2,721,000 as of December 31, 2012.

 

In February 2012, we completed a stockholders rights offering to our stockholders of record as of February 2, 2012. We issued a total of 2,070,719 shares of our common stock at a subscription price of $0.25 per share. In connection with the rights offering, we entered into an investment agreement with Matador Capital Partners, LP, or Matador. Mr. Jeffrey A. Berg, one of our directors and also now our Interim Chief Executive Officer, is the managing member of the general partner of Matador. Under the terms of the investment agreement, upon expiration of the rights offering, Matador purchased for $0.25 per share 8,000,000 shares of our common stock not subscribed for and purchased by holders upon exercise of their subscription rights . We received gross proceeds of $2.5 million from the rights offering and under the investment agreement.

 

We believe existing cash and cash equivalents, funds generated from operations and the proceeds received from the rights offering completed in February 2012 (see Note 13) will be sufficient to meet our operating cash requirements for at least the next twelve months. We have no debt other than capital leases with aggregate outstanding balances of approximately $88,000 and notes payable with outstanding balances of approximately $178,000 for certain equipment purchases. We intend to continue entering into capital lease or financing facilities for certain equipment requirements when economically advantageous. In order to execute our operating and strategic plan and to position the Company to better take advantage of market opportunities and opportunities for growth, we are evaluating additional financing alternatives, including raising additional capital through public or private equity or debt financing. If net cash provided by operating activities and our cash and cash equivalents on hand are not sufficient to meet future cash requirements, we may be required to reduce planned capital expenses, reduce operational cash uses, sell assets or seek financing. Any actions we may undertake to reduce planned capital purchases, reduce expenses, or generate proceeds from the sale of assets may be insufficient to cover shortfalls in available funds. If we require additional capital, we may be unable to secure additional financing on terms that are acceptable to us, or at all.

 

14
 

 

Working Capital

 

As of June 30, 2013, we had working capital (current assets in excess of current liabilities) of $944,000 compared to working capital of $841,000 as of December 31, 2012. The following table shows the change in our working capital from December 31, 2012 to June 30, 2013.

 

    Increase
(Decrease) 		 
Working capital as of December 31, 2012   $ 841,000  
Changes in current assets:        
Cash and cash equivalents     (748,000 )
Accounts receivable, net of allowance     (132,000 )
Prepaid expenses and other current assets     237,000  
Total current assets     (643,000 )
Changes in current liabilities:        
Accounts payable and accrued expenses     (191,000 )
Accrued compensation     18,000  
Sales taxes payable     (52,000 )
Income taxes payable     (14,000 )
Obligations under capital lease     (66,000 )
Deferred revenue     (373,000 )
Other current liabilities     (68,000 )
Total current liabilities     (746,000 )
Net change in working capital     103,000  
Working capital as of June 30, 2013   $ 944,000  

 

Cash Flows

 

Cash flows from operating, investing and financing activities, as reflected in the accompanying consolidated statements of cash flows, are summarized as follows:

 

    For the six months ended
June 30, 		 
    2013     2012  
Cash provided by (used in):                
Operating activities   $ 346,000     $ 597,000  
Investing activities     (1,079,000 )     (1,537,000 )
Financing activities     29,000       2,119,000  
Effect of exchange rates     (44,000 )     (4,000 )
Net (decrease) increase in cash and cash equivalents   $ (748,000 )   $ 1,175,000  

 

Net cash provided by operating activities. We primarily depend on cash flows from operations to meet our cash requirements. Net cash generated from operating activities was $346,000 for the six months ended June 30, 2013 compared to $597,000 for the same period in 2012. The $251,000 decrease in cash provided by operations was primarily due to a decrease of $1,450,000 in cash provided by operating assets and liabilities during the six months ended June 30, 2013 compared to the same period in 2012, offset by a decrease in net loss of $1,199,000, after giving effect to adjustments made for non-cash transactions.

 

Our largest use of cash is payroll and related costs. Cash used for payroll and other related costs decreased $1,056,000 to $5,066,000 for the six months ended June 30, 2013 from $6,122,000 during the same period in 2012 due primarily to decreased headcount and incentive compensation. Our primary source of cash is cash we generate from customers. Cash received from customers decreased $685,000 to $11,790,000 for the six months ended June 30, 2013 from $12,475,000 during the same period in 2012 primarily due to a decrease in the number of Network Subscribers.

 

15
 

 

Net cash used in investing activities. We used $1,079,000 in cash for investing activities for the six months ended June 30, 2013 compared to a use of $1,537,000 during the same period in 2012. The $458,000 decrease was primarily due to a decrease in capital expenditures of $534,000 due primarily to decreased field equipment purchases, offset by an increase in capitalized software development activities of $76,000.

 

Net cash (used in) provided by financing activities. Net cash provided by financing activities decreased $2,090,000 to $29,000 for the six months ended June 30, 2013 compared to $2,119,000 for the same period in 2012. The change is primarily attributable to the fact that during the prior year period, we received $2,310,000 of net proceeds from the rights offering and related investment agreement. To a lesser extent, the change is attributed to an increase in tax withholdings of $7,000 related to net-share settlements of restricted stock units during the current year period, offset by proceeds received from notes payable of $128,000 and decreased payments on our capital leases of $100,000.

 

RECENT ACCOUNTING PRONOUNCEMENTS

 

Refer to Note 10 of the condensed consolidated financial statements, “Recent Accounting Pronouncements.”

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk .

 

Under SEC rules and regulations, as a smaller reporting company we are not required to provide the information otherwise required by this item. 

 

Item 4. Controls and Procedures .

