Eterna Therapeutics (ERNA) 10-K2020 FY Annual report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2020

Commission File Number 1-11460

NTN Buzztime, Inc.

(Exact name of registrant as specified in its charter)

(760) 438-7400

(Registrant’s telephone number, including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [  ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes [  ] No [X]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days. Yes [X] No [  ]

Indicate by check mark whether the registrant submitted electronically every Interactive Data File required to be submitted 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 such files). Yes [X] No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. [  ]

Indicate by check mark whether the registrant is a shell company. Yes [  ] No [X]

The aggregate market value of the common stock held by non-affiliates of the registrant as of the last business day of the registrant’s most recently completed second fiscal quarter (June 30, 2020), computed by reference to the closing sale price of the common stock on the NYSE American on such date, was approximately $5.3 million. Shares of common stock of the registrant held by each executive officer and director of the registrant and by each person who owns 10% or more of the outstanding common stock of the registrant have been excluded in that such persons may be deemed to be affiliates. The determination of affiliate status is not necessarily a conclusive determination for other purposes.

As of March 9, 2021, the registrant had 2,976,774 shares of common stock outstanding.

Documents Incorporated by Reference.

None.

TABLE OF CONTENTS

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K and the documents incorporated herein by reference contain “forward-looking statements” – that is statements related to future events, results, performance, prospects and opportunities, including statements related to our strategic plans and targets, revenue generation, product availability and offerings, capital needs, capital expenditures, industry trends and our financial position. Forward-looking statements are based on information currently available to us, on our current expectations, estimates, forecasts, and projections about the industries in which we operate and on the beliefs and assumptions of management. Forward looking statements often contain words such as “expects,” “anticipates,” “could,” “targets,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “may,” “will,” “would,” and similar expressions. In addition, any statements that 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. Forward-looking statements by their nature address matters that are, to different degrees, subject to risks and uncertainties that could cause actual results to differ materially and adversely from those expressed in any forward-looking statements. For us, particular factors that might cause or contribute to such differences include: (1) the risk that the conditions to the closing of the sale of all of our right, title and interest in and to the assets relating to our business of licensing our interactive entertainment network and services and the tablets and related equipment used therein pursuant to the asset purchase agreement dated September 18, 2020 we entered into with eGames.com Holdings, LLC, or the merger contemplated by the agreement and plan of merger and reorganization we entered into with Brooklyn Immunotherapeutics LLC dated as of August 12, 2020, are not satisfied, including the failure to timely or at all obtain stockholder approval for such transactions; (2) uncertainties as to the timing of the consummation of the proposed asset sale or merger and the ability of the parties to consummate either or both of such transactions; (3) risks related to our ability to correctly estimate our operating expenses and our expenses associated with the proposed asset sale or merger; (4) unexpected costs, charges or expenses resulting from the proposed asset sale or merger; (5) if the proposed asset sale or merger is not consummated, our ability to raise substantial capital in the very near-term to allow us to maintain operations and sustain the negative impact of the COVID-19 pandemic on our business and financial condition, and if we are able to sustain such impact, our ability to recover from the impact; (6) our ability to successfully manage our liquidity and our working capital deficit by managing the timing of payments to our third parties; (7) when, and the extent to which, the negative impact of the pandemic will improve, including when a substantial majority of restaurants across the U.S. and Canada will be permitted to offer on-site dining and operate at or close to pre-pandemic levels or when a substantial majority of bars across the U.S. and Canada will be permitted to re-open and operate at or close to pre-pandemic levels, when our customers will re-open, or if they will subscribe to our service if and when they do; (8) the negative impact that measures we implemented and may implement to reduce our operating expenses and planned capital expenses (including investments in our business) may have on our ability to effectively manage and operate our business; (9) our ability to maintain or grow our revenue; and (10) the other risks and uncertainties described in Part I, Item 1A “Risk Factors” of this report and described in other documents we file from time to time with the Securities and Exchange Commission, or SEC, including our Quarterly Reports on Form 10-Q.

Readers are urged not to place undue reliance on the forward-looking statements in this report or incorporated by reference herein, which speak only as of the date of this report. We are including this cautionary note to make applicable, and take advantage of, the safe harbor provisions of the Forward-Looking Statements Safe Harbor.

We believe that the expectations reflected in forward-looking statements in this report or incorporated herein by reference are based upon reasonable assumptions at the time made. However, given the risks and uncertainties, you should not rely on any forward- looking statements as a prediction of actual results, developments or other outcomes. You should read these forward-looking statements with the understanding that we may be unable to achieve projected results, developments or other outcomes and that actual results, developments or other outcomes may be materially different from what we expect. You are cautioned not to place undue reliance on these forward-looking statements.

We intend forward-looking statements to speak only as of the time they are made. Except as required by law, we do not undertake, and expressly disclaim any obligation, to disseminate, after the date hereof, any updates or revisions to any such forward-looking statements to reflect any change in expectations or events, conditions or circumstances on which any such statements are based.

Unless otherwise indicated, references in this report: (a) to “Buzztime,” “NTN,” “we,” “us” and “our” refer to NTN Buzztime, Inc. and its consolidated subsidiaries; (b) to “network subscribers,” “customers,” or “partners” refer to venues that subscribe to our network service; (c) to “consumers,” “patrons” or “players” refer to the individuals that engage in our games, events, and entertainment experiences available at venues and (d) to “venues” or “sites” refer to locations (such as a bar or restaurant) of our customers at which our games and entertainment experiences are available to consumers.

PART I

ITEM 1. Business

Proposed Merger and Asset Sale

Proposed Merger with Brooklyn Immunotherapeutics LLC

On August 12, 2020, we entered into an agreement and plan of merger and reorganization (the “Merger Agreement”) with Brooklyn Immunotherapeutics LLC (“Brooklyn”), a privately-held, biopharmaceutical company focused on exploring the role that cytokine-based therapy can have in treating patients with cancer. Pursuant to the Merger Agreement, subject to the satisfaction or waiver of the conditions set forth in the agreement, BIT Merger Sub, Inc., our wholly-owned subsidiary formed solely for purposes of carrying out the merger, will merge with and into Brooklyn, with Brooklyn surviving the merger as a wholly-owned subsidiary of our company and Brooklyn’s members receiving newly issued shares of our common stock in exchange for their ownership interests in Brooklyn (the “Merger”). The Merger, if completed, will result in a change in control of NTN as described below. The Merger is expected to close in mid- to late-March 2021.

We filed a registration statement on Form S-4 relating to the Merger and the proposed sale of our assets to eGames.com Holdings LLC (described further below) with the SEC and such registration statement was declared effective on February 3, 2021.

We will be holding our special meeting of stockholders to consider the Merger, the Asset Sale (as defined below) and related proposals on March 15, 2021 at 9:00 a.m., Pacific Time, unless postponed or adjourned to a later date or time. Additional details regarding the proposals and the special meeting are in the proxy statement/prospectus/consent solicitation statement relating to the special meeting filed with the SEC on February 8, 2021 (the “Proxy Statement”).

If the Merger is completed, NTN expects to change its name to Brooklyn ImmunoTherapeutics, Inc. and the combined company will focus on Brooklyn’s business of exploring the role that cytokine-based therapy can have on the immune system in treating patients with cancer. Upon completion of the Merger, the board of directors of the combined company is expected to consist entirely of individuals designated by Brooklyn and the officers of the combined company are expected to be members of Brooklyn’s current management team.

If the Merger is completed, at the effective time of the Merger, Brooklyn’s members will exchange their equity interests in Brooklyn for shares of NTN common stock representing between approximately 94.08% and 96.74% of the outstanding common stock of NTN immediately following the effective time of the Merger on a fully diluted basis (less a portion of such shares which will be allocated to Brooklyn’s banker, Maxim, in respect of the success fee owed to it by Brooklyn), and NTN’s stockholders as of immediately prior to the effective time, will own between approximately 5.92% and 3.26% of the outstanding common stock of NTN immediately after the effective time of the Merger on a fully diluted basis. The exact number of shares to be issued in the Merger will be determined pursuant to a formula in the Merger Agreement that takes into account the amount of Brooklyn’s cash and cash equivalents as of the closing of the Merger and the amount by which NTN’s net cash is less than zero at the closing. The Merger Agreement does not include provisions providing for an adjustment to the total shares of NTN common stock that Brooklyn’s members will be entitled to receive for changes in the market price of NTN common stock.

The Merger Agreement contains customary representations, warranties and covenants made by NTN and Brooklyn, including covenants relating to both parties using their commercially reasonable efforts to cause the transactions contemplated by the Merger Agreement to be satisfied, as well as covenants regarding the conduct of their respective businesses between the date of signing of the Merger Agreement and the closing.

Consummation of the Merger is subject to certain closing conditions including, among others, (i) the approval by our stockholders of the issuance of shares of our common stock to Brooklyn’s members pursuant to the terms of the Merger Agreement and the change of control of NTN resulting therefrom, (ii) the approval of the Merger and the transactions contemplated by the Merger Agreement by the beneficial holders of the Class A membership units of Brooklyn, (iii) the amendment of our certificate of incorporation to provide voting rights to the holders of our Series A Convertible Preferred Stock, (iv) Brooklyn having not less than $10 million in cash and cash equivalents and not more than $750,000 of indebtedness for borrowed money at the closing, (v) our net cast at the closing being not less than negative $3 million, and (vi) the shares of our common stock continuing to be traded on the NYSE American until the effective time of the Merger and the approval for listing of the shares of our common stock to be issued pursuant to the Merger Agreement on the NYSE American. In addition, the obligation of each party to consummate the Merger is also conditioned on the other party’s representations and warranties being true and correct (subject to certain materiality qualifications) and the other party having performed in all material respects its obligations under the Merger Agreement. Each party’s obligations to consummate the Merger are further subject to the absence of a material adverse effect with respect to the other party since the date of the Merger Agreement.

The Merger Agreement contains certain termination rights for each party, including that either party may terminate the Merger Agreement if the Merger has not been consummated by April 30, 2021, subject to extension under specified circumstances. The Merger Agreement also provides that, upon the termination of the Merger Agreement under specified circumstances, NTN or Brooklyn will be required to pay the other party a $750,000 termination fee or reimburse the other party for up to $250,000 of its third party expenses.

The Merger Agreement requires that NTN not solicit proposals relating to alternative transactions and not enter into discussions concerning or provide confidential information in connection with alternative transactions. These restrictions are subject to a “fiduciary out” provision that allows NTN Buzztime under certain limited circumstances to provide confidential information to, enter into discussions and negotiations with, and enter into an alternative transaction with a third party and/or to make a recommendation change adverse to the Merger, which may result in payment of the termination fee described above.

In connection with the Merger and the Merger Agreement, each of our directors and officers and certain beneficial holders of the Class A membership interests of Brooklyn, including the managers and officers of Brooklyn, signed a Support Agreement, made and entered into as of August 12, 2020, among NTN, Brooklyn, and each such person (the “Support Agreements”). Pursuant to the Support Agreements, each director, manager, and officer has agreed that he or she will not, until the termination date of the Merger Agreement, sell or transfer any shares of our common stock or any of the beneficial interests in the Class A membership interests of Brooklyn, respectively, that he or she owns or may acquire prior to the termination of the Merger Agreement. Each such director, manager, and officer has further agreed that he or she will vote all shares of our common stock and all beneficial interests in the Class A membership units in Brooklyn, respectively, owned by such individual in favor of the Merger and the transactions contemplated by the Merger Agreement.

The foregoing description of the Merger Agreement and the Support Agreements do not purport to be complete and is qualified in its entirety by the full text of the agreements, copies of which have been filed with the SEC and are incorporated by reference in this report. The copies of the Merger Agreement and the Support Agreements filed with the SEC provide investors with information regarding its terms. Such copies are not intended to provide any other factual information about NTN or Brooklyn or otherwise to modify or supplement any factual disclosures about NTN in its reports filed with the SEC. The representations, warranties and covenants of each party in the Merger Agreement have been made only for the purposes of, and were and are solely for the benefit of the parties to, the Merger Agreement, may be subject to limitations agreed upon by the contracting parties, and may be subject to standards of materiality applicable to the contracting parties that differ from those generally applicable to SEC filings, and may have been used for purposes of allocating risk among the parties to the Merger Agreement. Certain of the exhibits and schedules that are a part of the Merger Agreement are not filed with the SEC and contain information that modifies, qualifies and creates exceptions to the representations and warranties and certain covenants set forth in the Merger Agreement. Accordingly, the representations and warranties may not describe the actual state of affairs at the date they were made or at any other time, and investors should not rely on them as statements of fact.

Proposed Asset Sale to eGames.com

When NTN announced the signing of the Merger Agreement, NTN also announced that it was continuing to explore the sale of substantially all of the assets relating to its current business to provide additional capital and allow the combined company following the closing of the Merger, if it closes, to be in a position to focus exclusively on Brooklyn’s business.

On September 18, 2020, NTN and eGames.com Holdings LLC (“eGames.com”) entered into an asset purchase agreement (as amended from time to time, the “APA”) pursuant to which, subject to the terms and conditions thereof, NTN will sell and assign (the “Asset Sale”) all of its right, title and interest in and to the assets relating to its current business (the “Purchased Assets”) to eGames.com. The Purchased Assets comprise substantially all of NTN’s assets. At the closing of the Asset Sale, in addition to assuming specified liabilities of NTN, eGames.com will pay NTN $2.0 million in cash. In connection with entering into the APA, the sole owner of eGames.com absolutely, unconditionally and irrevocably guaranteed to NTN the full and prompt payment when due of any and all amounts, from time to time, payable by eGames.com under the APA.

The Asset Sale is expected to close in mid- to late-March 2021. We will be holding our special meeting of stockholders to consider the Merger, the Asset Sale and related proposals on March 15, 2021 at 9:00 a.m., Pacific Time, unless postponed or adjourned to a later date or time. Additional details regarding the proposals and the special meeting are in the Proxy Statement.

In connection with entering into the APA, Fertilemind Management, LLC, an affiliate of eGames.com (“Fertilemind”), on behalf of eGames.com, made a $1.0 million bridge loan to NTN. On November 19, 2020, NTN, eGames.com and Fertilemind entered into an omnibus amendment and agreement pursuant to which, among other things, eGames.com agreed to provide, or cause Fertilemind, on behalf of eGames.com, to provide, an additional $0.5 million bridge loan to NTN on December 1, 2020, and the parties agreed to increase the interest rate on the $1.0 million bridge loan Fertilemind made to NTN in September 2020 from 8% to 10% effective December 1, 2020. Fertilemind provided the $0.5 million bridge loan to NTN on December 1, 2020. On January 12, 2021, NTN, eGames.com and Fertilemind entered into a second omnibus amendment and agreement pursuant to which, among other things, eGames.com agreed to provide, or cause Fertilemind, on behalf of eGames.com, to provide an additional $0.2 million bridge loan to NTN on January 12, 2021. Fertilemind provided the $0.2 million bridge loan to NTN on January 12, 2021. The principal and accrued interest of each of the loans provided by Fertilemind to NTN will be applied toward the $2.0 million purchase price at the closing of the Asset Sale.

The APA contains customary representations, warranties and covenants made by the parties, including covenants relating to both parties using their efforts to cause the transactions contemplated by the APA to be satisfied, and covenants regarding the conduct of NTN’s business between the date the APA was signed and the closing of the Asset Sale.

The closing of the Asset Sale is subject to the satisfaction or waiver of certain closing conditions, including NTN obtaining, as required by Delaware law, the approval of the Asset Sale by the holders of a majority of the outstanding shares of common stock of NTN entitled to vote thereon. Each party’s obligation to close the Asset Sale is also subject to other specified customary conditions, including (1) the representations and warranties of the other party being true and correct (subject to certain materiality qualifications, including qualifications with respect to a material adverse effect), and (2) the performance in all material respects by the other party of its covenants and agreements in the APA required to be performed on or before the closing.

Unless the parties to the APA agree to an earlier date, the closing of the Asset Sale is expected to occur as promptly as practicable after the conditions to closing in the APA are satisfied or waived, and, if the conditions to closing the Merger are satisfied or waived, immediately prior to the closing of the Merger.

Pursuant to the APA, NTN may not, among other things, solicit proposals relating to alternative transactions or enter into discussions concerning or provide confidential information in connection with alternative transactions (with an exception related to the Merger) until the earlier of the termination of the APA and the closing of the Asset Sale. These restrictions are subject to a “fiduciary out” provision that allows NTN under certain limited circumstances to furnish confidential information to, enter into discussions and negotiations with, and enter into an alternative transaction with a third party and/or to make a recommendation change adverse to the Asset Sale, which may result in payment of the termination fee described below.

NTN will be obligated to indemnify eGames.com against specified losses that eGames.com may incur following the Closing, subject to the terms of the APA, including certain thresholds and caps on liability, and $100,000 will be deposited into an escrow account to secure any such indemnification claims.

The APA contains certain termination rights for each party, including that either party may terminate the APA if the asset sale has not been consummated by April 30, 2021, subject to extension under specified circumstances. The APA also provides that, upon the termination of the APA under specified circumstances, NTN will pay eGames.com a $275,000 termination fee.

The foregoing descriptions of the APA, the personal guaranty, and the promissory notes evidencing the bridge loans do not purport to be complete and are qualified in their entirety by the full text of the APA, the personal guaranty, and such notes, copies of which have been filed with the SEC and are incorporated by reference in this report. The APA, the personal guaranty, and such notes provide investors with information regarding its terms. Such documents are not intended to provide any other factual information about NTN or eGames.com or otherwise to modify or supplement any factual disclosures about NTN or eGames.com in their respective reports filed with the SEC. The representations, warranties and covenants of each party in the APA have been made only for the purposes of, and were and are solely for the benefit of the parties to, the APA, may be subject to limitations agreed upon by the contracting parties, and may be subject to standards of materiality applicable to the contracting parties that differ from those generally applicable to SEC filings, and may have been used for purposes of allocating risk among the parties. Certain of the exhibits and schedules that are a part of the APA are not filed with the SEC and contain information that modifies, qualifies and creates exceptions to the representations and warranties and certain covenants in the APA. Accordingly, the representations and warranties may not describe the actual state of affairs at the date they were made or at any other time, and investors should not rely on them as statements of fact.

About Our Business and How We Talk About It

As mentioned above, the Merger and Asset Sale are expected to close in mid- to late-March 2021. If either the Asset Sale or the Merger close, the description of our business contained in this report will no longer be our business following the closing of the Asset Sale and/or Merger. If the Merger is completed, the combined company will focus on Brooklyn’s business of exploring the role that cytokine-based therapy can have on the immune system in treating patients with cancer. If the Asset Sale is completed but the Merger is not completed, NTN’s board of directors may elect to, among other things, attempt to find another reverse merger partner or dissolve and liquidate its assets. Because NYSE Regulation, Inc. may begin delisting proceedings if NTN has no assets or operations, and due to NTN’s limited cash and resources, NTN may be unable to identify and complete another reverse merger and it would likely be required to dissolve and liquidate its assets. In such case, NTN would likely be required to pay all its debts and other obligations and to set aside certain reserves for potential future claims. There can be no assurances as to the amount or timing of available cash, if any, left to distribute to stockholders after paying its debts and other obligations and setting aside funds for reserves.

We deliver interactive entertainment and innovative technology to our partners in a wide range of verticals – from bars and restaurants to casinos and senior living centers. By enhancing the overall guest experience, we believe we help our hospitality partners acquire, engage, and retain patrons.