 

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 Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, or the Exchange Act) 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 Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC 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 our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. Based on our evaluation, our interim 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

 

There was no change in our internal control over financial reporting during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

16
 

 

PART II — OTHER INFORMATION

 

Item 1. Legal Proceedings .

 

None

 

Item 1A. Risk Factors .

 

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, 2012 together with all other information contained or incorporated by reference in this report before you decide to invest in our common stock. If any of the risks described in our annual report occur, 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. As of the date of this report, we do not believe that there have been any material changes to the risk factors previously disclosed in our annual report.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

None

 

Item 3. Defaults Upon Senior Securities.

 

None

 

Item 4. Mine Safety Disclosures .

 

Not Applicable

 

Item 5. Other Information .

 

Certificate of Elimination

 

On August 9, 2013, we filed a certificate of elimination with the Secretary of State of the State of Delaware to eliminate from our restated certificate of incorporation all matters set forth in the certificates of designations, rights and preferences of our Series B Convertible Preferred Stock. The certificate of elimination eliminated the previous designation of 85,000 shares of our Series B Convertible Preferred Stock, none of which were outstanding at the time the certificate of elimination was filed, and such shares resumed their status as authorized and unissued shares of undesignated preferred stock.

 

Restated Certificate of Incorporation

 

On August 9, 2013, after we filed the certificate of elimination described above, we filed a restated certificate of incorporation with the Secretary of State of the State of Delaware, integrating into a single instrument all of the provisions of our previously filed restated certificate of incorporation which were then in effect, including those that were operative as a result of certificates of amendment to our restated certificate of incorporation that were previously filed with the Secretary of State of the State of Delaware. The restated certificate of incorporation we filed on August 9, 2013 only restated and integrated and did not further amend the provisions of our restated certificate of incorporation as theretofore amended.

 

The disclosure in this Item 5 is provided in lieu of providing disclosure under Items 5.03 of Form 8-K

 

17
 

 

Item 6. Exhibits.

 

Exhibit Description
3.1 Restated Certificate of Incorporation (1)
   
3.2 Certificate of Elimination of the Series B Convertible Preferred Stock (1)
   
3.3 Bylaws, as amended (3)
   
10.1* Third Amendment to Consulting Agreement, dated July 1, 2013, by and between NTN Buzztime, Inc. and JABAM, Inc. (1)
   
10.2* Employment offer letter, dated April 14, 2013, by and between NTN Buzztime, Inc. and Kirk Nagamine (1)
   
31.1 Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (1)
   
31.2 Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (1)
   
32.1# Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (1)
   
32.2# Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (1)
   
101.INS** XBRL Instance Document
   
101.SCH** XBRL Taxonomy Extension Schema Document
   
101.CAL** XBRL Taxonomy Extension Calculation Linkbase Document
   
101.DEF** XBRL Taxonomy Extension Definition Linkbase Document
   
101.LAB** XBRL Taxonomy Extension Label Linkbase Document
   
101.PRE** XBRL Taxonomy Extension Presentation Linkbase Document

 

  * Management contract or compensatory plan.
  # These exhibits are being furnished solely to accompany this report pursuant to U.S.C. § 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated herein by reference into any filing of the Company whether made before or after the date hereof, regardless of any general incorporation language in such filing.
  ** Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
  (1) Filed or furnished herewith
  (2) Previously filed as an exhibit to the registrant’s report on Form 8-K filed on November 7, 1997 and incorporated herein by reference.
  (3) Previously filed as an exhibit to the registrant’s report on Form 10-K for the fiscal year ended December 31, 2007 and incorporated herein by reference.

 

18
 

 

 

 

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: August 14, 2013 By:

/s/ Kendra Berger

    Kendra Berger
    Chief Financial Officer
    (on behalf of the Registrant, and as its Principal Financial and Accounting Officer)

 

 

 

 

 

 

 

 

 

 

 

19

Exhibit 3.1

 

RESTATED CERTIFICATE OF

 

OF

 

INCORPORATION

 

NTN Buzztime, Inc., a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows:

 

1. The name of the corporation is NTN Buzztime, Inc. The corporation was originally incorporated under the name Alroy Industries, Inc. The original certificate of incorporation of the corporation was filed with the Secretary of State of the State of Delaware on April 13, 1984 (the “Original Certificate”). The Original Certificate was amended and restated by a restated certificate of incorporation of the corporation filed with the Secretary of State of the State of Delaware on June 14, 1991 (the “Amended and Restated Certificate”).

 

2. This Restated Certificate of Incorporation was duly adopted in accordance with Section 245 of the General Corporation Law of Delaware.

 

3. Pursuant to Section 245(c) of the General Corporation Law of Delaware, this Restated Certificate of Incorporation only restates and integrates and does not further amend the provisions of the Amended and Restated Certificate as heretofore amended or supplemented, and there is no discrepancy between those provisions and the provisions of this Restated Certificate of Incorporation.

 

4. The text of the Amended and Restated Certificate as heretofore amended or supplemented is hereby restated to read in its entirety as follows:

 

ARTICLE I

 

The name of the corporation (the “Corporation”) is NTN Buzztime, Inc.

 

ARTICLE II

 

The address of the corporation’s registered office in the State of Delaware is 1209 Orange Street, in the City of Wilmington, county of New Castle, Delaware. The name of the Corporation’s registered agent at such address is The Corporation Trust Company.

 

ARTICLE III

 

The nature of the business or purpose to be conducted or promoted is to be engaged in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.

 

ARTICLE IV

 

The total number of shares of stock which the corporation shall have authority to issue is 178,000,000 shares, of which 168,000,000 shares shall be Common Stock, par value $.005 per share, and 10,000,000 shall be Preferred Stock, par value $.005 per share.

 

(a) Series A Preferred Stock . This corporation is authorized to issue a series of Preferred Stock designated “Series A Convertible Preferred Stock” consisting of 5,000,000 shares.

 

(1) Dividend Rights .

 

(i) Rights to Cash Dividends. In the absence of any action pursuant to part (ii) of this subdivision (a)(l), the holders of the Series A Preferred shall be entitled to receive cumulative dividends of ten cents per share per annum, payable semiannually in equal installments of five cents per share on December 1 and June 1 of each year. The dividends so payable on any December 1 or June 1 will be paid by check or draft to the person (the “Registered Holder”) in whose name the Series A Preferred is registered as of the close of business on November 15 or May 15 next preceding the interest payment date (whether or not a business day), at such person’s address as it appears on the registration books of the Corporation.

 

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(ii) Rights to Stock Dividends. At the Corporation’s option, the Corporation may declare and pay a dividend for any dividend payment date(s) in the form of its common stock, $.005 par value per share (the “Common Stock”), such stock dividend to be in lieu of the dividend provided for by part (i) of this subdivision (a)(l). To determine the amount of Common Stock to be issued as a substitute dividend on the Series A Preferred, the Common Stock will be valued at its market value. Market value is defined for this purpose as the average closing bid price for the twentieth through eleventh trading days preceding the date on which interest is due.

 

(2) Voting Rights . The Series A Preferred shall have no voting rights.

 

(3) Rights on Liquidation, Dissolution and Winding Up . Upon liquidation, dissolution and winding up, each share of the Series A Preferred shall have preference over the Common Stock to the extent of $1.00 per share, but shall not otherwise be entitled to share in the proceeds of any liquidation, dissolution or winding up. The preference or subordination of the rights of the Series A Preferred with respect to any other class of stock, or any other series of preferred stock, shall be as stated in the instrument defining the rights of such other class or series. Neither the merger or consolidation of the Corporation into or with any other corporation or any other corporation into or with the Corporation, nor a sale, transfer or lease of all or any part of the assets of the Corporation, shall be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of this subdivision (3).

 

(4) Conversion Rights . Commencing on the date of the issuance of the Series A Preferred, the Series A Preferred shall at any time be convertible at the option of the holder thereof into duly authorized, validly issued, fully paid and nonassessable shares of Common Stock at a conversion rate (the “Conversion Rate”) as set forth below (subject to adjustment as provided in subdivision (5) hereof).

 

(i) The Registered Holder shall have the right at any time to convert shares of Series A Preferred into that number of fully paid and nonassessable shares of Common Stock of the Corporation that equals the number of shares of Series A Preferred that are surrendered for conversion divided by the Conversion Rate. The Conversion Rate shall initially be 100%, and shall be subject to adjustment pursuant to subdivision (5) hereof. Upon the surrender of the Series A Preferred accompanied by the written request for conversion from the Registered Holder, the Corporation shall issue and deliver to such Registered Holder certificates evidencing such shares of Common Stock.

 

(ii) In order to exercise the conversion privileges, the Registered Holder shall surrender the Series A Preferred to the Corporation at its principal address, accompanied by written notice to the Corporation that such holder elects to convert all or a portion of the same. Such notice shall also state the name or names (with address) in which the certificate or certificates for shares of Common Stock and any re-issued Series A Preferred shall be issued upon such conversion. As promptly as practicable after the receipt of such notice and surrender of the Series A Preferred, the Corporation shall issue and deliver to such holder, or to his assignee or assignees on his written order, a certificate or certificates for the number of full shares of Common Stock and any re-issued Series A Preferred issuable upon the conversion of the Series A Preferred. Such conversion shall be deemed to have been effected at the close of business of the first business day after the date on which such notice shall have been received by the Corporation and such Series A Preferred shall have been surrendered.

 

(iii) No fractional shares shall be issued upon conversion of the Series A Preferred and any portion of the same which would otherwise be convertible into a fractional share shall be paid in cash in the amount of the liquidation preference of the fractional share. No payment or adjustment shall be made upon any conversion on account of any cash dividends on the Common Stock issued upon such conversion.

 

(5) Adjustments to Conversion Rate.

 

The Conversion Rate shall be subject to adjustment as provided in this subdivision (5).

 

(i) In case the Corporation shall (A) pay a dividend, or make a distribution, in shares of its Common Stock (the “Shares”), (B) subdivide its outstanding Shares into a greater number of Shares, (C) combine its outstanding Shares into a smaller number of Shares, or (D) issue by reclassification of its Shares any shares of Common Stock of the Corporation (other than a change in par value, or from par value to no par value, or from no par value to par value), the Conversion Rate in effect immediately prior thereto shall be adjusted so that the Registered Holder shall be entitled to receive the number of Shares which he would have owned or have been entitled to receive immediately following the happening of any of the events described above, had the Series A Preferred been converted immediately prior to the record or effective date thereof.

 

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An adjustment made pursuant to subparts (i)(A)-(D) above shall become effective immediately after the record date in the case of a dividend or distribution in Shares and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification. If, as a result of an adjustment made pursuant to this paragraph, the Registered Holder shall become entitled to receive shares of two or more classes of Common Stock of the Corporation, the Board of Directors (whose determination shall be conclusive and shall be evidenced by a resolution) shall determine the allocation of the adjusted Conversion Rate between or among the shares of such classes of Common Stock.