Through social fun and friendly competition, our platform creates bonds between our hospitality partners and their patrons, and between patrons themselves. We believe this unique experience increases dwell time, revenue, and repeat business for venues – and has also created a large and engaged audience which we connect with through our in-venue TV network. Until the significant disruptions to the restaurant and bar industry resulting from the COVID-19 pandemic, or the pandemic, that began in March 2020, over 1 million hours of trivia, card, sports and arcade games were played on our network each month. Since March 2020, approximately 100,000 hours per month of such games have been played on our network each month.

We generate revenue by charging subscription fees to our partners for access to our 24/7 trivia network, by selling and leasing tablet and hardware equipment for custom usage beyond trivia/entertainment, by selling digital-out-of-home (DOOH) advertising direct to advertisers and on national ad exchanges, by licensing our entertainment and trivia content to other parties, and by providing professional services such as custom game design or development of new platforms on our existing tablet form factor. Until February 1, 2020, we also generated revenue by hosting live trivia events. We sold all our assets used to host live trivia events in January 2020.

We own several trademarks and consider the Buzztime®, Playmaker®, Mobile Playmaker, and BEOND Powered by Buzztime trademarks to be among our most valuable assets. These and our other registered and unregistered trademarks used in this document are our property. Other trademarks are the property of their respective owners.

Recent Developments

The negative impact of the pandemic on the restaurant and bar industry was abrupt and substantial, and our business, cash flows from operations and liquidity suffered, and continues to suffer, materially as a result. In many jurisdictions, including those in which we have many customers and prospective customers, restaurants and bars were ordered by the government to shut-down or close all on-site dining operations in the latter half of March 2020. Since then, governmental orders and restrictions impacting restaurants and bars in certain jurisdictions were eased or lifted as the number of COVID-19 cases decreased or plateaued, but as jurisdictions began experiencing a resurgence in COVID-19 cases, many jurisdictions reinstated such orders and restrictions, including mandating the shut-down of bars and the closing of all on-site dining operations of restaurants. We have experienced material decreases in subscription revenue, advertising revenue and cash flows from operations, which we expect to continue for at least as long as the restaurant and bar industry continues to be negatively impacted by the pandemic, and which may continue thereafter if restaurants and bars seek to reduce their operating costs or are unable to re-open even if restrictions within their jurisdictions are eased or lifted. For example, at its peak, approximately 70% of our customers had their subscriptions to our services temporarily suspended. As of March 9, 2021, approximately 11% of our customers remain on subscription suspensions. As of December 31, 2020, 1,036 customers subscribed to our service, a decrease of 404 customers, or 28%, from the 1,440 subscribers as of December 31, 2019. We believe the year-over-year decrease was primarily due to customers terminating their subscriptions or going out of business relating to the effects of the pandemic on their business.

In response to the impact of the pandemic on our business, we implemented measures to reduce our operating expenses and preserve capital, and we may implement additional measures in the future.

In April 2020, we received a loan of approximately $1,625,000 under the Paycheck Protection Program of the Coronavirus Aid, Relief, and Economic Security Act administered by the U.S. Small Business Administration. The loan matures on April 18, 2022 and bears interest at a rate of 1.0% per annum. We began making monthly interest only payments in November 2020. One final payment of all unforgiven principal plus any accrued unpaid interest is due at maturity. In November 2020, we were informed by our lender that the U.S Small Business Administration approved the forgiveness of approximately $1,093,000 of the $1,625,000 loan, leaving a principal balance of approximately $532,000. For additional information, see the section entitled “Liquidity and Capital Resources—Paycheck Protection Program Loan” in “ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of Part II of this report.

All amounts outstanding under our term loan we entered into with Avidbank in September 2018 were paid in full on December 31, 2020 and we have no further obligations to Avidbank.

In January 2020, we sold all of our assets used to conduct the live hosted knowledge-based trivia events known as Stump! Trivia and OpinioNation for approximately $1.4 million in cash.

Products and Services

Our principal product and service is our interactive entertainment system that offers trivia, card, sports and arcade games through an extended network platform. Generally, as part of the subscription to our platform, we provide the equipment for the platform to network subscribers (including tablets, cases and charging trays for the tablets), though we have also leased such equipment to certain network subscribers. We also monetize our network by offering it as an advertising platform through which parties can advertise their products and services across the thousands of TV and tablet screens in our network. In 2017, we began licensing our content to customers to be installed on equipment they obtain from other parties. In 2018, we began selling the tablets, cases and charging trays for the tablets used in our platform to customers who may not subscribe to our network but who can use the equipment in their business for other purposes. In 2019, we redesigned the personal computer installed in venues to stream our content to televisions and tablets within the venue. The redesigned personal computer, which we call Site Hub, has a smaller form factor (about the size of a deck of cards) compared to our historical personal computer. During the second quarter of 2019, we began field testing a lower cost, entry-level tablet product offering that we call Buzztime Basic. The brains behind Buzztime Basic is Site Hub. We have deployed Buzztime Basic on a market-by-market basis and as of March 9, 2021, we were in approximately 212 locations. In 2019, we also released our mobile trivia app, allowing our customers’ patrons to play our trivia games on their mobile devices in addition to on our tablets. The app is the primary means of playing our trivia games in Buzztime Basic.

During the first quarter of 2019, we rolled out our new, modernized advertising system, which gives us access to ad buying platforms where digital advertising inventory is bought and sold on public exchanges and private marketplaces. We work with advertising sales companies to help us improve our advertisement sales and with an advertisement technology company to improve our ad loading, management, and delivery and testing capabilities. We can use advertising to monetize Buzztime Basic, as well as our entire network. We had quarter-over-quarter advertising sales and revenue growth during 2019. In 2020, our advertising sales and revenue was materially adversely impacted as a result of the pandemic.

Our primary network subscribers are bars and restaurants in North America, which we target directly through our internal sales organization. In April 2016, we began offering our platform in adjacent markets, such as senior centers and casinos, which we target through third parties who have existing business relationships with potential customers in such markets.

We primarily develop the content and functionality available through our platform internally. We use an Android-based tablet customized to our specifications by a single unaffiliated third-party manufacturer. Such third-party also manufactures the cases and charging trays for the tablets and sources the raw materials used to manufacture those cases and trays.

Competition

We face direct competition in venues and face competition for total entertainment and marketing dollars in the marketplace from other companies offering similar content and services. A relatively small number of direct competitors are active in the hospitality marketing services and entertainment markets, including UpShow, The Chive and other broadcast entertainment service providers. Competing forms of technology, entertainment, and marketing available in hospitality venues include games, apps and other forms of entertainment offerings available directly to consumers on their smart phones and tablets, on-table bar and restaurant entertainment systems, music and video-based systems, live entertainment and live trivia games, cable, satellite and pay-per-view programming, coin-operated single-player games/amusements, and traffic-building promotions like happy hour specials.

Significant Customer

The table below sets forth the approximate amount of revenue we generated from Buffalo Wild Wings corporate-owned restaurants and its franchisees during the years ended December 31, 2020 and 2019, and the percentage of total revenue that such amount represents for such periods. The decrease reflects the loss of 1,088 Buffalo Wild Wings corporate-owned restaurants and franchisees in November 2019, when their agreements with us terminated in accordance with their terms.

As of December 31, 2020 and 2019, approximately $108,000 and $158,000, respectively, was included in gross accounts receivable from Buffalo Wild Wings corporate-owned restaurants and its franchisees.

Backlog

We generally do not have a significant backlog because we normally can deliver and install new systems within the delivery schedule requested by customers (generally within three to four weeks).

Licensing, Trademarks, Copyrights and Patents

A majority of the gaming content available on our platform is internally developed. The balance is licensed from third parties. We also license third party content for our pay-to-play and free-to-consumer games lobby. The amounts paid for such third-party licensed content was not material during either of the years ended December 31, 2020 or 2019.

Our intellectual property assets, including patents, trademarks, and copyrights, are important to our business and, accordingly, we actively seek to protect the proprietary technology we consider important to our business. No single patent or copyright is solely responsible for protecting our products.

We keep confidential as trade secrets our technology, know-how and software. Most of the hardware we use in our platform is purchased from a third party and customized for use with our service. We enter into agreements with third parties with whom we conduct business, which contain provisions designed to protect our intellectual property and to limit access to, and disclosure of, our proprietary information. We also enter into confidentiality and invention assignment agreements with our employees and contractors.

We believe the duration of our patents is adequate relative to the expected lives of our products. We consider the following United States and Canadian patents to be important to the protection of our products and service:

We have trademark protection for the names of our key proprietary programming, products, and services to the extent that we believe trademark protection is appropriate. We are expanding our efforts to protect these investments. We consider the Buzztime, Playmaker, Mobile Playmaker and PlayersPlus trademarks and our other related trademarks to be valuable assets, and we seek to protect them through a variety of actions. Our content, branding, and some of our game titles, such as Countdown, SIX, and Showdown are also protected by copyright and trademark law.

Government Regulations

The cost of compliance with federal, state, and local laws has not had a material effect on our capital expenditures, earnings, or competitive position to date. In December 2012, we received approval from the Federal Communications Commission, or the FCC, for our tablet charging trays, and in September 2015, we received FCC approval for our third-generation tablet cases with and without payment electronics. The tablets we currently use have been certified by its manufacturer.

In addition to laws and regulations applicable to businesses generally, we are also subject to laws and regulations that apply directly to the interactive entertainment and product marketing industries. Additionally, state and federal governments may adopt additional laws and regulations that address issues related to certain aspects of our business such as:

As part of our service, we operate games of chance and skill, including several interactive card games, such as Texas Hold’em poker. These games are subject to regulation in many jurisdictions, and some games are restricted in certain jurisdictions. The laws and regulations that govern these games, however, vary from jurisdiction to jurisdiction and are subject to legislative and regulatory change, as well as law enforcement discretion. Most of our games are played solely for fun and winner recognition, however, we recently began awarding nominal cash prizes to winners of certain trivia competitions. We may find it necessary to eliminate, modify, or cancel certain of our offerings in certain jurisdictions based on changes in law, regulations and law enforcement discretion, which could result in additional development costs and/or the possible loss of customers and revenue.

Web Site Access to SEC Filings

Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, and proxy statements and other information we file or furnish pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are available on our website at www.buzztime.com/business/investor-relations/ under the heading SEC Filings as soon as reasonably practicable after we electronically file such reports with, or furnish them to, the SEC. In addition, we make available on that same website under the heading Corporate Governance our (i) our code of conduct and ethics; (ii) our corporate governance guidelines; and (iii) the charter of each active committee of our board of directors. We intend to disclose any amendment to, or a waiver from, a provision of our code of conduct and ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions and that relates to any element of the code of ethics definition enumerated in paragraph (b) of Item 406 of Regulation S-K by posting such information on that website.

The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding companies that file electronically with the SEC, including our company.

Employees

As of March 9, 2021, we had 22 full-time employees. We also engage independent contractors for specific projects. None of our employees are represented by a labor union, and we believe our employee relations are satisfactory.

Our Corporate History

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

ITEM 1A. Risk Factors

Our business, financial condition and operating results can be affected by several factors, whether currently known or unknown, many of which are not exclusively within our control, including but not limited to those described below, any one or more of which could, directly or indirectly, cause our financial condition and operating results to differ materially from historical or anticipated future financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect our business, financial condition, operating results and stock price. We urge investors to carefully consider the risk factors described below in evaluating our stock and the information in this report.

Risks Related to the Merger

The formula for determining the number of shares to be issued in the Merger to Brooklyn members is not adjustable based on the market price of NTN’s common stock, so the number of shares of NTN common stock that may be issued in the Merger may have a greater or lesser value than at the time the Merger Agreement was signed.

The Merger Agreement has set the formula for determining the number of shares to be issued to Brooklyn’s members in the Merger, and the number of shares to be so issued is only adjustable upward or downward under certain circumstances pursuant to a formula in the Merger Agreement that takes into account the amount of Brooklyn’s cash and cash equivalents as of the closing of the Merger and the amount by which NTN’s net cash is less than zero at the closing. Any changes in the market price of NTN common stock before the completion of the Merger will not affect the number of shares of NTN common stock that Brooklyn members will be entitled to receive pursuant to the Merger Agreement. Therefore, if before the completion of the Merger the market price of NTN common stock declines from the market price on the date of the Merger Agreement, then Brooklyn members could receive merger consideration with substantially lower value for their equity interests in Brooklyn than the value of NTN common stock based on the market price on the date of the Merger Agreement. Similarly, if before the completion of the Merger the market price of NTN common stock increases from the market price on the date of the Merger Agreement, then Brooklyn members could receive merger consideration with substantially more value for their equity interests in Brooklyn than the value of NTN common stock based on the market price on the date of the Merger Agreement. Because the formula does not adjust as a result of changes in the value of NTN common stock, for each one percentage point that the market value of NTN common stock rises or declines, there is a corresponding one percentage point rise or decline, respectively, in the value of the total merger consideration issued to Brooklyn members compared to the market price of the NTN common stock on the date of the Merger Agreement.

The number of shares to be issued in the Merger to Brooklyn members will increase to the extent that Brooklyn has more than $10.0 million in cash and cash equivalents at the closing of the Merger, and will further increase to the extent that NTN’s net cash at the closing of the Merger is less than zero dollars. The increase based on the amount of Brooklyn’s cash and cash equivalents at the closing of the Merger is subject to a $15.0 million cap, except that to the extent that NTN’s net cash is less than zero, the number of shares to be issued in the Merger to Brooklyn members will increase to the extent that Brooklyn has more than $15.0 million in cash and cash equivalents at the closing, up to the absolute amount of NTN’s net cash. Accordingly, NTN’s stockholders could own less, and Brooklyn members could own more, of the combined company depending on the amount of cash and cash equivalents Brooklyn has at the closing and on the extent to which NTN’s net cash at the closing is negative.

If the conditions to closing the Merger are not satisfied, the Merger may not occur.

Even if NTN’s stockholders approve the issuance of NTN common stock pursuant to the Merger Agreement and the change of control resulting therefrom (the “Merger Share Issuance Proposal”) and even if the beneficial holders of the Class A membership interests of Brooklyn approve the Merger and the Merger Agreement, other specified conditions must be satisfied or waived to complete the Merger, including the shares of NTN common stock shall continue to be traded on the NYSE American through the effective time of the Merger, the shares of NTN common stock to be issued pursuant to the Merger Agreement shall have been approved for listing on NYSE American (subject to official notice of issuance), and the NYSE American listing application shall have been approved such that the NTN common stock will continue to trade on the NYSE American after the effective time of the Merger. No assurances can be given that all of the conditions will be satisfied or waived. If the conditions are not satisfied or waived, the Merger may not occur or will be delayed, and NTN and Brooklyn each may lose some or all of the intended benefits of the Merger.

For example, one of the conditions to closing the Merger is that the deficit in NTN’s net cash not exceed $3.0 million. If the Asset Sale is approved by NTN’s stockholders and the Asset Sale closes, NTN expects that it will satisfy this closing condition. However, NTN has limited cash on hand and its cash flow from operations has suffered as result of the COVID-19 pandemic and any delay in the closing of the Asset Sale and/or the Merger, will increase the risk that NTN will not satisfy this closing condition. See “—Risks Related to NTN Prior to the Merger,” below. Further, if the Asset Sale is not approved by NTN’s stockholders or if the Asset Sale does not close for any other reason, NTN will likely not satisfy this condition. Similarly, another of the conditions to closing the Merger is that Brooklyn have not more than $750,000 in indebtedness for borrowed money at the closing. Although no assurances can be given in this regard, Brooklyn expects that it will satisfy this closing condition.

As another example, one of the conditions to closing the Merger is that, at the closing, Brooklyn have not less than $10 million in cash and cash equivalents on its balance sheet and have not more than $750,000 of indebtedness for borrowed money. As of January 29, 2021, Brooklyn’s indebtedness for borrowed money consisted of (i) assumed notes payable in the amount of $410,000 related to notes assumed in connection with the acquisition of IRX Therapeutics, and (ii) a loan in the amount of $309,905 under the Paycheck Protection Program. With respect to the cash balance sheet requirement, in order to help ensure that Brooklyn meets this condition, Brooklyn has previously engaged in a rights offering to the beneficial holders of its Class A membership interests pursuant to which such beneficial holders who exercised their rights have agreed to make additional contributions to Brooklyn. Such members will exchange the additional membership interests they receive for their contribution for a portion of the shares of NTN common stock issuable to members of Brooklyn in the Merger. Although Brooklyn expects to receive at least $10 million in proceeds from the rights offering, there can be no assurance that these members will contribute what they have contractually agreed to contribute. If these members do not make their committed contributions, Brooklyn may not be able to satisfy the closing condition that it have not less than $10 million in cash and cash equivalents on its balance sheet at the closing of the Merger. If this closing condition is not satisfied, and if NTN does not waive the condition, the Merger will not occur.

Failure to complete the Merger may result in NTN or Brooklyn paying a termination fee to the other party and could significantly harm the market price of NTN’s common stock and negatively affect the future business and operations of both companies.

If the Merger is not completed and the Merger Agreement is terminated under certain circumstances, NTN or Brooklyn may be required to pay the other party a termination fee of $750,000, or reimburse the transaction expenses of the other party, up to a maximum of $250,000. Even if a termination fee is not payable or transaction expenses are not reimbursable in connection with a termination of the Merger Agreement, each of NTN and Brooklyn will have incurred significant legal, financial, advisory, accounting, audit and other general operating expenses, which must be paid whether or not the Merger is completed. Further, if the Merger is not completed, it could significantly harm the market price of NTN common stock and further increase the doubt as to its ability to continue as a going concern. In addition, if the Merger Agreement is terminated and the board of directors of NTN or the board of managers of Brooklyn determines to seek another business combination, there can be no assurance that either NTN or Brooklyn will be able to find a partner and close an alternative transaction on terms that are as or more favorable than the terms set forth in the Merger Agreement.

Certain of the officers and directors of NTN and certain of the officers and managers of Brooklyn have interests in the Merger that are different from the stockholders of NTN and members of Brooklyn, respectively, and that may influence them to support or approve the Merger without regard to the interests of the stockholders of NTN or the members of Brooklyn.

Certain officers and directors of NTN and certain officers and managers of Brooklyn participate in arrangements that provide them with interests in the Merger that are different from the interests of the stockholders of NTN and members of Brooklyn including, among others, the continued service as an officer or director of the combined company, severance benefits, the acceleration of vesting of equity awards, continued indemnification and the potential ability to sell an increased number of shares of common stock of the combined company in accordance with Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”). These interests, among others, may influence the officers and directors of NTN and the officers and managers of Brooklyn to support or approve the Merger.

The market price of NTN common stock following the Merger may decline as a result of the Merger.

The market price of NTN common stock may decline as a result of the Merger for a number of reasons including if:

NTN stockholders and Brooklyn members will have a reduced ownership and voting interest in, and will exercise less influence over the management of, the combined company following the closing of the Merger as compared to their current ownership and voting interest in the respective companies.

After the completion of the Merger, the current stockholders of NTN and the current members of Brooklyn will own a smaller percentage of the combined company than their ownership in the respective companies prior to the Merger. At the effective time of Merger, Brooklyn’s members will exchange their equity interests in Brooklyn for shares of NTN common stock representing between approximately 94.08% and 96.74% of the outstanding common stock of NTN immediately after the effective time of the Merger on a fully diluted basis (less a portion of such shares which will be allocated to Maxim in respect of the success fee owed to it by Brooklyn), and NTN’s stockholders as of immediately prior to the effective time, will own between approximately 5.92% and 3.26% of the outstanding common stock of NTN immediately after the effective time on a fully diluted basis. Consequently, NTN stockholders and Brooklyn members will be able to exercise less influence over the management and policies of the combined company following the closing of the Merger than they currently exercise over the management and policies of their respective companies.

NTN stockholders and Brooklyn members may not realize a benefit from the Merger commensurate with the ownership dilution they will experience in connection with the Merger.

If the combined company is not able to realize the strategic and financial benefits currently anticipated from the Merger, NTN stockholders and Brooklyn members will have experienced substantial dilution of their ownership interests in their respective companies without receiving the expected commensurate benefit, or only receiving part of the commensurate benefit to the extent that the combined company is able to realize only part of the expected strategic and financial benefits currently anticipated from the Merger.

The combined company may need to raise additional capital by issuing securities or debt or through licensing or other arrangements, which may cause dilution to the combined company’s stockholders or restrict the combined company’s operations or impact its proprietary rights. Future issuances of the combined company’s common stock pursuant to options outstanding following the Merger and under its equity incentive plan could result in additional dilution.

The combined company may be required to raise additional funds sooner than currently planned. If either NTN or Brooklyn hold less cash at the time of the closing of the Merger than the parties currently expect, the combined company may need to raise additional capital sooner than expected. Additional financing may not be available to the combined company when needed or it may not be available on favorable terms. To the extent that the combined company raises additional capital by issuing equity securities, such an issuance may cause significant dilution and the terms of any new equity securities may have preferences over the combined company’s common stock. Any debt financing the combined company enters into may include covenants that restrict its operations. These restrictive covenants may include limitations on additional borrowing and specific restrictions on the use of the combined company’s assets, as well as prohibitions on its ability to create liens, pay dividends, redeem its stock or make investments. In addition, if the combined company raises additional funds through licensing, partnering or other strategic arrangements, it may be necessary to relinquish rights to some of the combined company’s technologies or product candidates and proprietary rights, or grant licenses on terms that are not favorable to the combined company.

In addition, the exercise or conversion of some or all of the combined company’s outstanding options (or, after the Merger, the issuance of equity awards under the combined company’s equity incentive plan) could result in additional dilution in the percentage ownership interest of current NTN stockholders and Brooklyn members in the combined company.

During the pendency of the Merger, NTN and Brooklyn may not be able to enter into a business combination with another party at a favorable price because of restrictions in the Merger Agreement, which could adversely affect their respective businesses.

Covenants in the Merger Agreement impede the ability of NTN and Brooklyn to make acquisitions, subject to certain exceptions relating to fiduciary duties, or to complete other transactions that are not in the ordinary course of business pending completion of the Merger. As a result, if the Merger is not completed, the parties may be at a disadvantage to their competitors during such period. In addition, while the Merger Agreement is in effect, each party is generally prohibited from soliciting, initiating, encouraging or entering into certain extraordinary transactions, such as a merger, sale of assets, or other business combination outside the ordinary course of business with any third party, subject to certain exceptions relating to fiduciary duties and, with respect to NTN, other than the asset sale. Any such transactions could be favorable to such party’s securityholders.

Certain provisions of the Merger Agreement may discourage third parties from submitting alternative acquisition proposals, including proposals that may be superior to the arrangements contemplated by the Merger Agreement.

The terms of the Merger Agreement prohibit NTN and Brooklyn from soliciting alternative acquisition proposals or cooperating with persons making unsolicited acquisition proposals, except in limited circumstances where the board of directors of NTN and the board of managers of Brooklyn, as applicable, determines in good faith that an unsolicited alternative acquisition proposal is or is reasonably likely to lead to a superior offer and that failure to cooperate with the proponent of that proposal would reasonably be likely to be inconsistent with the board’s fiduciary duties.

Because the lack of a public market for Brooklyn’s securities makes it difficult to evaluate the value of such securities, the members of Brooklyn may receive shares of NTN common stock in the Merger that have a value that is less than, or greater than, the fair market value of Brooklyn’s securities and/or NTN may pay more than the fair market value of Brooklyn’s securities.

The outstanding securities of Brooklyn are privately held and not traded in any public market. The lack of a public market makes it difficult to determine the fair market value of Brooklyn. Because the percentage of NTN common stock to be issued to Brooklyn members was determined based on negotiations between NTN and Brooklyn, it is possible that the value of NTN common stock to be received by Brooklyn members in the Merger will be less than the fair market value of Brooklyn, or NTN may pay more than the aggregate fair market value for Brooklyn.

Litigation relating to the Merger could require NTN, Brooklyn or the combined company to incur significant costs and suffer management distraction and could delay or enjoin the Merger.

NTN and Brooklyn are subject to litigation relating to the Merger. Such litigation may create uncertainty relating to the Merger, or delay or enjoin the Merger. Litigation is expensive and diverts management’s attention and resources, which could adversely affect NTN’s, Brooklyn’s or the combined company’s business. Insurance may not be sufficient to cover all costs or damages related to this type of litigation.

The ownership of the combined company common stock is expected to be concentrated, which may prevent you and other stockholders from influencing significant corporate decisions and may result in conflicts of interest that could cause the combined company stock price to decline.

Executive officers and directors of the combined company and their affiliates are expected to beneficially own or control approximately 39.7% of the outstanding shares of the combined company common stock immediately following the effective time of the Merger on a fully diluted basis (assuming Brooklyn’s members immediately prior to the effective time of the Merger and Maxim own 94.08% of the outstanding common stock of NTN immediately following the effective time of the Merger on a fully diluted basis). Accordingly, these executive officers, directors and their affiliates, acting as a group, will have substantial influence over the outcome of corporate actions requiring stockholder approval, including the election of directors, any merger, consolidation or sale of all or substantially all of the combined company assets or any other significant corporate transactions. These stockholders may also delay or prevent a change of control of the combined company, even if such a change of control would benefit the other stockholders of the combined company. The significant concentration of stock ownership may adversely affect the trading price of the combined company’s common stock due to investors’ perception that conflicts of interest may exist or arise.

Risks Related to the Asset Sale

While the Asset Sale is pending, it creates unknown impacts on NTN’s future which could materially and adversely affect its business, financial condition and results of operations.

While the Asset Sale is pending, it creates unknown impacts on NTN’s future. Therefore, NTN’s current or potential business partners may decide to delay, defer or cancel entering into new business arrangements with NTN pending consummation of the Asset Sale. The occurrence of these events individually or in combination could materially and adversely affect NTN’s business, financial condition and results of operations.

The failure to consummate the Asset Sale may materially and adversely affect NTN’s business, financial condition and results of operations.

The Asset Sale is subject to various closing conditions including stockholder approval of the Asset Sale Proposal as required under applicable law. NTN cannot control these conditions and cannot assure you that they will be satisfied. If the Asset Sale is not consummated, NTN may be subject to a number of risks, including the following:

The occurrence of any of these events individually or in combination could materially and adversely affect NTN’s business, financial condition and results of operations, which could cause the market value of NTN common stock to decline.

In addition, if the Asset Sale does not close and the Merger does close, the aggregate ownership percentage of the combined company by NTN stockholders will likely decrease due to an increase in the deficit of NTN’s net cash as a result of not receiving the $2.0 million in the Asset Sale.

Failure to complete the Asset Sale may result in NTN paying a termination fee to eGames.com.

If the Asset Sale is not completed and the APA is terminated under certain circumstances, NTN may be required to pay eGames.com a termination fee of $250,000. Even if a termination fee is not payable in connection with a termination of the APA, NTN will have incurred significant legal, financial, advisory, accounting, audit and other general operating expenses, which must be paid whether or not the Asset Sale is completed.

Certain of the officers and directors of NTN have interests in the Asset Sale that are different from the stockholders of NTN and that may influence them to support or approve the Asset Sale without regard to the interests of the stockholders of NTN.

Certain officers and directors of NTN participate in arrangements that provide them with interests in the Asset Sale that are different from the interests of the stockholders of NTN including, among others, change-in-control benefits and the acceleration of vesting of equity awards. These interests, among others, may influence the officers and directors of NTN to support or approve the Asset Sale.

Risks Factors that May Affect Our Business

Our cash flows from operations and liquidity have been materially adversely affected by the effects of the COVID-19 pandemic. We need to raise capital in the near term and/or complete a strategic transaction, and our inability to do so could result in us pursuing a restructuring, which may include a reorganization or bankruptcy under Federal bankruptcy laws, assignment for the benefit of creditors, or a dissolution, liquidation and/or winding up.

The negative impact of the pandemic on the restaurant and bar industry was abrupt and substantial, and our business, cash flows from operations and liquidity suffered, and continues to suffer, materially as a result. In many jurisdictions, including those in which we have many customers and prospective customers, restaurants and bars were ordered by the government to shut-down or close all on-site dining operations in the latter half of March 2020. Since then, governmental orders and restrictions impacting restaurants and bars in certain jurisdictions were eased or lifted as the number of COVID-19 cases decreased or plateaued, but as jurisdictions began experiencing a resurgence in COVID-19 cases, many jurisdictions reinstated such orders and restrictions, including mandating the shut-down of bars and the closing of all on-site dining operations of restaurants. Jurisdictions that have not imposed governmental orders and restrictions on restaurants and bars or reinstated them could do so at any time. At its peak, approximately 70% of our customers had their subscriptions to our services temporarily suspended. As of March 9, 2021, approximately 11% of our customers remain on subscription suspensions, but that percentage could increase, perhaps materially, at any time due to the effects of the pandemic on our customers, including as jurisdictions reinstate governmental orders and restrictions impacting our customers. Even in jurisdictions in which governmental orders and restrictions were eased or lifted, certain of our customers have requested, and others could request, to continue their subscription suspensions because, for example, such customers choose not to re-open despite being permitted to do so. As a result, we have experienced material decreases in subscription revenue, advertising revenue and cash flows from operations, which we expect to continue for at least as long as the restaurant and bar industry continues to be negatively impacted by the pandemic, and which may continue thereafter if restaurants and bars seek to reduce their operating costs or are unable to re-open even if restrictions within their jurisdictions are eased or lifted.

The full extent to which the pandemic will, directly or indirectly, impact our business, results of operations and financial condition is currently highly uncertain, including due to factors that currently are also highly uncertain, including when, and the extent to which, the negative impact of the pandemic will improve, including when a substantial majority of restaurants across the U.S. and Canada will be permitted to offer on-site dining and operate at or close to pre-pandemic levels or when a substantial majority of bars across the U.S. and Canada will be permitted to re-open and operate at or close to pre-pandemic levels, when our customers will re-open, or if they will subscribe to our service if and when they do, the ultimate impact of the pandemic and how long it endures, the impact of the current or future resurgences in COVID-19 cases, and the actions required or recommended to contain or treat COVID-19. However, unless in the very near term our subscription revenue, advertising revenue and cash flows from operations return to pre-pandemic levels and/or we raise substantial capital, the amount of time and the amount of cash we have to maintain operations and sustain the negative effects of the pandemic is very limited.

As of December 31, 2020, we had cash and cash equivalents of approximately $777,000. As of December 31, 2020, $0.5 million of principal was outstanding under the loan we received under the Paycheck Protection Program of the Coronavirus Aid, Relief, and Economic Security Act. In connection with entering into the APA, we received a $1.0 million bridge loan from an affiliate of eGames.com, and on December 1, 2020 and January 12, 2021, we received an additional $0.5 million bridge loan and an additional $0.2 million bridge loan, respectively, from that affiliate, all of which, together with accrued interest, will be applied against the $2.0 million purchase price payable to us at the closing of the Asset Sale; however, if the Asset Sale does not close, we will owe the $1.7 million of principal of those bridge loans plus accrued interest to the affiliate of eGames.com. For additional information regarding these bridge loans, see the section entitled “Liquidity and Capital Resources—Bridge Loans” in “ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of Part II of this report. As a result of the impact of the pandemic on our business and taking into account our current financial condition and our existing sources of projected revenue and our projected subscription revenue, advertising revenue and cash flows from operations, we believe we will have sufficient cash resources to pay forecasted cash outlays only through mid-March 2021, assuming we are able to continue to successfully manage our working capital deficit by managing the timing of payments to our vendors and other third parties.

We expect that the earliest the Asset Sale and the Merger will be completed is the week of March 15, 2021. If the completion of the Asset Sale and the Merger is delayed beyond that week, we will need to raise additional capital to maintain operations through the completion of the Asset Sale and the Merger. We currently have no arrangements for such capital and no assurances can be given that we will be able to raise such capital when needed, on acceptable terms, or at all. The effects of the pandemic on macroeconomic conditions and the capital markets make it more challenging to raise capital. The going concern explanatory paragraph included in the report of our independent registered public accounting firm on our consolidated financial statements as of and for the year ended December 31, 2020 could also impair our ability to raise capital. If we are unable to complete the Merger or the Asset Sale or raise sufficient additional capital in the very near term, we will likely be required to curtail or terminate some or all of our business operations and we may have no choice but to pursue a restructuring, which may include a reorganization or bankruptcy under Federal bankruptcy laws, assignment for the benefit of creditors, or a dissolution, liquidation and/or winding up. In such event, our investors may lose their entire investment.

See also, “The measures we implemented and may implement in the future to reduce operating expenses and to preserve capital could adversely affect our business and we may not realize the operational or financial benefits from such actions,” and “Raising additional capital may cause dilution to our existing stockholders and may restrict our operations,” below.

The measures we implemented and may implement in the future to reduce operating expenses and to preserve capital could adversely affect our business and we may not realize the operational or financial benefits from such actions.

We implemented measures to reduce operating expenses and to preserve capital. Since January 1, 2020, we implemented the following measures:

We may implement additional measures in the future. In addition to distracting management from the core operations of our business, any of these actions may negatively impact our ability to effectively manage, operate and grow our business, to introduce new offerings to our customers, to increase market awareness and encourage the adoption of the Buzztime brand and our Buzztime network, to retain customers, and to generate revenue. For example, the reduction in headcount resulted in the loss of a number of long-term employees, the loss of institutional knowledge and expertise and the reallocation and combination of certain roles and responsibilities across the organization, all of which could adversely affect our operations. In addition, we may not be able to effectively realize all the cost savings anticipated by the reductions in operational costs and we may incur unanticipated charges or make cash payments as a result that were not previously contemplated which could result in an adverse effect on our business or results of operations.

Our success depends on our ability to recruit and retain skilled professionals.

The success of our business depends on our ability to identify, hire, and retain knowledgeable and experienced programmers, creative designers, application developers, and sales and marketing personnel. If we cannot motivate and retain knowledgeable and experienced professionals, our business, financial condition, and results of operations will suffer. There is significant competition from other businesses for individuals with the experience and skills required to successfully operate our business and the recent reductions in headcount and other measures we implemented to reduce operating expenses may decrease the morale of our remaining employees and make retaining them more challenging. Moreover, in light of the small number of employees on our staff to manage our key functions, we may not be able to adequately support current and future business initiatives or attract or retain customers, which risk could be increased if we are unable to retain existing personnel.

We have experienced significant losses and expect to incur significant losses in the future.

We have a history of significant losses, including net losses of $4,415,000 and $2,047,000 for the years ended December 31, 2020 and 2019, respectively, and have an accumulated deficit of $135,888,000 as of December 31, 2020. We expect to incur future operating and net losses, and we may not achieve or maintain profitability. Even if we achieve profitability, the level of profitability cannot be predicted and may vary significantly from quarter to quarter and year to year. See also “—Risks Relating to the Market for NTN Common Stock— Our common stock could be delisted or suspended from trading on the NYSE American if we are determined to be non-compliant with any of the NYSE American continued listing standards,” below.

We may not compete effectively within the highly competitive and evolving interactive games, entertainment and marketing services industries.

We face intense competition in the markets in which we operate. For example, we face significant competition in the hospitality market from companies offering services that compete with ours. Our services also compete with games, apps and other forms of entertainment offerings available directly to consumers on their mobile devices. See “Competition,” above. Many of our current and potential competitors enjoy substantial competitive advantages, including greater financial resources that they can deploy for content development, research and development, strategic acquisitions, alliances, joint ventures, and sales and marketing. As a result, our current and potential competitors may respond more quickly and effectively than we can to new or changing opportunities, technologies, standards, or consumer preferences.

With the rapid pace of change in product and service offerings, we must also be able to compete in terms of technology, content, and management strategy. If we fail to provide competitive, engaging, quality services and products, it will be challenging to gain new customers and we will lose customers to competitors. Increased competition may also result in price reductions, fewer customer orders, reduced gross margins, longer sales cycles, reduced revenue, and loss of market share.

New products and rapid technological change may render our operations obsolete or noncompetitive.

The emergence of new entertainment products and technologies, changes in consumer preferences, the adoption of new industry standards, and other factors may limit the life cycle and market penetration of our technologies, products, and services. Our future performance depends on our ability to:

Our inability to succeed in one or more of the above areas would have a material adverse effect on our financial condition and business.

In addition, we have to incur substantial costs to modify or adapt our products or services to respond to developments, customer needs, and changing preferences. We must be able to incorporate new technologies into the products we design and develop to address the increasingly complex and varied needs of our customer base. Any significant delay or failure in developing new or enhanced technology, including new product and service offerings, would have a material adverse effect on our financial condition and business.

If we do not adequately protect our proprietary rights and intellectual property or we are subjected to intellectual property claims by others, our business could be seriously damaged.

We rely on a combination of trademarks, copyrights, patents, and trade secret laws to protect our proprietary rights in our products. We have a few patents and patent applications pending in jurisdictions related to our business activities. Our pending patent applications and any future applications might not be approved. Moreover, our patents might not provide us with competitive advantages. Third parties might challenge our patents or trademarks or attempt to use infringing technologies or brands which could harm our ability to compete and reduce our revenues, as well as create significant litigation expense. In addition, patents and trademarks held by third parties might have an adverse effect on our ability to do business and could likewise result in significant litigation expense. Furthermore, third parties might independently develop similar products, duplicate our products or, to the extent patents are issued to us, design around those patents. Others may have filed and, in the future may file, patent applications similar or identical to ours. Such third-party patent applications might have priority over our patent applications. To determine the priority of inventions, we may have to participate in interference proceedings declared by the United States Patent and Trademark Office, which could result in substantial cost to us.

We believe that the success of our business also depends on such factors as the technical expertise and innovative capabilities of our employees. It is our policy that all employees and consultants sign non-disclosure agreements and assignment of invention agreements. Our competitors, former employees, and consultants may, however, misappropriate our technology or independently develop technologies that are as good as or better than ours. Our competitors may also challenge or circumvent our proprietary rights. If we have to initiate or defend against an infringement claim to protect our proprietary rights, the litigation over any such claim, with or without merit, could be time-consuming and costly to us.

From time to time, we hire or retain employees or consultants who may have worked for other companies developing products similar to those that we offer. These other companies may claim that our products are based on their products and that we have misappropriated their intellectual property. Any such claim, with or without merit, could be time-consuming and costly to us, adversely affecting our financial condition.

We may be liable for the content and services we make available on our Buzztime network and the internet.

We make content and entertainment services available on our Buzztime network and the internet which includes games and game content, software, and a variety of other entertainment content. The availability of this content and services and our branding could result in claims against us based on a variety of theories, including defamation, obscenity, negligence, or copyright or trademark infringement. We could also be exposed to liability for third-party content accessed through the links from our websites to other websites. Federal laws may limit, but not eliminate, our liability for linking to third-party websites that include materials that infringe copyrights or other rights. We may incur costs to defend against claims related to either our own content or that of third parties, and our financial condition could be materially adversely affected if we are found liable for information that we make available. Implementing measures to reduce our exposure may require us to spend substantial resources and may limit the attractiveness of our services to users which would harm our business.