 

(ii) In case of any reclassification of the outstanding Shares (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision, combination or stock dividend), or in case of any consolidation of the Corporation with, or merger of the Corporation into, another corporation wherein the Corporation is not the surviving entity, or in case of any sale of all, or substantially all, of the property, assets, business and goodwill of the Corporation, the Corporation, or such successor or purchasing corporation, as the case may be, shall provide, by a written instrument delivered to the Registered Holder, that the Registered Holder shall thereafter be entitled upon conversion to the kind and amount of shares of stock or other equity securities, or other property or assets which would have been receivable by such Registered Holder upon such reclassification, consolidation, merger or sale, if the Series A Preferred had been converted immediately prior thereto. Such corporation, which thereafter shall be deemed to be the “Corporation” for purposes of the Series A Preferred, shall provide in such written instrument for adjustments to the Conversion Rate which shall be as nearly equivalent as may be practicable to the adjustments provided for in this subdivision (5).

 

(iii) Common Stock Issued at Less Than the Conversion Price . If the Corporation shall issue any Common Stock without consideration or for a consideration per share less than the then applicable Equivalent Preference Amount, the Equivalent Preference Amount shall immediately be reduced to the amount determined by dividing (A) an amount equal to the sum of (1) the number of shares of Common Stock outstanding immediately prior to such issuance multiplied by the Equivalent Preference Amount in effect immediately prior to such issuance and (2) the consideration, if any, received by the Corporation upon such issuance, by (B) the total number of shares of Common Stock outstanding immediately after such issuance. The Equivalent Preference Amount at any time shall be the value that results when the liquidation preference of one share of Series A Preferred is multiplied by the Conversion Rate in effect at that time; thus the Conversion Rate applicable after the adjustment in the Equivalent Preference Amount provided by this part (iii) shall be the figure that results when the adjusted Equivalent Preference Amount is divided by the liquidation preference of one share of Series A Preferred.

 

For the purpose of determining the date on which an adjustment to the Conversion Rate pursuant to this part (iii) shall take effect, the Conversion Rate shall be adjusted as of the earlier of (x) the date, if any, on which the Corporation shall enter into a firm contract for the issuance of such shares of Common Stock, or securities convertible into or exchangeable or exercisable for shares of Common Stock, or (y) the date of actual issuance of such shares of Common Stock or such other securities.

 

For the purposes of any adjustment of the Conversion Rate pursuant to this part (iii), the following provisions shall also be applicable:

 

(A) Cash . In the case of the issuance of Common Stock for cash, the amount of the consideration received by the Corporation shall be deemed to be the amount of the cash proceeds received by the Corporation for such Common Stock before deducting therefrom any discounts, commissions, taxes or other expenses allowed, paid or incurred by the Corporation for any underwriting or otherwise in connection with the issuance and sale thereof.

 

(B) Consideration Other Than Cash . In the case of the issuance of Common Stock (otherwise than upon the conversion of shares of capital stock or other securities of the Corporation) for a consideration in whole or in part other than cash, including securities acquired in exchange therefor (other than securities by their terms so exchangeable), the consideration other than cash shall be deemed to be the fair value thereof as determined by the Board of Directors, irrespective of any accounting treatment; provided that such fair value as determined by the Board of Directors shall not exceed the aggregate current market price of the shares of Common Stock being issued as of the date the Board of Directors authorizes the issuance of such shares.

 

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(C) Options and Convertible Securities . In the case of the issuance of (x) options, warrants or other rights to purchase or acquire Common Stock (whether or not at the time exercisable), (y) securities by their terms convertible into or exchangeable for Common Stock (whether or not at the time so convertible or exchangeable) or (z) options, warrants or rights to purchase such convertible or exchangeable securities (whether or not at the time exercisable):

 

(1) the aggregate maximum number of shares of Common Stock deliverable upon exercise of such options, warrants or other rights to purchase or acquire Common Stock shall be deemed to have been issued at the time such options, warrants or rights were issued and for a consideration equal to the consideration (determined in the manner provided in subparts (A) and (B) above), if any, received by the Corporation upon the issuance of such options, warrants or rights plus the minimum purchase price provided in such options, warrants or rights for the Common Stock covered thereby;

 

(2) the aggregate maximum number of shares of Common Stock deliverable upon conversion of or in exchange for any such convertible or exchangeable securities, or upon the exercise of options, warrants or other rights to purchase or acquire such convertible or exchangeable securities and the subsequent conversion or exchange thereof, shall be deemed to have been issued at the time such securities were issued or such options, warrants or rights were issued and for a consideration equal to the consideration, if any, received by the Corporation for any such securities and related options, warrants or rights (excluding any cash received on account of accrued interest or accrued dividends), plus the additional consideration (determined in the manner provided in subparts (A) and (B) above), if any, to be received by the Corporation upon the conversion or exchange of such securities, or upon the exercise of any related options, warrants or rights to purchase or acquire such convertible or exchangeable securities and the subsequent conversion or exchange thereof.