Our products and services are subject to government regulations that may restrict our operations or cause demand for our products to decline significantly.

In addition to laws and regulations applicable to businesses generally, we are also subject to laws and regulations that apply specifically to the interactive entertainment and product marketing industries. In addition, we operate games of chance and skill, and we award nominal cash prizes to winners of certain games and may provide items of nominal value (e.g., key chains, etc.) to venues who may award such items to consumers. These games are regulated in many jurisdictions and the laws and regulations vary from jurisdiction to jurisdiction. See “Government Regulations” above. We may find it necessary to eliminate, modify, suspend, or cancel certain features of our offerings (including the games we offer) in certain jurisdictions based on the adoptions of new laws and regulations or changes in law or regulations or the enforcement thereof, which could result in additional development costs and/or the loss of customers and revenue.

Communication or other system failures could result in customer cancellations and a decrease in our revenues.

We rely on the continuous operation of our information technology and communications systems and those of third parties to communicate with and to distribute our services to the locations of our network subscribers. We currently transmit our data to our customers via broadband internet connections including telephone and cable TV networks. Our systems and those of third parties on which we rely are vulnerable to damage or interruption from many causes, including earthquakes, terrorist attacks, floods, storms, fires, power loss, telecommunications and other network failures, equipment failures, computer viruses, computer denial of service or other attacks. These systems are also subject to break-ins, sabotage, vandalism, and to other disruptions, for example if we or the operators of these systems and system facilities have financial difficulties. Some of our systems are not fully redundant, and our system protections and disaster recovery plans cannot prevent all outages, errors, or data losses. In addition, our services and systems are highly technical and complex and may contain errors or other vulnerabilities. Any errors or vulnerabilities in our products and services, damage to or failure of our systems, any natural or man-made disaster, or other unanticipated problems at our facilities or those of a third party, could result in lengthy interruptions in our service to our customers, which could reduce our revenues and cash flow, and damage our brand. Any interruption in communications or failure of proper hardware or software function at our or our customers’ venues could also decrease customer loyalty and satisfaction and result in a cancellation of our services.

We have incurred significant net operating loss carryforwards that we will likely be unable to use.

At December 31, 2020, we had net operating loss (“NOL”) carryforwards of approximately $5,310,000 available for federal income tax purposes, and of approximately $16,051,000 available for state income tax purposes. There can be no assurance that we will ever be able to realize the benefit of some or all of the federal and state loss carryforwards due to continued operating losses. We performed an analysis as of December 31, 2020 to determine the limitations on our ability to utilize our NOL carryforwards under Section 382 of the Internal Revenue Code of 1986, as amended (“IRC”) resulting from any changes in ownership. This analysis indicates that an ownership change occurred on June 9, 2020 that would limit the use of approximately $61,965,000 of NOLs. Under IRC Section 382 and similar state provisions, ownership changes will limit the annual utilization of net operating loss carryforwards existing prior to a change in control that are available to offset future taxable income. Such limitations have reduced our gross deferred tax assets related to the NOL carryforwards by approximately $11,021,000. We have established a full valuation allowance for substantially all deferred tax assets, including the NOL carryforwards, since we could not conclude that it was more likely than not that we would be able to generate future taxable income to realize these assets.

The Merger will likely result in an ownership change for purposes of Section 382, but no formal analysis has been or is expected to be undertaken in this regard.

Risks Relating to the Market for NTN Common Stock

Our common stock could be delisted or suspended from trading on the NYSE American if we do not regain compliance with continued listing criteria with which we are currently not compliant or if we fail to meet any other continued listing criteria.

In March 2020, we received a letter from NYSE Regulation Inc. stating that we are not in compliance with Section 1003(a)(iii) of the NYSE American Company Guide because we reported stockholders’ equity of less than $6 million as of December 31, 2019 and had net losses in five of our most recent fiscal years ended December 31, 2019. Our stockholders’ equity was $5.1 million as of December 31, 2019. On June 11, 2020, NYSE Regulation notified us that we are not in compliance with Section 1003(a)(ii) of the NYSE American Company Guide because we reported stockholders’ equity of less than $4.0 million as of March 31, 2020 and had net losses in five of our most recent fiscal years ended December 31, 2019.

On June 11, 2020, NYSE Regulation notified us that it has accepted our plan to regain compliance with Section 1003(a)(iii) of the NYSE American Company Guide and granted us a plan period through September 27, 2021 to regain compliance.

On August 12, 2020, NYSE Regulation notified us that we are not in compliance with Section 1003(a)(i) of the NYSE American Company Guide because we reported stockholders’ equity of less than $2.0 million as of June 30, 2020 and had net losses in five of our most recent fiscal years ended December 31, 2019. We continue to be subject to the procedures and requirements of Section 1009 of the NYSE American Company Guide.

The listing of our common stock on the NYSE American is being continued during the plan period pursuant to an extension. The NYSE Regulation staff will review us periodically for compliance with initiatives outlined in our plan. If we are not in compliance with Sections 1003(a)(i), (ii) and (iii) by September 27, 2021 or if we do not make progress consistent with our plan during the plan period, NYSE Regulation staff will initiate delisting proceedings as appropriate.

We can give no assurances that we will be able to address our non-compliance with the NYSE American continued listing standards or, even if we do, that we will be able to maintain the listing of our common stock on the NYSE American. Our common stock could be delisted because we do not make progress consistent with our plan during the plan period, because we do not regain compliance by September 27, 2021, or because we become out of compliance with other NYSE American listing standards. In addition, we may determine to pursue business opportunities that reduces our stockholders’ equity below the level required to maintain compliance with NYSE American continued listing standards. The delisting of our common stock for whatever reason could, among other things, substantially impair our ability to raise additional capital; result in a loss of institutional investor interest and fewer financing opportunities for us; and/or result in potential breaches of representations or covenants in agreements pursuant to which we made representations or covenants relating to our compliance with applicable listing requirements. Claims related to any such breaches, with or without merit, could result in costly litigation, significant liabilities and diversion of our management’s time and attention and could have a material adverse effect on our financial condition, business and results of operations. In addition, the delisting of our common stock for whatever reason may materially impair our stockholders’ ability to buy and sell shares of our common stock and could have an adverse effect on the market price of, and the efficiency of the trading market for, our common stock. See also “If our common stock were delisted and determined to be a ‘penny stock,’ a broker-dealer may find it more difficult to trade our common stock and an investor may find it more difficult to acquire or dispose of our common stock in the secondary market,” below.

The initial listing application to be filed with the NYSE American in connection with the Merger in order to continue the listing of the shares of common stock of the combined company on the NYSE American may not be approved if the combined company does not meet the initial listing standards.

In order to continue the listing of the shares of common stock of the combined company on the NYSE American following the closing of the Merger, the combined company must meet the NYSE American’s initial listing standards and the NYSE American must approve an initial listing application that NTN filed with the NYSE American in early March 2021. Although no assurances can be given that the combined company will meet such initial listing standards or that the NYSE American will approve such application, assuming that the reverse stock split proposal being submitted to NTN’s stockholders at the special meeting is approved, NTN and Brooklyn expect that the combined company will meet the initial listing standard of the NYSE American that requires that: (1) the stockholders’ equity of the combined company be at least $4.0 million; (2) the combined company have a minimum of 800 public shareholders and a minimum of 500,000 shares in the public distribution, or a minimum of 400 public shareholders and a minimum of 1,000,000 shares in the public distribution; (3) the minimum price of the common stock of the combined company be at least $3.00 per share; and (4) the minimum market value of publicly held shares be at least $15.0 million. For purposes of the foregoing, “public shareholders” means the stockholders of the combined company other than its officers, directors, controlling stockholders and other concentrated (i.e. 10% or greater) stockholders and their respective affiliates, and “public distribution” and “publicly held shares” means the outstanding shares of common stock of the combined company held by public shareholders. If the reverse stock split proposal is not approved by NTN stockholders, the combined company may not meet the requirement that the minimum price of the common stock of the combined company be at least $3.00 per share. If that requirement or any other initial listing standard requirement is not met, the NYSE American will not approve the initial listing application and the shares of common stock of the combined company will not be listed on the NYSE American following the closing of the Merger. If Brooklyn waives the conditions to closing the Merger relating to the continued listing of the common stock on the NYSE American and the Merger closes, the shares of the combined company would not be listed on a national securities exchange immediately following the closing of the Merger, which could have a material adverse effect on the combined company and its stockholders. See “If the NYSE American does not approve the initial listing application to be filed with it in connection with the Merger, the Merger may not close, but if Brooklyn waives this closing condition and the Merger does close, the failure of the common stock of the combined company to be listed on a national securities exchange could have a material adverse effect on the combined company and its stockholders,” and “If our common stock were delisted and determined to be a ‘penny stock,’ a broker-dealer may find it more difficult to trade our common stock and an investor may find it more difficult to acquire or dispose of our common stock in the secondary market,” below.

If the NYSE American does not approve the initial listing application to be filed with it in connection with the Merger, the Merger may not close, but if Brooklyn waives this closing condition and the Merger does close, the failure of the common stock of the combined company to be listed on a national securities exchange could have a material adverse effect on the combined company and its stockholders.

Conditions to closing the Merger include that NTN’s common stock continue to be traded on the NYSE American until the effective time of the Merger, the NTN common stock to be issued in the Merger be approved for listing (subject to official notice of issuance) on the NYSE American as of the effective time of the Merger, and the NTN common stock will continue to trade on the NYSE American after the effective time of the Merger. Brooklyn could waive the satisfaction of any of the foregoing closing conditions, but there can be no assurance that Brooklyn will do so. If Brooklyn waives any of those closing conditions that are not satisfied at the closing and the Merger closes, the common stock of the combined company would be expected to trade on an over-the-counter market, which could, among other things, substantially impair the ability of the combined company to raise additional capital, result in a loss of institutional investor interest and fewer financing opportunities for the combined company, materially impair the ability of stockholders to buy and sell shares of the common stock of the combined company, and could have an adverse effect on the market price of, and the efficiency of the trading market for, the common stock of the combined company. See also “If our common stock were delisted and determined to be a ‘penny stock,’ a broker-dealer may find it more difficult to trade our common stock and an investor may find it more difficult to acquire or dispose of our common stock in the secondary market,” below.

If our common stock were delisted and determined to be a “penny stock,” a broker-dealer may find it more difficult to trade our common stock and an investor may find it more difficult to acquire or dispose of our common stock in the secondary market.

If our common stock were delisted or suspended from trading on the NYSE American, it may be subject to the so-called “penny stock” rules. The SEC has adopted regulations that define a “penny stock” to be any equity security that has a market price per share of less than $5.00, subject to certain exceptions, such as any securities listed on a national securities exchange. For any transaction involving a “penny stock,” unless exempt, the rules impose additional sales practice requirements on broker-dealers, subject to certain exceptions. If our common stock were delisted and determined to be a “penny stock,” a broker-dealer may find it more difficult to trade our common stock and an investor may find it more difficult to acquire or dispose of our common stock.

The market price of our common stock historically has been and likely will continue to be highly volatile and our common stock is thinly traded.

The market price for our common stock historically has been highly volatile, and the market for our common stock has from time to time experienced significant price and volume fluctuations, based both on our operating performance and for reasons that appear to us unrelated to our operating performance. Our stock is also thinly traded, which can affect market volatility, which could significantly affect the market price of our common stock without regard to our operating performance. In addition, the market price of our common stock may fluctuate significantly in response to several factors, including:

The realization of any of the foregoing could have a dramatic and adverse impact on the market price of our common stock.

Future sales of substantial amounts of our common stock in the public market or the anticipation of such sales could have a material adverse effect on then-prevailing market prices.

As of March 9, 2021, there were approximately (1) 26,000 shares of common stock reserved for issuance upon the exercise of outstanding stock options at exercise prices ranging from $2.43 to $27.50 per share, (2) 75,000 shares of common stock reserved for issuance upon the settlement of outstanding restricted stock units, and (3) 156,112 shares of our Series A Convertible Preferred Stock outstanding which, based on their conversion price as of March 9, 2021, would convert into approximately 84,000 shares of common stock. Registration statements registering the shares of common stock underlying the outstanding options and restricted stock units are currently effective. Generally, the shares of common stock issuable upon conversion of the Series A Convertible Preferred Stock, which the holders may do at any time, may be sold under Rule 144 of the Securities Act of 1933. Accordingly, a significant number of shares of our common stock could be sold at any time. Depending upon market liquidity at the time our common stock is resold by the holders thereof, such resales could cause the trading price of our common stock to decline. In addition, the sale of a substantial number of shares of our common stock, or anticipation of such sales, could make it more difficult for us to obtain future financing. To the extent the trading price of our common stock at the time any of our outstanding options are exercised exceeds their exercise price or at the time any of our outstanding shares of Series A Convertible Preferred Stock are converted exceeds their conversion price, such exercise or conversion will have a dilutive effect on our stockholders.

Raising additional capital may cause dilution to our existing stockholders and may restrict our operations.

We may raise additional capital at any time and may do so through one or more financing alternatives, including public or private sales of equity or debt securities directly to investors or through underwriters or placement agents. See also “Our ability to raise capital may be limited by applicable laws and regulations,” below. Raising capital through the issuance of common stock (or securities convertible into or exchangeable or exercisable for shares of our common stock) may depress the market price of our stock and may substantially dilute our existing stockholders. In addition, our board of directors may issue preferred stock with rights, preferences and privileges senior to those of the holders of our common stock. Debt financings could involve covenants that restrict our operations. These restrictive covenants may include limitations on additional borrowing and specific restrictions on the use of our assets, as well as prohibitions on our ability to create liens or make investments and may, among other things, preclude us from making distributions to stockholders (either by paying dividends or redeeming stock) and taking other actions beneficial to our stockholders. In addition, investors could impose more one-sided investment terms on companies that have or are perceived to have limited remaining funds or limited ability to raise additional funds. The lower our cash balance, the more difficult it is likely to be for us to raise additional capital on commercially reasonable terms, or at all.

Our ability to raise capital may be limited by applicable laws and regulations.

Over the past few years we have raised capital through the sale of our equity securities. In the past, most recently in June 2018, we raised capital through equity offerings conducted under a “shelf” Form S-3 registration statement. Using a shelf registration statement on to raise capital generally takes less time and is less expensive than other means, such as conducting an offering under a Form S-1 registration statement. However, our ability to raise capital using a shelf registration statement may be limited by, among other things, SEC rules and regulations. Under SEC rules and regulations, we must meet certain requirements to use a Form S-3 registration statement to raise capital without restriction as to the amount of the market value of securities sold thereunder. One such requirement is that we periodically evaluate the market value of our outstanding shares of common stock held by non-affiliates, or public float, and if, at an evaluation date, our public float is less than $75.0 million, then the aggregate market value of securities sold by us or on our behalf under the Form S-3 in any 12-month period is limited to an aggregate of one-third of our public float. Based on the closing price of our common stock on March 9, 2021, the highest closing price of our common stock within the past 60 days, our public float is approximately $17.7 million and therefore we are currently subject to the one-third of our public float limitation. Assuming our public float remains the same amount the next time we must evaluate it, we will only be able to sell up to approximately $5.9 million if we seek to use a shelf registration statement. If our ability to use a shelf registration statement for a primary offering of our securities is limited to one-third of our public float, we may conduct such an offering pursuant to an exemption from registration under the Securities Act or under a Form S-1 registration statement, and we would expect either alternative to increase the cost of raising additional capital relative to utilizing a Form S-3 registration statement.

In addition, under SEC rules and regulations, our common stock must be listed and registered on a national securities exchange in order to utilize a Form S-3 registration statement (i) for a primary offering, if our public float is not at least $75.0 million as of a date within 60 days prior to the date of filing the Form S-3 or a re-evaluation date, whichever is later, and (ii) to register the resale of our securities by persons other than us (i.e., a resale offering). While currently our common stock is listed on the NYSE American, there can be no assurance we can maintain such listing. See also “Our common stock could be delisted or suspended from trading on the NYSE American if we do not regain compliance with continued listing criteria with which we are currently not compliant or if we fail to meet any other continued listing criteria,” above.

Our ability to timely raise sufficient additional capital also may be limited by the NYSE American’s stockholder approval requirements for transactions involving the issuance of our common stock or securities convertible into our common stock. For instance, the NYSE American requires that we obtain stockholder approval of any transaction involving the sale, issuance or potential issuance by us of our common stock (or securities convertible into our common stock) at a price less than the greater of book or market value, which (together with sales by our officers, directors and principal stockholders) equals 20% or more of our then outstanding common stock, unless the transaction is considered a “public offering” by the NYSE American staff. In addition, certain prior sales by us may be aggregated with any offering we may propose in the future, further limiting the amount we could raise in any future offering not considered a public offering by the NYSE American staff and involves the sale, issuance or potential issuance by us of our common stock (or securities convertible into our common stock) at a price less than the greater of book or market value. The NYSE American also requires that we obtain stockholder approval if the issuance or potential issuance of additional shares will be considered by the NYSE American staff to result in a change of control of our company.

Obtaining stockholder approval is a costly and time-consuming process. If we must obtain stockholder approval for a potential transaction, we would expect to spend substantial additional money and resources. In addition, seeking stockholder approval would delay our receipt of otherwise available capital, which may materially and adversely affect our ability to execute our business strategy, and there is no guarantee our stockholders ultimately would approve a proposed transaction. A public offering under the NYSE American rules typically involves broadly announcing the proposed transaction, which often depresses the issuer’s stock price. Accordingly, the price at which we could sell our securities in a public offering may be less, and the dilution existing stockholders experience may in turn be greater, than if we were able to raise capital through other means.

Our charter contains provisions that may hinder or prevent a change in control of our company, which could result in our inability to approve a change in control and potentially receive a premium over the current market value of your stock.

Certain provisions of our certificate of incorporation could make it more difficult for a third party to acquire control of us, even if such a change in control would benefit our stockholders, or to make changes in our board of directors. For example, our certificate of incorporation (i) prohibits stockholders from filling vacancies on our board of directors, calling special stockholder meetings, or taking action by written consent, and (ii) requires a supermajority vote of at least 80% of the total voting power of our outstanding shares, voting together as a single class, to remove our directors from office or to amend provisions relating to stockholders taking action by written consent or calling special stockholder meetings.

Additionally, our certificate of incorporation and restated bylaws contain provisions that could delay or prevent a change of control of our company. Some provisions:

These provisions could discourage third parties from taking control of our company. Such provisions may also impede a transaction in which you could receive a premium over then current market prices and your ability to approve a transaction that you consider in your best interest.

In addition, we are governed by Section 203 of the Delaware General Corporate Law, which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock. These and other provisions in our certificate of incorporation, restated bylaws and Delaware law could make it more difficult for stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by the then-current board of directors, including delaying or impeding a merger, tender offer, or proxy contest involving our company. Any delay or prevention of a change of control transaction or changes in our board of directors could cause the market price of our common stock to decline.

Our amended and restated bylaws, as amended, designates the state courts of the State of Delaware (or, if no such state court has jurisdiction, the federal district court for the District of Delaware) as the sole and exclusive forum for certain types of actions that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or with our directors, our officers or other employees, or our majority stockholder.

Section 8.12 of our amended and restated bylaws, as amended, provides that, unless we consent in writing to the selection of an alternative forum, the state courts of the State of Delaware (or, if no such state court has jurisdiction, the federal district court for the District of Delaware) shall be the sole and exclusive forum for (A) any derivative action or proceeding brought on behalf of NTN, (B) any action asserting a claim of breach of a fiduciary duty owed by any director or officer or stockholder of NTN to NTN or its stockholders, (C) any action asserting a claim against NTN or any director or officer or stockholder of NTN arising pursuant to any provision of the Delaware General Corporation Law (the “DGCL”) or NTN’s restated certificate of incorporation or amended and restated bylaws, or (D) any action asserting a claim against NTN or any director or officer or stockholder of NTN governed by the internal affairs doctrine.

Section 8.12 of NTN’s amended and restated bylaws, as amended, also provides that if any provision of Section 8.12 is held to be invalid, illegal or unenforceable as applied to any person or entity or circumstance for any reason whatsoever, then, to the fullest extent permitted by law, the validity, legality and enforceability of such provision in any other circumstance and of the remaining provisions of this Section 8.12 (including, without limitation, each portion of any sentence of Section 8.12 containing any such provision held to be invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable) and the application of such provision to other persons or entities or circumstances shall not in any way be affected or impaired thereby.

Section 8.12 may limit a stockholder’s ability to bring a claim in a judicial forum that it finds more favorable for disputes with us or with our directors, our officers or other employees, or our other stockholders, which may discourage such lawsuits against us and such other persons.

Section 8.12 is intended to apply to the fullest extent permitted by law to the types of actions specified therein, including, to the extent permitted by the federal securities laws, to lawsuits asserting both the claims specified in Section 8.12 and claims under the federal securities laws. Application of the choice of forum provision in Section 8.12 may be limited in some instances by applicable law. Section 27 of the Exchange Act, creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. As a result, Section 8.12 will not apply to actions arising under the Exchange Act or the rules and regulations thereunder. Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder, subject to a limited exception for certain “covered class actions.” The enforceability of choice of forum provisions in other companies’ charter documents similar to Section 8.12 has been challenged in legal proceedings, and it is possible that, in connection with any applicable action brought against NTN, a future court could find the choice of forum provisions contained in Section 8.12 to be inapplicable or unenforceable in such action. If a court were to find the choice of forum provision contained in our amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business, financial condition or results of operations.

ITEM 1B. Unresolved Staff Comments

We do not have any unresolved comments issued by the SEC Staff.

ITEM 2. Properties

We lease approximately 7,500 square feet of warehouse space in Hilliard, Ohio for equipment storage. The term of that lease expires in October 2021. We believe that this leased property meets our current needs.

In June 2020, as part of our efforts to reduce our operating expenses and preserve capital as we continued to seek to mitigate the substantial negative impact of the pandemic on our business, we terminated the lease for our former corporate headquarters in Carlsbad, California. When we entered into the lease, we had approximately 86 full-time employees. When we terminated the lease, we had reduced our headcount to 18 employees, all of whom were working remotely. Currently, all of our employees continue to work remotely.

ITEM 3. Legal Proceedings

From time to time, we become subject to legal proceedings and claims, both asserted and unasserted, that arise in the ordinary course of business. Litigation in general, and securities litigation in particular, can be expensive and disruptive to normal business operations. Moreover, the results of legal proceedings are difficult to predict. An unfavorable resolution of one or more legal proceedings could materially adversely affect our business, results of operations, or financial condition. In addition, defending any claim requires resources, including cash to pay legal fees and expenses, and our limited financial resources could severely impact our ability to defend any such claim. We are not currently subject to any pending material legal proceedings, except as described below.

We and our directors were named as defendants in ten substantially similar actions brought by purported stockholders of ours arising out of the Merger: Henson v. NTN Buzztime, Inc., No. 1:20-cv-08663-LGS (S.D.N.Y. filed Oct. 16, 2020); Monsour v. NTN Buzztime, Inc., No. 1:20-cv-08755-LGS (S.D.N.Y. filed Oct. 20, 2020); Amanfo v. NTN Buzztime, Inc., No. 1:20-cv-08747-LGS (S.D.N.Y. filed Oct. 20, 2020); Carlson v. NTN Buzztime, Inc., No. 1:21-cv-00047-LGS (S.D.N.Y. filed Jan. 4, 2021); Finger v. NTN Buzztime, Inc., No. 1:21-cv-00728-LGS (S.D.N.Y. filed Jan. 26, 2021); Falikman v. NTN Buzztime, Inc., No. 1:20-cv-05106-EK-SJB (E.D.N.Y. filed Oct. 23, 2020); Haas v. NTN Buzztime, Inc., No. 3:20-cv-02123-BAS-JLB (S.D. Cal. Oct. 29, 2020); Gallo v. NTN Buzztime, Inc., No. 3:21-cv-00157-WQH-AGS (S.D. Cal. filed Jan. 28, 2021); Chinta v. NTN Buzztime, Inc., No. 1:20-cv-01401-CFC (D. Del. filed Oct. 16, 2020); and Nicosia v. NTN Buzztime, Inc., No. 1:21-cv-00125-CFC (D. Del. filed Jan. 30, 2021 ) (collectively, the “Stockholder Actions”). Brooklyn also was named as a defendant in two of the actions (Chinta and Nicosia). The Stockholder Actions assert claims asserting violations of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 and Rule 14a-9 promulgated thereunder. Henson and Monsour assert additional claims for breach of fiduciary duty. The complaints allege that defendants failed to disclose allegedly material information in the Form S-4 Registration Statement filed with the SEC on October 2, 2020, including (1) certain details regarding any projections or forecasts we or Brooklyn may have made, and the analyses performed by our financial advisor, Newbridge Securities Corporation; (2) conflicts concerning the sales process; and (3) disclosures regarding whether or not we entered into any confidentiality agreements with standstill and/or “don’t ask, don’t waive” provisions. The complaints allege that these purported failures to disclose rendered the Form S-4 false and misleading. The complaints request a preliminary and permanent injunction of the Merger; rescission of the Merger if executed and/or rescissory damages in unspecified amounts; direction to the individual directors to disseminate a compliant Registration Statement; an accounting by us for all alleged damages suffered; a declaration that certain federal securities laws have been violated; and costs, including attorneys’ and expert fees and expenses. Process was served in Henson, Chinta, Amanfo, Falikman, Carlson and Gallo, but not in any of the other Stockholder Actions. Although plaintiffs request injunctive relief in their complaints, they have not filed motions for such relief.

We and our directors deny any wrongdoing or liability with respect to the allegations and claims asserted, or which could have been asserted, in the Stockholder Actions, as we believe the disclosures set forth in the Form S-4 complied fully with applicable law. Nevertheless, in order to avoid nuisance, potential expense and delay, and to provide additional information to the our stockholders, we determined to voluntarily supplement the Form S-4 with further disclosures (the “Supplemental Disclosures”) on Form 8-K, which we filed with the SEC on February 26, 2021. These Supplemental Disclosures discussed, inter alia, (1) certain details regarding any projections or forecasts we or Brooklyn may have made, and the analyses performed by our financial advisor, Newbridge Securities Corporation; and (2) information regarding whether or not we entered into any confidentiality agreements with standstill and/or “don’t ask, don’t waive” provisions. We believe that as a consequence of the issuance of the Supplemental Disclosures all claims asserted in the Stockholder Actions have been rendered moot, and have requested that all plaintiffs in the Stockholder Actions dismiss their claims voluntarily (or immediately inform us if they are not willing to do so). Since the issuance of the Supplemental Disclosures, the plaintiffs in Henson, Chinta, Monsour, Amanfo, Carlson and Nicosia have voluntarily dismissed their cases. We expect the plaintiffs in the other Stockholder Actions to do the same. On March 2, 2021, the court in Haas issued an order to show cause why the case should not be dismissed for failure to prosecute. Plaintiffs in the Stockholder Actions reserve the right to seek payment by us to their attorneys of a “mootness fee” in an amount yet to be determined in connection with the issuance of the Supplemental Disclosures.

On March 5, 2021, we and our directors were named as defendants in a putative class action brought by a purported stockholder in the Court of Chancery of the State of Delaware, entitled Carlson v. NTN Buzztime, Inc., Case No. 2021-0193- (Del. Ch. filed Mar. 5, 2021). The action asserts claims for violations of Section 211(c) of the Delaware General Corporation Law and our bylaws (and a concomitant breach of fiduciary duty), alleging that we failed to conduct an annual meeting of stockholders within thirteen months of the previous annual meeting of stockholders, which took place on June 7, 2019.  Plaintiff is requesting certification of a class, declaratory relief, injunctive relief to compel an annual meeting of stockholders, and fees and costs.  The complaint does not yet appear to have been served upon any of the defendants.  We expect this action will be rendered moot upon our holding of our special meeting of stockholders on March 15, 2021.

ITEM 4. Mine Safety Disclosures

Not Applicable.

PART II

ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is listed on the NYSE American under the symbol “NTN.”

On March 9, 2021, the closing price for our common stock as reported on the NYSE American was $3.47 and there were approximately 283 stockholders of record. The number of stockholders of record is based upon the actual number of holders registered on our books at such date. A substantially greater number of holders of our common stock are “street name” or beneficial holders, whose shares are held by banks, brokers and other financial institutions.

We have 156,112 shares of Series A Preferred Stock issued and outstanding. The Series A Preferred Stock provides for a cumulative annual dividend of 10 cents per share, payable in semi-annual installments in June and December. Dividends may be paid in cash or in shares of our common stock. In 2020, we paid approximately $16,000 in cash dividends to the holders of our Series A Preferred Stock. We expect to pay the dividends on our Series A Preferred Stock in accordance with its terms, though we may elect to pay the dividend in shares of our common stock in the future.

ITEM 6. Selected Financial Data

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

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Introduction

Management’s discussion and analysis of financial condition and results of operations (“MD&A”) should be read in conjunction with the accompanying audited consolidated financial statements and notes, included in Item 8 of this report, to help provide an understanding of our financial condition, the changes in our financial condition and our results of operations. You should also see the section entitled “Forward-Looking Statements” at the beginning of this report. Our MD&A is organized as follows:

Overview

We deliver interactive entertainment and innovative technology to our partners in a wide range of verticals – from bars and restaurants to casinos and senior living centers. By enhancing the overall guest experience, we believe we help our hospitality partners acquire, engage, and retain patrons.

Through social fun and friendly competition, our platform creates bonds between our hospitality partners and their patrons, and between patrons themselves. We believe this unique experience increases dwell time, revenue, and repeat business for venues – and has also created a large and engaged audience which we connect with through our in-venue TV network. Until the significant disruptions to the restaurant and bar industry resulting from the COVID-19 pandemic, or the pandemic, that began in March 2020, over 1 million hours of trivia, card, sports and arcade games were played on our network each month. Since March 2020, approximately 100,000 hours per month of such games have been played on our network each month.

As mentioned below, we will be holding our special meeting of stockholders to consider the Merger (as defined below), the Asset Sale (as defined below) and related proposals on March 15, 2021 at 9:00 a.m., Pacific Time, unless postponed or adjourned to a later date or time. We are focused on managing our operating expenses and maintaining our operations through consummation of the Merger and Asset Sale. There can be no assurance that we will be successful in completing the Merger or the Asset Sale or managing our operating expenses or maintaining our operations through consummation of the Merger and Asset Sale. As a result of the impact of the pandemic on our business and taking into account our current financial condition and our existing sources of projected revenue and our projected subscription revenue, advertising revenue and cash flows from operations, we believe we will have sufficient cash resources to pay forecasted cash outlays only through mid-March 2021, assuming we are able to continue to successfully manage our working capital deficit by managing the timing of payments to our vendors and other third parties. We expect that the earliest the Asset Sale and the Merger could be completed is during the week of March 15, 2021. If the completion of the Asset Sale and the Merger is delayed beyond that week, we will need to raise additional capital to maintain operations through the completion of the Asset Sale and the Merger, and we currently have no arrangements for such capital. If we do not complete the Merger for any reason, we would likely be required to dissolve and liquidate our assets, and we would be required to pay all our debts and contractual obligations and set aside certain reserves for potential future claims. In such event, our investors may lose their entire investment. While we could attempt to complete another strategic transaction like the Merger or to raise additional capital through equity financings and/or alternative sources of debt to allow us to continue as a going concern, based on the strategic process conducted to date, we do not believe that we would be able to identify and complete another reverse merger or consummate a financing to obtain sufficient additional financial resources when needed, on acceptable terms, or at all.

Proposed Merger with Brooklyn

On August 12, 2020, we entered into an agreement and plan of merger and reorganization (the “Merger Agreement”) with Brooklyn Immunotherapeutics LLC (“Brooklyn”), a privately-held, biopharmaceutical company focused on exploring the role that cytokine-based therapy can have in treating patients with cancer. Pursuant to the Merger Agreement, subject to the satisfaction or waiver of the conditions set forth in the agreement, BIT Merger Sub, Inc., our wholly-owned subsidiary formed solely for purposes of carrying out the merger, will merge with and into Brooklyn, with Brooklyn surviving the merger as a wholly-owned subsidiary of our company and Brooklyn’s members receiving newly issued shares of our common stock in exchange for their ownership interests in Brooklyn (the “Merger”). The Merger, if completed, will result in a change in control of NTN as described below. If the Merger is completed, NTN expects to change its name to Brooklyn ImmunoTherapeutics, Inc. and the combined company will focus on Brooklyn’s business of exploring the role that cytokine-based therapy can have on the immune system in treating patients with cancer. Upon completion of the Merger, the board of directors of the combined company is expected to consist entirely of individuals designated by Brooklyn and the officers of the combined company are expected to be members of Brooklyn’s current management team.

If the Merger is completed, at the effective time of the Merger, Brooklyn’s members will exchange their equity interests in Brooklyn for shares of NTN common stock representing between approximately 94.08% and 96.74% of the outstanding common stock of NTN immediately following the effective time of the Merger on a fully diluted basis (less a portion of such shares which will be allocated to Brooklyn’s banker, Maxim, in respect of the success fee owed to it by Brooklyn), and NTN’s stockholders as of immediately prior to the effective time, will own between approximately 5.92% and 3.26% of the outstanding common stock of NTN immediately after the effective time of the Merger on a fully diluted basis. The exact number of shares to be issued in the Merger will be determined pursuant to a formula in the Merger Agreement that takes into account the amount of Brooklyn’s cash and cash equivalents as of the closing of the Merger and the amount by which NTN’s net cash is less than zero at the closing.

See the section titled “Business” in Item 1 of Part I this report for additional information about the Merger Agreement and Merger.

Proposed Asset Sale to eGames.com

When NTN announced the signing of the Merger Agreement, NTN also announced that it was continuing to explore the sale of substantially all of the assets relating to its current business to provide additional capital and allow the combined company following the closing of the Merger, if it closes, to be in a position to focus exclusively on Brooklyn’s business.

On September 18, 2020, NTN and eGames.com Holdings LLC (“eGames.com”) entered into an asset purchase agreement (as amended from time to time, the “APA”) pursuant to which, subject to the terms and conditions thereof, NTN will sell and assign (the “Asset Sale”) all of its right, title and interest in and to the assets relating to its current business (the “Purchased Assets”) to eGames.com. The Purchased Assets comprise substantially all of NTN’s assets. At the closing of the Asset Sale, in addition to assuming specified liabilities of NTN, eGames.com will pay NTN $2.0 million in cash. In connection with entering into the APA, the sole owner of eGames.com absolutely, unconditionally and irrevocably guaranteed to NTN the full and prompt payment when due of any and all amounts, from time to time, payable by eGames.com under the APA.

In connection with entering into the APA, Fertilemind Management, LLC, an affiliate of eGames.com (“Fertilemind”), on behalf of eGames.com, made a $1.0 million bridge loan to NTN. On November 19, 2020, NTN, eGames.com and Fertilemind entered into an omnibus amendment and agreement pursuant to which, among other things, eGames.com agreed to provide, or cause Fertilemind, on behalf of eGames.com, to provide, an additional $0.5 million bridge loan to NTN on December 1, 2020, and the parties agreed to increase the interest rate on the $1.0 million bridge loan Fertilemind made to NTN in September 2020 from 8% to 10% effective December 1, 2020. Fertilemind provided the $0.5 million bridge loan to NTN on December 1, 2020. On January 12, 2021, NTN, eGames.com and Fertilemind entered into a second omnibus amendment and agreement pursuant to which, among other things, eGames.com agreed to provide, or cause Fertilemind, on behalf of eGames.com, to provide an additional $0.2 million bridge loan to NTN on January 12, 2021. Fertilemind provided the $0.2 million bridge loan to NTN on January 12, 2021. The principal and accrued interest of each of the loans provided by Fertilemind to NTN will be applied toward the $2.0 million purchase price at the closing of the Asset Sale.

See the section titled “Business” in Item 1 of Part I this report for additional information about the APA and Asset Sale.

Recent Developments

The negative impact of the COVID-19 pandemic on the restaurant and bar industry was abrupt and substantial, and our business, cash flows from operations and liquidity suffered, and continues to suffer, materially as a result. In many jurisdictions, including those in which we have many customers and prospective customers, restaurants and bars were ordered by the government to shut-down or close all on-site dining operations in the latter half of March 2020. Since then, governmental orders and restrictions impacting restaurants and bars in certain jurisdictions were eased or lifted as the number of COVID-19 cases decreased or plateaued, but as jurisdictions began experiencing a resurgence in COVID-19 cases, many jurisdictions reinstated such orders and restrictions, including mandating the shut-down of bars and the closing of all on-site dining operations of restaurants. We have experienced material decreases in subscription revenue, advertising revenue and cash flows from operations, which we expect to continue for at least as long as the restaurant and bar industry continues to be negatively impacted by the COVID-19 pandemic, and which may continue thereafter if restaurants and bars seek to reduce their operating costs or are unable to re-open even if restrictions within their jurisdictions are eased or lifted. For example, at its peak, approximately 70% of our customers had their subscriptions to our services temporarily suspended. As of March 9, 2021, approximately 11% of our customers remain on subscription suspensions.

In response to the impact of the pandemic on our business, we implemented measures to reduce our operating expenses and preserve capital, and we may implement additional measures in the future.

In April 2020, we received a loan of approximately $1,625,000 under the Paycheck Protection Program of the Coronavirus Aid, Relief, and Economic Security Act administered by the U.S. Small Business Administration. The loan matures on April 18, 2022 and bears interest at a rate of 1.0% per annum. We began making monthly interest only payments in November 2020. One final payment of all unforgiven principal plus any accrued unpaid interest is due at maturity. In November 2020, we were informed by our lender that the U.S Small Business Administration approved the forgiveness of approximately $1,093,000 of the $1,625,000 loan, leaving a principal balance of approximately $532,000. For additional information, see the section entitled “Liquidity and Capital Resources—Paycheck Protection Program Loan,” below.

All amounts outstanding under our term loan we entered into with Avidbank in September 2018 were paid in full on December 31, 2020 and we have no further obligations to Avidbank.

In January 2020, we sold all of our assets used to conduct the live hosted knowledge-based trivia events known as Stump! Trivia and OpinioNation for approximately $1.4 million in cash.

Results of Operations

We generated a net loss of $4,415,000 for the year ended December 31, 2020, compared to a net loss of $2,047,000 for the year ended December 31, 2019.