 

(3) on any change in the number of shares of Common Stock deliverable upon exercise of any such options, warrants or rights or conversion or exchange of such convertible or exchangeable securities or any change in the consideration to be received by the Corporation upon such exercise, conversion or exchange (the “Change in Number or Consideration”), including, but not limited to, a change resulting from the anti-dilution provisions thereof, the Conversion Rate as then in effect shall forthwith be readjusted to such Conversion Rate as would have been obtained had an adjustment been made upon the issuance of such options, warrants or rights not exercised prior to the Change in Number or Consideration, or of such convertible or exchangeable securities not converted or exchanged prior to the Change in Number or Consideration, upon the basis of the Change in Number or Consideration;

 

(4) on the expiration or cancellation of any such options, warrants or rights, or the termination of the right to convert or exchange such convertible or exchangeable securities, if the Conversion Rate shall have been adjusted upon the issuance thereof, the Conversion Rate shall forthwith be readjusted to such Conversion Rate as would have been obtained had an adjustment been made upon the issuance of such options, warrants, rights or such convertible or exchangeable securities on the basis of the issuance of only the number of shares of Common Stock actually issued upon the exercise of such options, warrants or rights, or upon the conversion or exchange of such convertible or exchangeable securities; and

 

(5) if the Conversion Rate shall have been adjusted upon the issuance of any such options, warrants, rights or convertible or exchangeable securities, no further adjustment of the Conversion Rate shall be made for the actual issuance of Common Stock upon the exercise, conversion or exchange thereof.

 

(iv) Whenever the Conversion Rate shall be adjusted as herein provided, the Corporation shall compute the adjusted Conversion Rate in accordance with such provisions and shall prepare a certificate signed by its President, any Vice-President or the Chief Financial Officer setting forth the adjusted Conversion Rate and showing in reasonable detail the facts upon which such adjustment was based and shall mail such certificate to the Registered Holders of the Series A Preferred.

 

(6) Reservation of Shares . The Corporation shall at all times reserve and keep available out of its authorized and unissued shares of Common Stock, solely for the purpose of effecting the conversion of the Series A Preferred, such number of shares as shall from time to time be sufficient to effect the conversion of all shares of Series A Preferred from time to time outstanding, and, if at any time the number of shares of Common Stock remaining unissued are not sufficient to permit the conversion of all the then-outstanding shares of Series A Preferred, the Corporation shall take such action as is necessary to increase the authorized amount of Common Stock to such number of shares as shall be sufficient for such purposes.

 

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(b) Other Series or Classes of Preferred Stock . Shares of an additional Preferred Stock may be issued from time to time in one or more series, each such series to have such distinctive designation or title as may be stated and expressed in this Article IV or as may be fixed by the Board of Directors prior to the issuance of any shares thereof. Each such series of Preferred Stock shall have such voting powers, full or limited, or no voting powers, and such designations, preferences and such relative, participating, optional or other special rights (including, without limitation, the right to convert the shares of such Preferred Stock into shares of the Corporation’s Common Stock at such rate and upon such terms and conditions as may be fixed by the Corporation’s Board of Directors), with such qualifications, limitations, or restrictions of such preferences or rights as shall be stated and expressed in this Article IV or in the resolution or resolutions providing for the issue of such series of Preferred Stock as may be adopted from time to time by the Board of Directors prior to the issuance of any shares thereof, in accordance with the laws of the State of Delaware.

 

Except as may be otherwise provided in this Article IV or in the resolution or resolutions providing for the issue of a particular series, the Board of Directors may from time to time increase the number of shares of any series already created by providing that any unissued shares of Preferred Stock shall constitute part of such series, or may decrease (but not below the number of shares thereof then outstanding) the number of shares of any series already created by providing that any unissued shares previously assigned to such series shall no longer constitute part thereof.

 

All shares of Preferred Stock of all series shall be of equal rank and be identical in all respects except in respect to the particulars which may be fixed by the Board of Directors as provided in this Article IV.

 

(c) Common Stock .

 

(1) After the requirements with respect to the preferential dividends of the Preferred Stock shall be met, and after the Corporation shall have complied with all of the requirements, if any, with respect to the setting aside of sums for redemption, the holders of Common Stock shall be entitled to receive such dividends as may be declared from time to time by the Board of Directors.

 

(2) After distribution in full of the preferential amounts required to be distributed to the holders of the Preferred Stock and to the holders of any class of stock of the Corporation ranking as to distribution of assets senior to the Common Stock, in the event of voluntary or involuntary liquidation or dissolution or winding-up of the Corporation, the holders of the Common Stock shall be entitled to receive all of the remaining assets of the Corporation, tangible and intangible, of whatever kind available to distribution to stockholders ratably in proportion to the number of shares of Common Stock held by them, respectively.

 

(3) Each holder of record of Common Stock shall have the right to vote each share of Common Stock standing in his name on the record books of the Corporation. Except as otherwise provided herein or in any Certificate of Designations, Preferences and Rights of Preferred Stock filed in the Office of the Secretary of State of the State of Delaware, or otherwise as required by law, the holders of Preferred Stock and the holders of Common Stock shall vote together as one class on all matters.

 

ARTICLE V

 

The Corporation is to have perpetual existence.

 

ARTICLE VI

 

The Board of Directors is authorized to make, alter or repeal the Bylaws of the Corporation, to fix the amount reserved as working capital, and to authorize and cause to be executed, mortgages and liens without limit as to the amount upon the property and franchise of this corporation.

 

With the consent in writing, and pursuant to a vote of the holders of a majority of the capital stock issued and outstanding, the Directors shall have the authority to dispose, in any manner, of the whole property of the Corporation.