Revenue

We generate revenue by charging subscription fees to our partners for access to our 24/7 trivia network, by selling and leasing tablet and hardware equipment for custom usage beyond trivia/entertainment, by selling digital-out-of-home (DOOH) advertising direct to advertisers and on national ad exchanges, by licensing our entertainment and trivia content to other parties, and by providing professional services such as custom game design or development of new platforms on our existing tablet form factor. Until February 1, 2020, we also generated revenue from hosting live trivia events. We sold all our assets used to host live trivia events in January 2020. (See Note 4 to the consolidated financial statements included in this report.) The table below summarizes the type of revenue we generated for the years ended December 31, 2020 and 2019:

Subscription Revenue

The decrease in subscription revenue for the year ended December 31, 2020 was due to lower average site count, lower average revenue per site and the impact of the COVD-19 pandemic on our business when compared to 2019. We previously reported that our subscription revenue would materially decrease beginning in the first quarter of 2020 if we did not add network subscribers or other revenue sources sufficient to replace the revenue historically received from Buffalo Wild Wings corporate-owned restaurants and its franchisees, after our existing relationships with BWW terminated in November 2019. To date, we have not offset the lost subscription revenue from Buffalo Wild Wings corporate-owned restaurants and its franchisees, and, in light of the substantial negative impact the pandemic has had, continues to have and is expected to continue to have, on the restaurant and bar industry and on our business, and taking into account the measures we implemented in response to the impact of the pandemic on our business to reduce operating expenses and preserve capital, including reducing our headcount and sales and marketing team, we do not expect that will be able to do so in the foreseeable future.

Although shelter-in-place orders and governmental orders and restrictions on the operations of restaurants and bars to shut have been lifted or reduced for many of our customers, our subscription revenue suffered during 2020 and we expect that it will continue to suffer as a result of the pandemic, including because we expect governmental orders and restrictions impacting restaurants and bars will remain in effect or be reinstated in response to resurgences in COVID-19 cases. See “Item 1A. Risk Factors” of this report for additional information regarding the impact of the pandemic on our business and outlook.

ASC No. 606 specifies certain criteria that an arrangement with a customer must have in order for a contract to exist for purposes of revenue recognition, one of which is that it must be probable that we will collect the consideration to which we will be entitled under the contract. As a result of the impact that the pandemic has had, and continues to have, on our customers, we determined that due to the uncertainty of collectability of the subscription fees for certain customers, our arrangement with those customers no longer meets all the criteria needed for a contract to exist for revenue recognition purposes. Therefore, we did not recognize revenue for these customers and fully reserved for accounts receivable in the allowance for doubtful accounts. We only recognize revenue for the arrangements that continued to meet the contract criteria, including the criteria that collectability was probable. The table below provides a geographic breakdown of our site count as of the date indicated:

Hardware Revenue

The decrease in hardware revenue for the year ended December 31, 2020 was due to decreased sales-type lease arrangements as well as a reduction in hardware sales to our jail services partner when compared to 2019. As previously reported, in September 2020, we entered into an agreement with our jail service partner to terminate our existing contract and cancel the remaining tablets to be delivered under our contract. We do not expect to recognize material hardware revenue in the future.

Other Revenue

The decrease in other revenue for the year ended December 31, 2020 was primarily due to a decrease in revenue from our live-hosted trivia events when compared to 2019 as a result of the sale in January 2020 of all our assets used to conduct such events. We do not expect to recognize revenue from live-hosted trivia events in the future.

We also recognized less license revenue and advertising revenue during the year ended December 31, 2020 when compared to 2019. We expect our advertising revenue will continue to be materially adversely impacted because of a decrease in advertising sales arising from a slowdown in consumer traffic in the restaurant and bars that subscribe to our service as a result of the COVID-19 pandemic.

Direct Costs and Gross Margin

The following table compares the direct costs and gross margin for the years ended December 31, 2020 and 2019:

For the year ended December 31, 2020, the decrease in direct costs was primarily due to decreased (1) direct wages of approximately $1,133,000 as a result of no longer providing live-hosted trivia events after January 2020; (2) equipment expense of approximately $1,545,000 due primarily to a reduction in hardware revenue as well as a reduction in equipment write-offs of certain older site equipment; (3) depreciation expense of $979,000; (4) service provider and freight expense of approximately $581,000; and (5) other miscellaneous expenses of $338,000, in each case, when compared to 2019.

The decrease in gross margin for the year ended December 31, 2020 was primarily due to the reduction in revenue when compared to the same periods in 2019. Additionally, certain fixed costs, such as direct depreciation and amortization expense, negatively impacted gross margins for the year ended December 31, 2020 when compared to 2019.

Operating Expenses

Selling, General and Administrative Expenses

The decrease in selling, general and administrative expenses for the year ended December 31, 2020 when compared to 2019 was primarily due to decreased (1) payroll and related expense of $4,450,000 as a result of reduced headcount; (2) marketing fees of $732,000 due to managing discretionary spending; (3) lease expense of approximately $245,000 due to terminating our lease and vacating our corporate headquarters in June 2020, and (4) miscellaneous expense of $396,000, in each case, when compared to 2019. These decreases were partially offset by increased transaction-related expenses of $739,000 for the year ended December 31, 2020, consisting primarily of professional financial advisor, legal and accounting fees associated with evaluating strategic opportunities, negotiating the Merger Agreement and the APA and other services related to the proposed Merger and Asset Sale.

Impairment of Capitalized Software

During each of the years ended December 31, 2020 and 2019, we abandoned certain capitalized software development projects that we concluded were no longer a current strategic fit or for which we determined that the marketability of the content had decreased due to obtaining additional information regarding the specific purpose for which the content was intended.

Impairment of Goodwill

Through March 31, 2020, we had goodwill resulting from the excess of costs over the fair value of assets we acquired in 2003 related to our Canadian business (the “Reporting Unit”). Goodwill and intangible assets acquired in a purchase combination that are determined to have an indefinite useful life are not amortized, but instead are assessed annually, or at interim periods, for impairment based on qualitative factors, such as macroeconomic conditions, industry and market considerations, cost factors, overall financial performance and other relevant events, to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of the Reporting Unit is less than its carrying amount. If there are indications of impairment, then we perform a quantitative impairment test.

During out evaluation of impairment indicators as of March 31, 2020, we determined that the uncertainty relating to the impact of the COVID-19 pandemic on the Reporting Unit’s future operating results represented an indicator of impairment. Accordingly, we compared the estimated fair value of the Reporting Unit to its carrying value at March 31, 2020, determined that a full impairment loss was warranted and recognized an impairment charge of $662,000 for the year ended December 31, 2020, all of which was recorded during the three months ended March 31, 2020. There was no goodwill impairment recorded for the year ended December 31, 2019.

Depreciation and Amortization

The decrease in depreciation and amortization expense for the year ended December 31, 2020 was primarily due to various equipment becoming fully depreciated and not replacing with new assets, and as a result of writing off our leasehold improvement assets when we terminated our lease and vacated our corporate headquarters in June 2020.

Other (Expense) Income, Net

The increase in other income, net for the year ended December 31, 2020 when compared to 2019 was primarily related to (1) a gain of approximately $1,225,000 for the sale of all our assets used to conduct live-hosted trivia events; (2) decreased interest expense of approximately $111,000 due to lower debt balances; and (3) a gain of approximately $1,093,000 related to the forgiveness of the loan we received under the Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security Act administered by the U.S. Small Business Administration (the “CARES Act”). In October 2020, we submitted our loan forgiveness application for our PPP loan, and in November 2020, the lender informed us that the U.S Small Business Administration approved the forgiveness of approximately $1,093,000 of the $1,625,000 loan, leaving a principal balance of approximately $532,000. These increases in other income, net were partially offset by increased losses during the year ended December 31, 2020 of approximately $284,000 related to disposals of assets when we terminated the lease for our corporate headquarters in June 2020 when compared to 2019.

Income Taxes

We expect to incur state income tax liability in 2020 related to our U.S. operations. We also expect to incur an income tax liability in 2020 in Canada due to the profitability of our Canadian subsidiary.

Liquidity and Capital Resources

As of December 31, 2020, we had cash, cash equivalents and restricted cash of $777,000 compared to cash, cash equivalents and restricted cash of $3,409,000 as of December 31, 2019. During the year ended December 31, 2020, we incurred a net loss of $4,415,000 compared to a net loss of $2,047,000 for the year ended December 31, 2019.

In connection with preparing our financial statements as of and for the year ended December 31, 2020, our management evaluated whether there are conditions or events, considered in the aggregate, that are known and reasonably knowable that would raise substantial doubt about our ability to continue as a going concern through twelve months after the date that such financial statements are issued.

As discussed in more detail under “Bridge Loans,” below, we have received an aggregate of $1.7 million in principal amount of bridge loans from Fertilemind, an affiliate of eGames.com. The principal amount of these loans and accrued interest thereon will be applied toward the $2.0 million purchase price under the APA. If the Asset Sale does not close, the principal amount of these loans and accrued interest thereon is due and payable upon the earlier of (i) the termination of the APA, (ii) the closing of a Business Combination (as defined in the promissory note evidencing the loan), and (iii) April 30, 2021.

Our primary source of capital is cash from operations. We have experienced material decreases in subscription revenue, advertising revenue and cash flows from operations as a result of the impact of the COVID-19 pandemic on the restaurant and bar industry. We expect the negative impact on our business to continue for as long as restaurants and bars continue to be negatively impacted by the pandemic, and which may continue thereafter if restaurants and bars seek to reduce their operating costs or choose not to re-open even if governmental orders and restrictions are eased or lifted.

As a result of the impact of the pandemic on our business and taking into account our current financial condition and our existing sources of projected revenue and our projected subscription revenue, advertising revenue and cash flows from operations, we believe we will have sufficient cash resources to pay forecasted cash outlays only through mid-March 2021, assuming we are able to continue to successfully manage our working capital deficit by managing the timing of payments to our vendors and other third parties. We expect that the earliest the Asset Sale and the Merger could be completed is during the week of March 15, 2021. If the completion of the Asset Sale and the Merger is delayed beyond that week, we will need to raise additional capital to maintain operations through the completion of the Asset Sale and the Merger, and we currently have no arrangements for such capital.

If we do not complete the Merger for any reason, we would likely be required to dissolve and liquidate our assets, and we would be required to pay all our debts and contractual obligations and set aside certain reserves for potential future claims. In such event, our investors may lose their entire investment. While we could attempt to complete another strategic transaction like the Merger or to raise additional capital through equity financings and/or alternative sources of debt to allow us to continue as a going concern, based on the strategic process conducted to date, we do not believe that we would be able to identify and complete another reverse merger or consummate a financing to obtain sufficient additional financial resources when needed, on acceptable terms, or at all. See “ITEM 1A, Risk Factors—Risk Factors That May Affect Our Business—”Our cash flows from operations and liquidity have been materially adversely affected by the effects of the COVID-19 pandemic. We need to raise capital in the near term and/or complete a strategic transaction, and our inability to do so could result in us pursuing a restructuring, which may include a reorganization or bankruptcy under Federal bankruptcy laws, assignment for the benefit of creditors, or a dissolution, liquidation and/or winding up,” above.

Based on the factors described above, management concluded that there is substantial doubt regarding our ability to continue as a going concern through the twelve month period following the date that our financial statements as of and for the year ended December 31, 2020 are issued. The accompanying consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to our ability to continue as a going concern.

Avidbank Term Loan

Under a loan and security agreement we entered into with Avidbank in September 2018, or the Original LSA, we borrowed $4,000,000 in the form of a 48-month term loan, all of which we used to pay-off the $4,050,000 of principal borrowed from our then-existing lender. In February 2020, we made a pre-payment on the term loan of approximately $150,000 following the sale in January 2020 of all our assets used to conduct live-hosted trivia events. In March 2020, we entered into an amendment to the Original LSA. We refer to the Original LSA, as amended, as the Avidbank LSA. In connection with entering into the amendment, we made a $433,000 payment on our term loan, which included the $83,333 monthly principal payment for March 2020 plus accrued interest and a $350,000 principal prepayment. All amounts owing under the term loan were paid on December 31, 2020, when the term loan matured, and Avidbank released its security interest in all of our existing personal property.

We incurred approximately $26,000 of debt issuance costs related to the Original LSA and the amendment to the LSA. The debt issuance costs were amortized to interest expense using the effective interest rate method over the life of the loan. The debt issuance costs were fully amortized as of December 31, 2020.

Paycheck Protection Program Loan

In April 2020, we issued a note in the principal amount of approximately $1,625,000 evidencing the loan we received under the PPP that bears interest at a rate of 1.0% per annum. Under the terms of the PPP, certain amounts of the PPP loan may be forgiven if they used for qualifying expenses as described in the CARES Act. In October 2020, we submitted our loan forgiveness application for the PPP loan, and in November 2020, our lender informed us that the U.S Small Business Administration approved the forgiveness of approximately $1,093,000 of the $1,625,000 loan, leaving a principal balance of approximately $532,000. The unforgiven principal balance, plus accrued and unpaid interest, is due at the closing of the Asset Sale, if the Asset Sale occurs, or at the closing of the Merger, if the Merger occurs. If neither the Asset Sale nor the Merger occurs, the unforgiven principal balance, plus accrued and unpaid interest, is due at maturity, April 18, 2022. We began making monthly interest only payments on November 18, 2020. We may prepay the PPP loan at any time with no prepayment penalties. As of December 31, 2020, the outstanding principal balance of the PPP loan was approximately $532,000.

Bridge Loans

In connection with entering into the APA, we issued to Fertilemind an unsecured promissory note (the “First Note”) in the principal amount of $1,000,000, evidencing a $1,000,000 loan received from Fertilemind on behalf of eGames.com. As described below, until December 1, 2020, the principal amount of the First Note accrued interest at the rate of 8% per annum (increasing to 15% per annum upon the occurrence of an event of default), compounded annually. On November 19, 2020, eGames.com agreed to loan, or cause Fertilemind, on behalf of eGames.com, to loan an additional $500,000 to us on December 1, 2020. Upon receipt of such $500,000 loan, on December 1, 2020, we issued a second unsecured promissory note (the “Second Note”) evidencing such loan. In connection with borrowing the additional $500,000 loan, the interest rate of the First Note increased from 8% to 10% beginning on December 1, 2020. On January 12, 2021, eGames.com agreed to loan, or cause Fertilemind, on behalf of eGames.com, to loan an additional $200,000 to us on January 12, 2021. Upon receipt of such $200,000 loan, on January 12, 2021, we issued a third unsecured promissory note (the “Third Note,” and together with the First Note and the Second Note, the “Bridge Notes”) evidencing such loan. The principal amount of the Second Note and the Third Note accrues interest at the rate of 10% per annum (increasing to 15% per annum upon the occurrence of an event of default), compounded annually. The principal amount of the Bridge Notes and accrued interest thereon is due and payable upon the earlier of (i) the termination of the APA, (ii) the closing of a Business Combination (as defined in the Bridge Notes), and (iii) April 30, 2021. Upon the closing of the Asset Sale, the outstanding principal amount of the Bridge Notes and all accrued and unpaid interest thereon will be applied against the purchase price under the APA, and the Bridge Notes will be extinguished. We may use the proceeds under the Bridge Notes for, among other things, the payment of obligations related to the transactions contemplated by the APA and the Merger and other general working capital purposes.

The Bridge Notes include customary events of default, including if any portion of either of the Bridge Notes is not paid when due; if we default in the performance of any other material term, agreement, covenant or condition of either of the Bridge Notes, subject to a cure period; if any final judgment for the payment of money is rendered against us and we do not discharge the same or cause it to be discharged or vacated within 90 days; if we make an assignment for the benefit of creditors, if we generally does not pay its debts as they become due; if a receiver, liquidator or trustee is appointed for us, or if we are adjudicated bankrupt or insolvent. In the event of an event of default, the Bridge Notes will accelerate and become immediately due and payable at the option of the holder.

Working Capital

As of December 31, 2020, we had negative working capital (current liabilities in excess of current assets) of $636,000 compared to negative working capital of $25,000 as of December 31, 2019. The following table shows our change in working capital from December 31, 2019 to December 31, 2020.

Cash Flows

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

Net cash (used in) provided by operations. The increase in cash used in operating activities was primarily due to an increase in net loss of $5,643,000 after giving effect to adjustments made for non-cash transactions as well as increased cash used for operating assets and liabilities of $995,000 during 2020 compared to 2019.

Our largest use of cash is payroll and related costs. Cash used for payroll and related costs decreased $4,862,000 from $9,296,000 for 2019 to $4,434,000 for 2020, primarily due to reduced headcount.

Our primary source of cash is cash we generate from customers. Cash received from customers decreased $13,041,000 from $19,790,000 for 2019 to $6,749,000 for 2020, primarily related to decreased subscription revenue, hardware revenue and live hosted trivia revenue.

Net cash provided by (used in) investing activities. The $2,025,000 increase in cash provided by investing activities was primarily due to receiving $1,226,000 in net proceeds from the sale of all our assets used to conduct live-hosted trivia events in January 2020 as well as decreased capital expenditures.

Net cash provided by (used in) financing activities. During the year ended December 31, 2020, we received $1,625,000 in proceeds from the PPP loan and $1,500,000 in proceeds from bridge loans received from Fertilemind. There were no similar transactions during 2019. During 2020, we made $1,750,000 more in principal payments on long-term debt and $26,000 less in principal payments on our finance leases when compared to 2019.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in our financial condition, expenses, results of operations, liquidity, capital expenditures or capital resources.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with 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 fixed assets, allowance for doubtful accounts, site equipment to be installed, investments, intangible assets, and contingencies. We base our estimates on a combination of historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates. 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.

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Allowance for Doubtful Accounts—We maintain allowances for doubtful accounts for estimated losses resulting from nonpayment by our customers. We reserve for all accounts that have been suspended or terminated from our Buzztime network services and for customers with balances that are greater than a predetermined number of days past due. We analyze historical collection trends, customer concentrations and creditworthiness, economic trends and anticipated changes in customer payment patterns when evaluating the adequacy of our allowance for doubtful accounts for specific and general risks. Additional reserves may also be established if specific customers’ balances are identified as potentially uncollectible. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Site Equipment to be Installed— Site equipment to be installed consists of fixed assets related to our tablet platform that have not yet been placed in service and are stated at cost. Such equipment includes the Classic Playmaker, tablets, other associated electronics and the computers located at customer’s sites. These assets remain in site equipment to be installed until installed at our customer sites, at which point, the cost of the deployed site equipment is reclassified to fixed assets and depreciated over the estimated useful life. We evaluate the recoverability of site equipment to be installed for impairment whenever events or circumstances indicate that the carrying amounts of such assets may not be recoverable. Recoverability is measured by comparing the carrying amount of an asset or asset group to estimated undiscounted future net cash flows expected to be generated. If the carrying amount of the asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values, and third-party independent appraisals, as considered necessary. During the year ended December 31, 2020 and 2019, we recognized a loss of approximately $307,000 and $591,000, respectively, for the disposition of site equipment to be installed for which we did not expect to generate future cash flows.

Fixed Assets— Fixed assets are recorded at cost. Equipment under finance leases is recorded at the present value of future minimum lease payments. We evaluate the recoverability of our fixed assets for impairment whenever events or circumstances indicate that the carrying amounts of such assets may not be recoverable. If the carrying amount of the asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair value. During the year ended December 31, 2020, we recognized a loss of approximately $54,000 of fixed assets related to deployed site equipment in the ordinary course of business. As discussed further in Note 16 to the accompanying financial statements, we our lease for our corporate headquarters and vacated the facility as of June 30, 2020. As a result, during the year ended December 31, 2020, we wrote-off approximately $890,000 of unamortized tenant improvement allowance that is recorded as part of the gain on termination of lease, as well as approximately $87,000 in leasehold improvement assets and $197,000 in furniture and fixtures and our vehicle. During the year ended December 31, 2019, total loss for the disposition of fixed assets was approximately $127,000.

Depreciation of fixed assets is computed using the straight-line method over the estimated useful lives of the assets. Depreciation of leasehold improvements and fixed assets under finance leases is computed using the straight-line method over the shorter of the estimated useful lives of the assets or the lease period.

We incur a relatively significant level of depreciation expense in relation to our operating income. The amount of depreciation expense in any fiscal year is largely related to the equipment located at our customers’ sites. Such equipment is depreciated over one to three years based on the shorter of the contractual finance lease period or the estimated useful life, which considers anticipated technology changes. Machinery and equipment are depreciated over three to five years. If our fixed assets turn out to have longer lives, on average, than estimated, then our depreciation expense would be significantly reduced in those future periods. Conversely, if the fixed assets turn out to have shorter lives, on average, than estimated, then our depreciation expense would be significantly increased in those future periods. As of December 31, 2020, we determined there were no changes to the estimated useful lives for any of our assets.

Goodwill—Goodwill represents the excess of costs over fair value of assets of businesses acquired. Goodwill acquired in a purchase combination determined to have an indefinite useful life are not amortized, but instead are assessed annually, or at interim periods, for impairment based on qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of the reporting unit is less than its carrying amount. Such qualitative factors include macroeconomic conditions, industry and market considerations, cost factors, overall financial performance and other relevant events. If after assessing the totality of events or circumstances we determine it is more likely than not that the fair value of the reporting unit is less than its carrying amount, then we must perform the step one quantitative impairment test outlined in Accounting Standards Codification (“ASC”) No. 350, Intangibles – Goodwill and Other.

Our goodwill balance of $696,000 as of December 31, 2019 relates to the excess of costs over the fair value of assets we acquired in 2003 related to our Canadian business (the “Reporting Unit”). In our evaluation of impairment indicators as of March 31, 2020, we determined that the uncertainty relating to the impact of the COVID-19 pandemic on the Reporting Unit’s future operating results represented an indicator of impairment. Accordingly, we compared the estimated fair value of the Reporting Unit to its carrying value at March 31, 2020, determined that a full impairment loss was warranted and recognized an impairment charge of $662,000 for the three months ended March 31, 2020. No further evaluations were necessary after March 31, 2020. There was no goodwill impairment recorded for the year ended December 31, 2019.

Revenue Recognition—In accordance with ASC No. 606, Revenue from Contracts with Customers, we recognize revenue when we transfer promised goods or services to customers in an amount that reflects the consideration we expect to receive in exchange for those goods or services.

We generate revenue by charging subscription fees to partners for access to our 24/7 trivia network, by selling and leasing tablet and hardware equipment for custom usage beyond trivia/entertainment, by selling DOOH advertising direct to advertisers and on national ad exchanges, by licensing our entertainment and trivia content to other entities, and by providing professional services such as custom game design or development of new platforms on our existing tablet form factor. Until February 1, 2020, we also generated revenue from hosting live trivia events. We sold all of our assets used to host live trivia events in January 2020.

In general, when multiple performance obligations are present in a customer contract, we allocated the transaction price to the individual performance obligation based on the relative stand-alone selling prices, and recognize the revenue when or as each performance obligation has been satisfied. We treat discounts as a reduction to the overall transaction price and allocate the discount to the performance obligations based on the relative stand-alone selling prices. We recognize revenue net of sales tax we collect from the customer.

ASC No. 606 specifies certain criteria that an arrangement with a customer must have in order for a contract to exist for purposes of revenue recognition, one of which is that it must be probable that we will collect the consideration to which we will be entitled under the contract. As a result of the impact that the COVID-19 pandemic has had, and continues to have, on our customers, we determined that due to the uncertainty of collectability of the subscription fees for certain customers, our arrangement with those customers no longer meets all the criteria needed for a contract to exist for revenue recognition purposes. Therefore, we did not recognize revenue for these customers and fully reserved for accounts receivable in the allowance for doubtful accounts. We only recognized revenue for the arrangements that continued to meet the contract criteria, including the criteria that collectability was probable.

Software Development Costs—We capitalize costs related to the development of certain software products in accordance with ASC No. 350. We recognize amortization of costs related to interactive programs on a straight-line basis over the programs’ estimated useful lives, generally two to three years. Amortization expense relating to capitalized software development costs totaled $551,000 and $519,000 for the years ended December 31, 2020 and 2019, respectively. As of December 31, 2020 and 2019, approximately $123,000 and $177,000, respectively, of capitalized software costs were not subject to amortization as the development of various software projects was not complete.

We performed our annual review of software development projects for the years ended December 31, 2020 and 2019, and determined to abandon various software development projects that we concluded were no longer a current strategic fit or for which we determined that the marketability of the content had decreased due to obtaining additional information regarding the specific industry for which the content was intended. As a result, for the year ended December 31, 2020 and 2019, we recognized an impairment charge of $248,000 and $550,000, respectively. Impairment of capitalized software is shown separately on our consolidated statement of operations.

Income Taxes—Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

ASC No. 740, Income Taxes, defines the threshold for recognizing the benefits of tax return positions in the financial statements as “more-likely-than-not” to be sustained by the taxing authority. A tax position that meets the “more-likely-than-not” criterion is measured at the largest amount of benefit that is more than 50% likely of being realized upon ultimate settlement. We have reviewed our tax positions and determined that an adjustment to the tax provision is not considered necessary nor is a reserve for income taxes required.

Recent Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2019-12, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes. This ASU enhances and simplifies various aspects of the income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership changes in investments, methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year and interim-period accounting for enacted changes in tax law. The amendment will be effective for public companies with fiscal years beginning after December 15, 2020 (which was January 1, 2021 for us); early adoption is permitted. We do not expect that the adoption of this accounting standard update to have a material impact on our consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which supersedes current guidance requiring recognition of credit losses when it is probable that a loss has been incurred. The ASU requires an entity to establish an allowance for estimated credit losses on financial assets, including trade and other receivables, at each reporting date. This ASU will result in earlier recognition of allowances for losses on trade and other receivables and other contractual rights to receive cash. For smaller reporting companies, the effective date for this standard has been delayed and will be effective for fiscal years beginning after December 15, 2022 (which will be January 1, 2023 for us). We are evaluating the impact that the adoption of this standard will have on our consolidated financial statements.

ITEM 7A. 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 8. Financial Statements and Supplementary Data

See “Index to Consolidated Financial Statements” on page F-1 for a listing of the Consolidated Financial Statements filed with this report.

ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None

ITEM 9A. Controls and Procedures

Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as such term is defined under Exchange Act Rule 13a-15(e), that are designed to ensure that information required to be disclosed, in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosures.

In designing and evaluating the disclosure controls and procedures, we recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and we were required to apply our judgment in evaluating the cost-benefit relationship of possible controls and procedures. We have carried out an evaluation as of the end of the period covered by this report under the supervision and with the participation of our management, including our Chief Executive Officer and Senior Vice President of Finance, of the effectiveness of the design and operation of our disclosure controls and procedures.

Based on that evaluation, our Chief Executive Officer and Senior Vice President of Finance concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report in providing reasonable assurance of achieving the desired control objectives due primarily to a material weakness discussed below.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed 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.

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Senior Vice President of Finance, we conduct an annual evaluation of the effectiveness of our internal control over financial reporting based on the guidelines established by the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. If management identifies any material weakness in the course of that evaluation, management cannot conclude that our internal controls over financial reporting are effective. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Based on the evaluation of the effectiveness of our internal over financial reporting as of December 31, 2020, we concluded that, due to the material weakness described below, our internal control over financial reporting was not effective as of December 31, 2020.

In response to the impact of the pandemic on our business, we implemented measures to reduce our operating expenses and preserve capital, including by reducing our headcount. We reduced our headcount from 74 as of December 31, 2019 to 22 as of March 9, 2021. Due to a limited number of personnel, particularly in our accounting department, we do not have an internal audit department and we did not have the resources necessary to adequately perform an internal assessment or engage a third party to perform the assessment of our internal controls over financial reporting, which our management identified as a material weakness.

Management’s Plan for Material Weakness in Internal Control over Financial Reporting

Our management and board of directors are committed to improving our overall system of internal controls over financial reporting. To address the material weakness identified in our control environment, we plan to engage external resources with specialized knowledge and expertise, where appropriate, to assist management in performing the internal assessment of our internal controls over financial reporting.

Changes in Internal Control over Financial Reporting

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

ITEM 9B. Other Information

Not Applicable.

PART III

ITEM 10. Directors, Executive Officers and Corporate Governance

Board of Directors

Set forth below are the names, ages, board committee assignments, tenure and certain biographical information of each of the members of our Board of Directors as of March 9, 2021.

Allen Wolff was appointed as our chief executive officer and as a member of our board in January 2020. He was appointed as chairman of our board in April 2020. Mr. Wolff served as our interim chief executive officer from September 2019 until he was appointed as our chief executive officer. From January 2016 through September 2019, Mr. Wolff served as our chief financial officer and executive vice president and served as chief financial officer from December 2014 through January 2016. From July 2013 until December 2014, Mr. Wolff served as the chief financial strategist of PlumDiggity, a privately-held financial and marketing strategy firm that he co-founded. From October 2012 to July 2013, Mr. Wolff served as the chief financial officer of 365 Retail Markets, a privately-held company in the self-checkout point of sale technology industry, where he also served on its board of directors during such period. From July 2011 to April 2013, simultaneous with his role at 365 Retail Markets, Mr. Wolff held the leadership role of “Game Changer” at Crowdrise, an online fundraising platform company. Mr. Wolff joined Crowdrise after serving as the chief operating officer and chief financial officer from January 2011 to July 2011 of RetailCapital, LLC, a small business specialty finance company. Mr. Wolff co-founded PaySimple in January 2006 and held various roles including president, chief financial officer, executive vice president and director, from 2006 until he left the company in January 2011. From September 1998 until August 2012, Mr. Wolff was a principal for a casual dining restaurant. Mr. Wolff holds a B.A. from the University of Michigan and an MBA, from the University of Maryland, R.H. Smith School of Business. Mr. Wolff was chosen to serve on our board of directors because of our boards’ belief that our chief executive officer should serve on our board of directors, as well as his leadership of early stage, technology companies and ability to raise capital.

Richard Simtob has served on our board of directors since July 2017. Since January 2001, Mr. Simtob has been serving as president of Simtob Consulting Group Corporation. Mr. Simtob is a minority-owner of Zoup! Holding, LLC, a company that operates and franchises fast-casual soup restaurants and has been serving as vice president since January 2018. Since April 2010, he has served as one of its directors, and served as its president from April 2010 to December 2017. From January 2004 through July 2009, Mr. Simtob was also a partner at Wireless Toyz Franchise, LLC, a cellular service provider, where he also served in various roles such as vice president of development, chief financial officer and chief operating officer. Mr. Simtob owns a Michigan-based driving school and eight swim school locations. Mr. Simtob studied at the University of Western Ontario. Mr. Simtob was chosen to serve on our board of directors because of his extensive experience in the restaurant industry.

Susan Miller was appointed to our board of directors in August 2019. Ms. Miller is a partner with Morgan Kingston Advisors, LLC a boutique investment bank she co-founded in September 2018 focused on supporting middle market companies and their stakeholders across the restaurant and restaurant technology sectors, among others. From March 2007 until September 2018, Ms. Miller served as a managing director at Mastodon Ventures, Inc., a strategic advisory firm focused on the restaurant industry, and from June 2002 until March 2007 she held various positions with J.P. Morgan Securities Inc. Ms. Miller was a Cornell Tradition Fellow and graduated cum laude with a B.S. degree in applied economics and management from Cornell University and holds FINRA Series 63 and 79 securities licenses. Ms. Miller was chosen to serve on our board of directors because of her advisory, investment banking and capital markets experience in the restaurant and technology markets.

Michael Gottlieb was appointed to our board of directors in November 2019. Since May 2020, Mr. Gottlieb has been serving as vice president of operations for Robot Cache USA, Inc., a company that offers a blockchain-based digital marketplace for videogames. From December 2019 until April 2020, Mr. Gottlieb provided consulting services to Digital Gaming Corporation, a computer software company, and from October 2019 until December 2019, he was in charge of its US business development. From April 2017 until October 2019, Mr. Gottlieb served as the studio head for MahiGaming San Diego, a developer of online and mobile gaming software, and from November 2014 until March 2017, Mr. Gottlieb served as senior director of game development for Bally Technologies and Scientific Games, gaming manufacturers. Mr. Gottlieb has a business degree from Northern Illinois University. He was chosen to serve on our board of directors because of his expertise in developing interactive gaming experiences and turning them into successful businesses.

Executive Officers

The following table sets forth certain information regarding our executive officers as of March 9, 2021:

Information regarding Mr. Wolff can be found under “Board of Directors” above.

Sandra Gurrola was appointed as our senior vice president of finance in September 2019 and served as vice president of finance from September 2014 until September 2019. From November 2009 through September 2014, Ms. Gurrola served in various leadership accounting roles including director of accounting, director of financial reporting and compliance, and controller. From July 2007 until April 2009, Ms. Gurrola served as senior manager of financial reporting for Metabasis Therapeutics, Inc., a biotechnology company, and served as a consultant to Metabasis from September 2009 to November 2009. Ms. Gurrola holds a B.A. in English from San Diego State University.

Family Relationships; Arrangements; Legal Proceedings

There are no family relationships among any of our directors and executive officers. There are no arrangements or understandings with another person under which our directors and officers was or is to be selected as a director or executive officer. Additionally, none of our directors or executive officers is involved in any legal proceeding that requires disclosure under Item 401(f) of Regulation S-K.

Committee Charters and Code of Ethics

Our board of directors has adopted charters for its audit and nominating & corporate governance/compensation (N&CG/C) committees, which, among other things, outline the respective duties of the committees. Our board of directors has also adopted a code of conduct and ethics that applies to all our employees, officers and directors. Our code of conduct and ethics, our corporate governance guidelines and the charter of our audit and N&CG/C committee is available at www.buzztime.com/investors/ under the “Corporate Governance” heading. We intend to disclose any amendment to, or a waiver from, a provision of our code of conduct and ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions and that relates to any element of the code of ethics definition enumerated in paragraph (b) of Item 406 of Regulation S-K by posting such information on that website. The information on our website is not incorporated by reference in this report.

Audit Committee and Audit Committee Financial Expert

The audit committee is currently comprised of two non-employee directors: Mr. Simtob and Ms. Miller, each of whom our board of directors has determined is an independent director under the rules of the NYSE American and of the Securities Exchange Act of 1934. Our Board of Directors has determined that each member of the audit committee is able to read and understand fundamental financial statements including our balance sheet, income statement and statement of cash flows. Our former director, Gregory Thomas, served on our audit committee and was determined by our board of directors to qualify as an “audit committee financial expert,” as that term is defined in Item 407(d)(5) of Regulation S-K. Mr. Thomas resigned from our board of directors and from the committees on which he served on April 30, 2020. Our board of directors has determined that none of the current members of the audit committee qualifies as an “audit committee financial expert.” Due in part to the fact that we were in the middle of a strategic process when Mr. Thomas resigned, the outcome of which could have led to a reverse merger, a reorganization, an assignment for the benefit of creditors, a bankruptcy, a liquidation, or similar transaction, and in part to our financial condition and the risks to which we have been subject since March 2020 arising from the effects of the COVID-19 pandemic on our business and financial condition, we have not appointedbeen successful in finding an individual to join our board of directors to replace Mr. Thomas as an audit committee financial expert.

Changes in Stockholder Nomination Procedures

There have been no material changes to the procedures by which stockholders may recommend nominees to our board of directors since such procedures were last described in our definitive proxy statement filed with the SEC on April 26, 2019.

ITEM 11. Executive Compensation

Executive Compensation

Compensation Processes and Procedures

The nominating and corporate governance committee (the “N&CG/C Committee”) of the NTN board of directors is responsible for determining the amount and form of compensation paid to our executive officers, including our chief executive officer. Our chief executive officer presents compensation recommendations to the N&CG/C Committee with respect to the executive officers who report to him. The N&CG/C Committee may accept or adjust such recommendations. The N&CG/C Committee is solely responsible for determining the compensation of our executive officers. Our full board of directors participates in evaluating the performance of our executive officers, except that Mr. Wolff, our chief executive officer and a member of our board of directors, does not participate when our board of directors evaluates his performance and he is not present during voting or deliberations regarding his performance or compensation matters.

When determining executive officer compensation, and the various components that comprise it, the N&CG/C Committee evaluates and considers publicly available executive officer compensation survey data, to present a competitive compensation package to attract and retain top talent, including an appropriate level of salary, performance-based bonus, and/or equity incentives. Typically, the N&CG/C Committee evaluates between three and five different sources of compensation data to provide relevant market benchmark data for a given executive role. Additionally, the N&CG/C Committee is authorized to engage outside advisors and experts to assist and advise the N&CG/C Committee on matters relating to executive compensation. The N&CG/C Committee did not engage any outside advisors or experts to assist or advise the N&CG/C Committee on any matters relating to executive compensation during 2020 or the hiring of any executive officers.

Our Named Executive Officers

Under applicable SEC rules and regulations, all individuals who served as our principal executive officer during 2020, our two most highly compensated executive officers (other than our principal executive officer) who were serving as executive officers at the end of 2020, and up to two additional individuals who would have been one of our top two most highly compensated executive officer had they been serving as an executive officer at the end of 2020 are referred to as our “named executive officers.” Our named executive officers for 2020 were:

2020 Named Executive Officers Compensation Overview

During 2020, our named executive officers received an annual base salary. As explained in more detail below under the caption entitled “2020 Incentive Plan,” the total amount of the performance bonuses earned by our named executive officers for 2020 has not yet been determined. None of our named executive officers receive or are eligible for any perquisites or benefits, other than benefits that are available to our other full-time employees. The employment of each of our named executive officers is at-will. During 2020, we had written employment agreements with Mr. Wolff and Ms. Gurrola. Each of the components of our 2020 executive compensation program is discussed below under the Summary Compensation Table.

Summary Compensation Table

The following table sets forth information concerning compensation during the years ended December 31, 2020 and 2019 awarded to, earned by or paid to our named executive officers.

(1) The amounts reported in this column represents the aggregate grant date fair value of stock awards granted during the applicable year. These amounts were calculated in accordance with FASB ASC Topic 718, Compensation – Stock Compensation, except that any estimate of forfeitures was disregarded. For a description of the assumptions used in computing the dollar amount recognized for financial statement reporting purposes with respect to the stock awards granted during 2019, see Note 13, Shareholders’ Equity, in the Notes to the accompanying Consolidated Financial Statements below. The dollar amount recognized for financial statement reporting purposes with respect to the stock awards granted during 2020 is based on the quoted market price of the stock at the measurement date, which is the grant date, and consist of, with respect to Mr. Wolff, the 75,000 stock unit award granted to him in January 2020 and the $20,000 he earned under the 2019 Interim CEO Performance Incentive Plan that was paid to him in March 2020 in 9,506 shares of our common stock, and with respect to Ms. Gurrola, the 25,000 stock unit award granted to her in January 2020. For additional information regarding such compensation, see the discussion under the caption entitled “2019 Interim CEO Performance Incentive Plan” and “Employment Agreements—Equity Grants.”

(2) Represents performance bonuses earned by the applicable named executive officer for 2020 based on our company’s achievement of performance objectives, as determined by the N&CG/C Committee. For additional information regarding 2020 performance bonuses, see the discussion under the caption entitled “2020 Incentive Plan.”

(3) Represents a cash retention bonus that was paid in shares of our common stock to help us conserve cash. For additional information, see the discussion under the caption entitled “Employment Agreements—Stay Bonus.”

(4) Represents a cash retention bonus. For additional information, see the discussion under the caption entitled “Retention Agreement.”