 

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ARTICLE VII

 

The Corporation shall indemnify, in the manner and to the full extent permitted by law, any person (or the estate of any person) who was or is a party, or is threatened to be made a party to, any threatened, pending or completed action, suit or proceeding, whether or not by or in the right of the Corporation, and whether civil, criminal, administrative, investigative or otherwise, by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise. Where required by law, the indemnification provided for herein shall be made only as authorized in the specific case upon a determination in the manner provided by law, that indemnification of the director, officer, employee or agent is proper under the circumstances. The Corporation may, to the full extent permitted by law, purchase and maintain insurance on behalf of any such person against any liability which may be asserted against him. To the full extent permitted by law, the indemnification provided herein shall include expenses (including attorneys’ fees) in any action, suit or proceeding, or in connection with any appeal therein, judgments, fines and amounts paid in settlement, and in the manner provided by law any such expenses may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding. The indemnification provided herein shall not be deemed to limit the right of the Corporation to indemnify any other person for any such expense to the full extent permitted by law, nor shall it be deemed exclusive of any other rights to which any person seeking indemnification from the Corporation may be entitled under any agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office.

 

To the extent permitted by law, no director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director’s duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) under section 174 of the Delaware General Corporation Law; or (iv) for any transaction from which the director derived an improper personal benefit.

 

ARTICLE VIII

 

The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation in the manner now or hereafter prescribed by law.

 

ARTICLE IX

 

A. Number, Election and Term of Directors . The number of Directors of the Corporation shall be fixed from time to time by or pursuant to the By-laws. Each director who is serving as a director on the date of this Amendment (October 20, 2005) shall hold office until the next annual meeting of stockholders after such date and until his or her successor has been duly elected and qualified, notwithstanding that such director may have been elected for a term that extended beyond the date of such next annual meeting of stockholders. At each annual meeting of stockholders after the date of this Amendment (October 20, 2005), the Directors elected at such annual meeting shall hold office for a term expiring at the next annual meeting of stockholders to be held in the year following the year of their election, with the members to hold office until their successors are elected and qualified.

 

B. Newly Created Directorship and Vacancies . Newly created directorships resulting from any increase in the number of Directors and any vacancies on the Board of Directors resulting from the death, resignation, disqualification, or removal of a director shall be filled solely by the affirmative vote of the majority of the remaining Directors then in office, even though less than a quorum of the Board of Directors. Any Director elected (a) to fill any vacancy resulting from the death, resignation, disqualification or removal of a Director shall hold office for the remainder of the full term of the Director whose death, resignation, disqualification or removal created such vacancy or (b) to fill any vacancy resulting from a newly created directorship shall hold office until the next annual meeting of stockholders and, in each case, until such Director’s successors shall have become elected and qualified. No decrease in the number of Directors constituting the Board of Directors shall shorten the term of any incumbent Director.

 

C. Removal . Subject to the rights of any Preferred Stock to elect directors under specified circumstances, any director may be removed from office, with or without cause, and only by the affirmative vote of the holders of 80% of the combined voting power of the then outstanding shares of stock entitled to vote generally in the election of directors, voting together as a single class.

 

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ARTICLE X

 

Any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders. Except as otherwise required by law and subject to the rights of the holders of Preferred Stock, special meetings of stockholders of the Corporation may be called only by the Board of Directors pursuant to a resolution approved by a majority of the entire Board of Directors. Notwithstanding anything contained in this Restated Certificate of Incorporation to the contrary, the affirmative vote of the holders of at least 80% of the voting power of all shares of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to after, amend, adopt any provision inconsistent with or repeal this Article X.

 

ARTICLE XI

 

(a) Except as otherwise provided in this Article XI, no purchase by the Corporation from any Controlling Person (as hereinafter defined) of shares of any stock of the Corporation owned by such Controlling Person shall be made at a price exceeding the average price paid by such Controlling Person for all shares of stock of the Corporation acquired by such Controlling Person during the two-year period preceding the date of such proposed purchase unless such purchase is approved by the affirmative vote of not less than a majority of the voting power of the shares of stock of the Corporation entitled to vote held by Disinterested Stockholders (as hereinafter defined).

 

(b) The provisions of this Article XI shall not apply to (i) any offer to purchase made by the Corporation which is made on the same terms and conditions to the holders of all shares of stock of the Corporation, (ii) any purchase by the Corporation of shares owned by a Controlling Person occurring after the end of two years following the date of the last acquisition by such Controlling Person of stock of the Corporation, (iii) any transaction which may be deemed to be a purchase by the Corporation of shares of its stock which is made in accordance with the terms of any stock option or other employee benefit plan now or hereafter maintained by the Corporation, or (iv) any purchase by the Corporation of shares of its stock at prevailing market prices pursuant to a stock repurchase program.

 

(c) This Article XI shall not be amended without the affirmative vote of not less than a majority of the stock of the Corporation entitled to vote thereon; provided, however, that if, at the time of such vote, there shall be one or more Controlling Persons, such affirmative vote shall include the affirmative vote in favor of such amendment of not less than a majority of the voting power of the shares of stock of the Corporation entitled to vote thereon held by Disinterested Stockholders.

 

(d) For purposes of this Article XI: (i) the term “Controlling Person” means any individual, corporation, partnership, trust, association or other organization or entity (including any group formed for the purpose of acquiring, voting or holding securities of the Corporation) which either directly, or indirectly through one or more intermediaries, owns, beneficially or of record, or controls by agreement, voting trust or otherwise, at least 10% of the voting power of the stock of the Corporation, and such term also includes any corporation, partnership, trust, association or other organization or entity in which one or more Controlling Persons have the power, through the ownership of voting securities, by contract, or otherwise, to influence significantly any of the management, activities or policies of such corporation, partnership, trust, association, other organization or entity and (ii) the term “Disinterested Stockholders” means those holders of the stock of the Corporation entitled to vote on any matter, none of which is a “Controlling Person.”

 

IN WITNESS WHEREOF, the Corporation has caused this Restated Certificate of Incorporation to be duly executed by its authorized officer this 9th day of August, 2013.