Salaries. Each of our named executive officers receives a base salary. The base salary is the fixed cash compensation component of our executive compensation program and it recognizes individual performance, time in role, scope of responsibility, leadership skills and experience. The base salary compensates an executive for performing his or her job responsibilities on a day-to-day basis. Generally, base salaries are reviewed annually company-wide and adjusted (upward or downward) when appropriate based upon individual performance, expanded duties, changes in the competitive marketplace and, with respect to upward adjustments, if we are, financially and otherwise, able to pay it. We try to offer competitive base salaries to help attract and retain executive talent.

2019 Interim CEO Performance Incentive Plan

In connection with Mr. Wolff’s appointment as interim chief executive officer in September 2019, Mr. Wolff was eligible to participate in the 2019 Interim CEO Performance Incentive Plan (the “2019 Interim CEO PIP”). The 2019 Interim CEO PIP is a performance incentive plan under which, for the achievement of each of the performance goals thereunder, we agreed to grant to Mr. Wolff such number of shares of our common stock equal to $20,000 divided by the closing price per share of our common stock on the date of grant. Upon grant, such shares would be fully vested. The performance goals were related to: (1) the retainment of certain key employees determined by the N&CG/C Committee through at least March 17, 2020; (2) having a target amount of unrestricted cash, as determined and approved by the N&CG/C Committee, as of March 17, 2020; and (3) meeting target sales for our Buzztime Basic product offering, as determined and approved by the N&CG/C Committee, by March 31, 2020. In March 2020, the N&CG/C Committee determined that the performance goal related to the retainment of key employees was achieved, and we issued 9,506 shares to Mr. Wolff, representing $20,000 worth of shares of our common stock, net of withholding taxes. The value of these shares is reflected in Mr. Wolff’s 2020 compensation in the “Stock Awards” column in the 2020 Summary Compensation Table.

2020 Incentive Plan

On June 1, 2020, the N&CG/C Committee approved the NTN Buzztime, Inc. Executive Incentive Plan for Eligible Employees of NTN Buzztime, Inc. Fiscal Year 2020 (the “2020 Incentive Plan”). The 2020 Incentive Plan permits the payout of any incentive compensation earned under the plan to be paid, at the discretion and in the sole determination of the N&CG/C Committee, either in (i) cash, (ii) shares of our common stock issued under the NTN Buzztime, Inc. 2019 Performance Incentive Plan or any successor long-term incentive plan, or (iii) any combination of (i) and (ii). If incentive compensation is paid in shares, the number of shares issued is determined by dividing the amount earned by the closing price of our common stock on the date on which the N&CG/C Committee approves the amount of incentive compensation earned. Payments under the 2020 Incentive Plan, if any, are contingent on the applicable participant’s continued employment with us on the payout date.

Each 2020 Incentive Plan participant has a target payout amount assigned according to such participant’s position and job level. The table below sets forth the target payout amounts for our named executive officers under the 2020 Incentive Plan, assuming all performance measures are achieved at a rate of 100%:

The performance targets were established by the N&CG/C Committee in June 2020 and fall into three categories, the achievement of which will be determined following each quarter or year, as applicable: strategic, financial and operational. All incentive-based compensation payable to Mr. Wolff and Ms. Gurrola is subject to any clawback policy that we may establish.

Under the terms of the 2020 Incentive Plan, the performance-based bonuses, if earned, were to be paid as follows: 16.66% if the applicable performance targets for each of our 1st, 2nd and 3rd fiscal quarters were or are achieved, and 50% if the applicable performance targets for the applicable fiscal year are achieved. To preserve cash, we did not pay any amounts in respect of the performance targets for either of the 1^st, 2^nd or 3^rd fiscal quarters despite the applicable performance targets being achieved at certain levels. As of December 31, 2020, approximately $63,000 has been accrued for bonuses earned under the 2020 Incentive Plan.

Employment Agreements

We entered into an employment agreement with Mr. Wolff dated March 19, 2018, which was amended in each of September 2019, January 2020, March 2020 and September 2020. We entered into an employment agreement with Ms. Gurrola dated September 17, 2010, which was amended in each of January 2020 and May 2020. The following is a summary of the material terms of those employment agreements, as amended.

Base Salary. Mr. Wolff’s base salary is $325,000 and will increase to $350,000 effective July 1, 2021. However, in an effort to help preserve cash, up to 20% of Mr. Wolff’s base salary may be paid in shares of our common stock at Mr. Wolff’s discretion. Mr. Wolff elected to receive 20% of his base salary in shares of our common stock from January 2020 through March 2020. Ms. Gurrola’s base salary is $190,000.

Incentive Bonus. The target payout amount of Mr. Wolff’s and Ms. Gurrola’s incentive performance-based bonus for 2020 is $150,000 and $38,000, respectively. See “2020 Incentive Plan,” above for additional information.

Stay Bonus. Mr. Wolff was also entitled to receive a $30,000 cash bonus if he were to remain employed with us for at least 180 days from September 17, 2019, the date on which he was appointed as interim chief executive officer. To preserve cash, we agreed to issue to him such number of shares of our common stock equal to a pro rata amount of the $30,000 bonus (determined by multiplying $30,000 by a fraction, the numerator of which is the number of days lapsed between September 17, 2019 and January 14, 2020, the effective date of the amendment to his employment agreement appointing him as chief executive officer, and the denominator of which is 180) divided by the closing price of our common stock on January 14, 2020. As a result, we issued 5,102 shares of our common stock to Mr. Wolff in respect of this bonus, the value of which was net of withholding taxes on the amount of bonus earned. The value of these shares issued is reflected in Mr. Wolff’s 2020 compensation in the “Bonus” column in the 2020 Summary Compensation Table.

CiC Bonus. Under the terms of the amendment we entered into with Mr. Wolff in September 2020 to his employment agreement, if Mr. Wolff is continuously employed by us through the consummation of a change in control (as defined in his employment agreement) and such transaction is consummated before March 31, 2021 (a “Qualifying CiC”), then he is eligible to receive a cash bonus of $162,500, subject to tax withholding and other authorized deductions and subject to Mr. Wolff delivering a general release of claims in our favor, and we will pay his COBRA premiums for up to six months following the termination of his employment with us or, if earlier, until he becomes eligible for medical insurance coverage in connection with new employment. Mr. Wolff agreed that he will not be eligible for his severance payments or benefits under the terms of his employment agreement upon the consummation of a Qualifying CiC because his employment with us will automatically terminate upon the consummation of such Qualifying CiC due to his resignation without good reason.

Equity Grants. Under the terms of their employment agreements, in January 2020, Mr. Wolff and Ms. Gurrola were each granted a stock unit award of 75,000 and 25,000 shares of our common stock, respectively. The awards were made under, and are subject to, our 2019 Performance Incentive Plan, and vest quarterly beginning on the 3-month anniversary of the grant date, in each case, subject to the executive’s continued service to us as of the applicable vesting date.

Retention Agreement

In connection with entering into the amendment to Ms. Gurrola’s employment agreement in May 2020, we entered into a retention bonus and general release of all claims agreement with Ms. Gurrola, pursuant to which, in exchange for the reduction in her severance compensation from nine months of her base salary to two months of her base salary, and subject to Ms. Gurrola signing and not revoking a general release of claims in our favor, we agreed to pay her a retention bonus of $110,833, which is equivalent to seven months of her monthly salary, and which was payable in three installments, the last of which was made on June 19, 2020. If, prior to August 31, 2020, Ms. Gurrola’s employment was terminated by us for cause or by her without good reason, she agreed to return to us 50% of the amount of the retention bonus paid to her on or before such termination of employment and we would have had no obligation to pay any unpaid retention bonus.

Termination of Employment and Change-in-Control Arrangements

Each of the employment agreements of Mr. Wolff and Ms. Gurrola provides for certain benefits upon termination of employment under specified circumstances. If the executive’s employment is terminated by us or by the executive, we will pay him or her any accrued and unpaid base salary and reimburse him or her for expenses incurred through the date of termination of employment. We refer to the foregoing as the “accrued obligations.”

In addition to the accrued obligations, if Mr. Wolff’s employment with us is terminated by us without cause or by him for good reason, subject to him delivering to us a general release of claims in our favor, we will pay him as severance an amount equal to one month of his base salary for every full year of full-time employment, subject to a minimum of six months and a maximum of nine months, payable in substantially equal installments on a bi-weekly basis over the applicable severance period, and we will reimburse him for COBRA insurance premiums for a period of months equal to the number of months paid in severance. Mr. Wolff has been employed with us for six years. Mr. Wolff will not receive any such severance payment or benefits upon the consummation of a Qualifying CiC because his employment with us will automatically terminate upon the consummation of such Qualifying CiC due to his resignation without good reason.

In addition to the accrued obligations, if Ms. Gurrola’s employment with us is terminated by us without cause or by her for good reason, subject to her delivering to us a general release of claims in our favor, we will pay her as severance an amount equal to two months of her base salary, payable in one lump sum, plus the incentive compensation she is eligible to receive under the 2020 Incentive Plan, and if so paid, she will waive payment to her of such incentive compensation under the 2020 Incentive Plan. We will also reimburse her for COBRA insurance premiums for a period of nine months. Ms. Gurrola has been employed with us for over 11 years.

In the event of a change in control and if the executive is employed by us through the effective date of the change in control, then 100% of the then unvested portion of the stock units and stock options we granted to each of Mr. Wolff and Ms. Gurrola then outstanding will vest and, as applicable, become exercisable as of immediately before such effective date.

Other than as described above and the agreements that govern their equity awards, we do not have any contract, agreement, plan or arrangement, whether written or unwritten, that provides for payment to a named executive officer at, following, or in connection with the resignation, retirement or other termination of a named executive officer, or a change in control or a change in the named executive officer’s responsibilities following a change in control.

Outstanding Equity Awards at Fiscal Year-End

The following table sets forth information concerning equity awards held by the named executive officers that were outstanding as of December 31, 2020:

We account for stock-based payments including equity awards under our equity incentive plans in accordance with the requirements of FASB ASC No. 718, Compensation – Stock Compensation. For a discussion regarding the effect of a change in control on certain equity awards held by Mr. Wolff and Ms. Gurrola, see “Termination of Employment and Change-in-Control Arrangements,” above.

Director Compensation

We compensate our non-employee directors for their service in such capacity with annual retainers and equity compensation as described below. Directors who are also our employees do not receive any additional compensation for their services as directors. We do not pay fees to any of our directors for meeting attendance. The N&CG/C Committee reviews our non-employee director compensation practices and policies at least annually and makes a recommendation to our board of directors as to the amount, form and terms of non-employee director compensation. Our board of directors, taking the N&CG/C Committee’s recommendation into consideration, sets the amount, form and terms of non-employee director compensation.

Annual Retainers

We pay our non-employee directors a $25,000 annual retainer for their services as directors. We pay the chairman of our board of directors, assuming she or he is a non-employee director, an additional $20,000 annual retainer for services in such capacity. We pay our non-employee directors an additional annual retainer for their service on board committees as set forth in the table below.

The annual retainers are paid quarterly in arrears and are paid no later than 30 days following the end of the applicable quarter. Each non-employee director may elect that the retainer payment he or she is eligible to receive, or a portion of such retainer, be paid in the form of a restricted stock award under our equity incentive plan rather than cash. Such an election must be made during an open trading window under our insider trading policy and no later than the 15th day of the last month of the quarter for which the retainer is to be paid. An election applies only to the quarter for which it is made. Once an election is made with respect to a quarter, it may not be withdrawn or substituted unless our board of directors determines, in its sole discretion, that the withdrawal or substitution is occasioned by an extraordinary or unanticipated event. Restricted stock awards will be made on the same date as a cash retainer payment would otherwise be paid, will vest in full on the date of grant, and the amount of shares subject to such award will equal the amount of the applicable cash retainer payment divided by the closing price of our common stock on the last day of the applicable quarter.

Equity Compensation

We grant stock options to our non-employee directors upon the commencement of their service as a director and upon their re-election to our board of directors. The stock options are granted under our stockholder-approved equity incentive plan.

In connection with the commencement of a new non-employee director’s term of service, we grant to such new director a stock option to purchase 600 shares of our common stock. These stock options have an exercise price equal to the closing price of our common stock on the date of grant, and are fully vested and exercisable on the date of grant as to 50% of the shares and the remaining 50% of the shares vest and become exercisable, subject to the director’s continued service on our board of directors, in 12 equal monthly installments beginning in the month immediately following the date of grant.

Each non-employee director who is re-elected for an additional term of service on our board of directors is automatically granted a stock option to purchase 400 shares of our common stock on the date of our annual stockholder meeting. These stock options have an exercise price equal to the closing price of our common stock on the date of grant and vest and become exercisable, subject to the director’s continued service on our board of directors, in 12 equal monthly installments thereafter.

The stock options described above expire on the earlier of 10 years from the date of grant or 90 days from the date the director ceases to serve on our board of directors. In the event of a change in control the N&CG/C Committee may in its discretion determine that these stock options vest and become fully exercisable as of immediately before such change in control.

2020 Director Compensation

The following table sets forth the compensation of each director, who is not a named executive officer, for service during 2020. This table excludes Mr. Wolff, who is a named executive officer and does not receive any compensation from us for his service as a director. See the section above entitled “Executive Compensation” for information about Mr. Wolff’s compensation.

ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table sets forth the number and percentage ownership of NTN common stock as of March 9, 2021 by:

Except as otherwise indicated in the footnotes to the table below: (i) each of the persons named has sole voting and investment power with respect to the shares of common stock shown, subject to applicable community property and similar laws; and (ii) the address for each director and named executive officer is c/o NTN Buzztime, Inc., 6965 El Camino Real, Suite 105-Box 517, Carlsbad, California 92009. The information in the table is based solely on statements in filings with the SEC or other reliable information.

Equity Compensation Plan Information

The following table sets forth information as of December 31, 2020 regarding our compensation plans authorizing us to issue equity securities and the number of securities.

ITEM 13. Certain Relationships and Related Transactions, and Director Independence

Related Party Transactions

Since January 1, 2019, there has not been nor are there currently proposed any transactions or series of similar transactions to which we were or are to be a party in which the amount involved exceeds the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two completed fiscal years (which was $89,000) and in which any director, executive officer, holder of more than 5% of our common stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest.

Company Policy Regarding Related Party Transactions

Pursuant to its charter, our audit committee has the responsibility to review, approve and oversee any transaction between the Company and a related person (as defined in Item 404 of Regulation S-K) and to develop policies and procedures for the committee’s approval of such transactions.

Indemnity Agreements

We have entered into indemnity agreements with each of our directors and executive officers. The indemnity agreements provide that we will indemnify these individuals under certain circumstances against certain liabilities and expenses they may incur in their capacities as our directors or officers. We believe that the use of such indemnity agreements is customary and that the terms of the indemnity agreements are reasonable and fair to us, and are in our best interests to attract and retain experienced directors and officers.

Director Independence

Our board of directors has determined that each of our current directors other than Mr. Wolff is independent as defined under NYSE American listing standards. Our board of directors has also determined that each current member of each of our Audit Committee and Nominating and Corporate Governance/Compensation Committee is independent as defined under the NYSE American listing standards and applicable SEC rules. In making this determination, our board of directors found that none of these directors had a material or other disqualifying relationship with us.

ITEM 14. Principal Accountant Fees and Services

The following table presents the aggregate fees billed for each of the last two fiscal years for professional services rendered by Squar Milner LLP (which effective as of November 1, 2020, merged with Baker Tilly US, LLP) for the audit of our annual financial statements, review of our quarterly financial statements and for other services:

Audit Committee Pre-Approval Policies and Procedures

The audit committee has adopted a policy whereby all engagements of our independent auditor must be pre-approved by the audit committee. The audit committee has delegated to its chairman the authority to evaluate and approve engagements on behalf of the committee in the event that a need arises for pre-approval between committee meetings. If the chairman approves any such engagements, the chairman reports that approval to the full committee at the next committee meeting.

All audit and permitted non-audit and tax services must be pre-approved by the audit committee except for certain services other than audit, review or attest services that meet the “de minimis exception” under 17 CFR Section 210.2-01, namely:

During fiscal years 2020 and 2019, there were no such services that were performed pursuant to the “de minimis exception.”

PART IV

ITEM 15. Exhibits, Financial Statement Schedules

(a) The following documents are filed as a part of this report:

(1) Consolidated Financial Statements. The consolidated financial statements of the Company and its consolidated subsidiaries are set forth in the “Index to Consolidated Financial Statements” on page F-1.

(2) Financial Statement Schedules. None

(3) Exhibits.

ITEM 16. Form 10-K Summary

None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Allen Wolff and Sandra Gurrola, and each of them acting individually, as his or her true and lawful attorneys-in-fact and agents, each with full power to act alone, with full powers of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this annual report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them or their substitute or resubstitute, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

NTN BUZZTIME, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of NTN Buzztime, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of NTN Buzztime, Inc. and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive loss, shareholders’ equity and cash flows for each of the years then ended, and the related notes to the consolidated financial statements (collectively, the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Going Concern Uncertainty

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 5 to the financial statements, the Company incurred a significant net loss for the year ended December 31, 2020 and as of December 31, 2020 had a negative working capital balance, and does not expect to have sufficient cash or working capital resources to fund operations for the twelve-month period subsequent to the issuance date of these financial statements. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters also are described in Note 5. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the Company’s audit committee and that: (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Revenue Recognition

Critical Audit Matter Description

As discussed in Note 6 to the consolidated financial statements, the Company generates revenue by charging subscription fees to partners for access to its 24/7 trivia network, by selling and leasing tablet and hardware equipment for custom usage beyond trivia/entertainment, by selling digital-out-of-home advertising direct to advertisers and on national ad exchanges, by licensing its entertainment and trivia content to other entities, and by providing professional services such as custom game design or development of new platforms on its existing tablet form factor.

In general, when multiple performance obligations are present in a customer contract, the transaction price is allocated to the individual performance obligation based on the relative stand-alone selling prices, and the revenue is recognized when or as each performance obligation has been satisfied. Discounts are treated as a reduction to the overall transaction price and allocated to the performance obligations based on the relative stand-alone selling prices. All revenues are recognized net of sales tax collected from the customer.

The related audit effort in evaluating management’s judgments in determining revenue recognition for these customer agreements was extensive and required a high degree of auditor judgment.

How We Addressed the Matter in Our Audit

The primary procedures we performed to address this critical audit matter included:

Capitalized software development costs

Critical Audit Matter Description

As discussed in Note 6 to the consolidated financial statements, the Company capitalizes costs related to developing certain internal-use software in accordance with ASC No. 350-40. The Company recognizes the capitalized costs on a straight-line basis over the estimated useful lives, which are generally two to three years. The Company capitalized $244,000 and impaired $248,000 of software costs in the year ended December 31, 2020 and had total capitalized software development costs, net of accumulated amortization, of $1.36 million as of December 31, 2020.

Auditing the Company’s capitalization of software development costs is complex. Management applies significant judgment in determining which software projects, and activities within those projects, qualify for capitalization, as only those costs incurred in certain stages of software development or implementation can be capitalized in accordance with the applicable accounting standards. In addition, measuring the appropriate amounts to capitalize requires the Company to maintain detailed records of time spent by personnel on implementation and development activities across all projects in development. Finally, management applies judgment in determining when to cease the capitalization of costs that will be placed in service.

How We Addressed the Matter in Our Audit

The primary procedures we performed to address this critical audit matter included, among others:

/s/ BAKER TILLY US, LLP

We have served as the Company’s auditor since 2013.

San Diego, California

March 11, 2021

NTN BUZZTIME, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value amount)