 

  NTN BUZZTIME, INC.
     
  By  

: /s/ Kendra Berger

      Kendra Berger, Chief Financial Officer and Secretary

 

 

 

7

Exhibit 3.2

 

CERTIFICATE OF ELIMINATION

OF THE

SERIES B CONVERTIBLE PREFERRED STOCK,

OF

NTN BUZZTIME, INC.

 

Pursuant to Section 151(g) of

the General Corporation Law of the State of Delaware

 

NTN BUZZTIME, INC., a corporation organized and existing under the laws of the State of Delaware (the “Company”), in accordance with the provisions of Section 151(g) of the General Corporation Law of the State of Delaware, hereby certifies as follows:

 

  1. That, pursuant to the authority conferred upon the Board of Directors of the Company (the “Board”) by the Company’s Restated Certificate of Incorporation, as amended to date (the “Certificate of Incorporation”), and Section 151 of the General Corporation Law of the State of Delaware, the Board previously, by resolutions duly adopted, authorized the issuance of 85,000 shares of Series B Convertible Preferred Stock, par value $0.005 per share (the “Series B Preferred Stock”), in accordance with the provisions of the Certificate of Designations, Preferences and Rights of the Series B Convertible Preferred Stock (the “Certificate of Designations”) as filed with the office of the Secretary of State of the State of Delaware on October 31, 1997.
  2. That no shares of the Series B Preferred Stock are outstanding and no shares thereof will be issued subject to the Certificate of Designations.
  3. That the Board has duly adopted the following resolutions, which resolutions remain in full force and effect as of the date hereof:

 

WHEREAS, as of the date of these resolutions, none of the authorized shares of the Series B Preferred Stock are outstanding, and none will be issued subject to the Certificate of Designations; and

 

WHEREAS, it is desirable that all matters set forth in the Certificate of Designations be eliminated from the Certificate of Incorporation.

 

NOW, THEREFORE, BE IT RESOLVED, that none of the authorized shares of the Series B Preferred Stock are outstanding, and none will be issued subject to the Certificate of Designations.

 

RESOLVED, FURTHER, that the officers of the Company be, and each of them individually hereby is, authorized and directed to prepare, execute and file a certificate of elimination, for and in the name and on behalf of the Company, with the Secretary of State of the State of Delaware setting forth a copy of these resolutions, which shall have the effect when filed with the Secretary of State of the State of Delaware of eliminating from the Certificate of Incorporation all matters set forth in the Certificate of Designations.

 

RESOLVED, FURTHER, that in accordance with the provisions of Section 151 of the General Corporation Law of the State of Delaware, the Certificate of Incorporation is hereby amended to eliminate all references to the Series B Preferred Stock, and the shares that were designated to such series hereby are returned to the status of authorized but unissued shares of the preferred stock of the Company, without designation as to series.

 

RESOLVED, FURTHER, that the officers of the Company be, and each of them individually hereby is, authorized and directed to execute and deliver, for and in the name and on behalf of the Company, any and all certificates, agreements and other documents, and take any and all steps and do any and all things which they may deem necessary or advisable, with the advice of counsel, to effect the purposes of the foregoing resolutions.

 

RESOLVED, FURTHER, that any actions taken by the officers of the Company prior to the date of these resolutions that are within the authority conferred hereby, be, and hereby are, ratified, confirmed and approved in all respects as the act and deed of the Company.

 

  4. That, accordingly, all matters set forth in the Certificate of Designations be, and hereby are, eliminated from the Certificate of Incorporation.

 

IN WITNESS WHEREOF, the Company has caused this Certificate of Elimination to be signed by its duly authorized officer this 9th day of August, 2013.

 

       
    NTN BUZZTIME, INC.  
By:   /s/ Kendra Berger  
       
    Kendra Berger
Chief Financial Officer & Secretary 		 

 

 

1

Exhibit 10.1

 

THIRD AMENDMENT TO

CONSULTING AGREEMENT

DATED AS OF JULY 2, 2012 BETWEEN

NTN BUZZTIME, INC. AND JABAM, INC.

 

 

The following amendment to the above-referenced Agreement between NTN BUZZTIME, INC. and JABAM INC. are made and effective as of July 1, 2013.

 

A. Section 2.1 is amended to read, in its entirety, as follows:

 

The term of this Agreement shall commence on July 1, 2013 (the "Effective Date") and, unless earlier terminated in accordance with Section ‎7 shall expire on September 30, 2013.

 

 

  NTN BUZZTIME, INC.     JABAM, INC.
         
         
By: /s/ Jenna Zdanowski   By: /s/ Jeffrey A. Berg
  Authorized Signature     Authorized Signature
         
  Jenna Zdanowski     Jeffrey A. Berg
  Print Name     Print Name
         
  VP Human Resources     President
  Title     Title
         
  July 1, 2013     July 1, 2013
  Date     Date

 

 

1

Exhibit 10.2

 

 

 

April 12, 2013

 

Kirk Nagamine

1710 N. Filbert Avenue

Clovis, CA 93619

 

Re: Offer of Employment

 

 

Dear Kirk:

 

NTN Buzztime, Inc. ("Buzztime") is pleased to offer you the position of Chief Revenue Officer, reporting to Jeff Berg, Interim Chief Executive Officer. Your anticipated start date will be Monday, April 15, 2013. This offer and your employment relationship will be subject to the terms and conditions of this letter.

 

Your initial salary will be $8,653.85 per pay period ($225,000.00 annualized), less applicable withholdings, paid bi-weekly in accordance with Buzztime's normal payroll practices. Future adjustments in compensation, if any, will be made by Buzztime in its sole and absolute discretion. This position is exempt therefore you will not receive overtime pay if you work more than (8) hours in a workday or (40) hours in a workweek.

 

You will be eligible to participate in Buzztime’s Corporate Incentive Plan ("the Incentive Plan"). The intention of the Incentive Plan is to motivate its participants to focus on and maximize their efforts to achieve Buzztime's corporate goals.

 

Subject to Buzztime's Board of Directors' approval, you will be granted incentive stock options (to the fullest extent allowed under current legal limitations) to purchase 300,000 shares of Buzztime's common stock in accordance with the NTN Buzztime, Inc. 2010 Employee Stock Option Plan (the "Plan") and related option documents. The option will vest over a period of four (4) years and expire at the end of ten (10) years in accordance with the terms of the Plan.

 

Upon commencement of your employment, the company shall reimburse you for your actual and reasonable commuting and relocation costs from Clovis, CA to San Diego, CA metropolitan area. The total amount of reimbursement for commuting and relocation expenses will be the lesser of actual expenses or $25,000. It is expected that your relocation to the San Diego area will be complete no later than July 15, 2013. Portions or possibly all of the commuting and relocation payments may be subject to withholding taxes such as federal, state and local income or other taxes as may be required pursuant to any applicable law or regulation.

 

You will also be eligible for all benefits available to other full-time Buzztime employees, in accordance with Buzztime's benefit plan documents. Such benefits include participation in Buzztime's medical, dental, vision, life and other group insurance programs on the first of the month following your hire date and participation in Buzztime's 401(k) Program with enrollment occurring quarterly on 1/1, 4/1, 7/1 and 10/1. Buzztime reserves the right to change or eliminate these benefits on a prospective basis at any time.

 

 
 

 

If you accept our offer, your employment with Buzztime will be "at-will." This means your employment is not for any specific period of time and can be terminated by you at any time for any reason. Likewise, Buzztime may terminate the employment relationship at any time, with or without cause or advance notice. In addition, Buzztime reserves the right to modify your position, duties or reporting relationship to meet business needs and impose appropriate discipline. Any change to the at-will employment relationship must be by a specific, written agreement signed by you and Buzztime's Chief Executive Officer.

 

This offer is contingent upon the following:

 

- Signing Buzztime's Ethics Policy (See enclosed);

 

- Compliance with federal I-9 requirements (please bring suitable documentation with you on your first day of work verifying your identity and legal authorization to work in the United States);

 

- Satisfactory completion of a background investigation to include criminal, credit, education verification and reference checks;

 

- Signing Buzztime's Arbitration Agreement;

 

This letter, including the enclosed Ethics Policy, constitutes the entire agreement between you and Buzztime relating to this subject matter and supersedes all prior or contemporaneous agreements, understandings, negotiations or representations, whether oral or written, express or implied, on this subject. This letter may not be modified or amended except by a specific, written agreement signed by you and Buzztime's Chief Executive Officer.

 

This offer will expire on April 14, 2013. To indicate your acceptance of Buzztime's offer on the terms and conditions set forth in this letter, please sign and date this letter in the space provided below and return it to Human Resources no later than 4/14/13.

 

We hope your employment with Buzztime will prove mutually rewarding, and I look forward to having you join us.

 

Sincerely,

 

/s/ Jeff Berg

 

Jeff Berg

Interim Chief Executive Officer

 

 

I have read this offer letter in its entirety and agree to the terms and conditions of employment. I understand and agree that my employment with Buzztime is at-will, which means either you or Buzztime may terminate the employment relationship at any time with or without cause or advance notice.

 

         
April 14, 2103     /s/ Kirk Nagamine  
Date     Kirk Nagamine  

 

 

 

2

Exhibit 31.1

 

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO

SECURITIES EXCHANGE ACT RULES 13a-14(a) AND 15(d)-14(a), AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Jeff Berg, certify that:

 

1. I have reviewed this report on Form 10-Q of NTN Buzztime, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

   
Dated: August 14, 2013 /s/ Jeff Berg  
  Jeff Berg
  Interim Chief Executive Officer
  NTN Buzztime, Inc.

  

1

Exhibit 31.2

 

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO

SECURITIES EXCHANGE ACT RULES 13a-14(a) AND 15(d)-14(a), AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Kendra Berger, certify that:

 

1. I have reviewed this report on Form 10-Q of NTN Buzztime, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

   
Dated: August 14, 2013 /s/ Kendra Berger  
  Kendra Berger
  Chief Financial Officer
  NTN Buzztime, Inc.

 

1

Exhibit 32.1

 

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of NTN Buzztime, Inc. (the “Registrant”) on Form 10-Q for the period ended June 30, 2013 (the “Report”), I, Jeff Berg, Interim Chief Executive Officer of the Registrant, do hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

 

(1) the Report, as filed with the Securities and Exchange Commission, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

 

 

   
Dated: August 14, 2013 /s/ Jeff Berg  
  Jeff Berg
  Interim Chief Executive Officer
  NTN Buzztime, Inc.

 

 

 

1

Exhibit 32.2

 

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of NTN Buzztime, Inc. (the “Registrant”) on Form 10-Q for the period ended June 30, 2013 (the “Report”), I, Kendra Berger, Chief Financial Officer of the Registrant, do hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

 

(1) the Report, as filed with the Securities and Exchange Commission, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

 

 

   
Dated: August 14, 2013 /s/ Kendra Berger  
  Kendra Berger
  Chief Financial Officer
  NTN Buzztime, Inc.

 

 

 

1