Business context and reporting period
The supplied filing is NTN Buzztime, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2018—not a filing identified as Ernexa Therapeutics Inc. NTN Buzztime provides interactive entertainment and technology to venues, primarily bars and restaurants. It reported 2,703 subscriber venues at quarter-end, approximately 83% using its tablet platform.
Financial performance and liquidity
- Second quarter revenue: $5.651 million, up 2% year over year. Subscription revenue fell 5% to $4.041 million; hardware revenue rose 165% to $590,000; other revenue declined 7% to $1.020 million.
- First-half revenue: $11.412 million, up 6%. Subscription revenue decreased 4% to $8.106 million, hardware revenue increased 211% to $1.269 million, and other revenue increased 6% to $2.037 million.
- Profitability: Q2 operating loss was $27,000 and net loss was $124,000, versus losses of $26,000 and $164,000, respectively, in Q2 2017. First-half operating loss was $340,000 and net loss was $533,000, compared with $860,000 and $254,000 a year earlier. Basic and diluted loss per share was $0.05 for Q2 and $0.21 for the first half.
- Margins and EBITDA: Gross margin was $3.714 million, or 66%, in Q2 versus $3.918 million, or 71%, a year earlier. First-half gross margin was $7.508 million, or 66%, versus $7.306 million, or 68%. Non-GAAP EBITDA was $691,000 for Q2 and $1.016 million for the first half; first-half EBITDA declined from $1.170 million.
- Cash flow: First-half operating cash flow was $239,000, down from $2.806 million; investing cash use was $704,000, and financing cash provided was $921,000. Cash increased by $407,000 after the $49,000 adverse foreign-exchange effect, ending at $3.785 million. The prior-year operating cash flow benefited from a Buffalo Wild Wings prepayment not repeated in 2018.
- Balance sheet and debt: Working capital was positive $2.076 million, compared with negative $1.109 million at year-end 2017. Total assets were $16.356 million and total liabilities $9.820 million. Gross borrowings included $4.5 million under the East West Bank term loan and $260,000 under equipment financing; the bank loan matures November 2020. Principal-and-interest payments began in June 2018. Cash was $3.785 million.
Material changes and management commentary
- Subscriber venues declined to 2,703 from 2,768 a year earlier. Management attributed lower subscription revenue to reduced average site count and revenue per site. Buffalo Wild Wings and its franchisees accounted for 44% of Q2 revenue and 46% of first-half revenue.
- Management said increased equipment expense and depreciation, associated with installations and sales-type leases, contributed to lower gross margins. SG&A decreased 5% in Q2 and 4% in the first half, mainly reflecting lower payroll-related costs, partly offset by higher professional fees.
- First-half other expense was $167,000 versus $618,000 of other income in 2017, primarily because the prior period included a one-time supplier payment related to a resolved supply-chain matter.
- In June, the company sold 345,772 common shares at $4.50 per share, receiving approximately $1.381 million net. It said proceeds were for general corporate purposes. Common shares outstanding were 2,866,326 as of August 2, 2018.
- The company said it believed cash would cover operating requirements and debt obligations for at least 12 months after issuance of the financial statements, while continuing to evaluate additional financing. It warned that financing may not be available on acceptable terms, or at all.
Outlook, risks, and contingencies
- No quantified full-year revenue or earnings guidance was provided. Management anticipated making its smaller-form-factor site hub commercially available by late 2018 or early 2019, and described mobile trivia, tablet-free play, and expanded products as development initiatives.
- The planned expanded Buffalo Wild Wings rollout was on hold following the chain’s acquisition and ownership transition. The updated system was live at 31 locations; management said the new owner had no obligation to continue or expand the relationship beyond existing contracts.
- The company reported compliance with East West Bank covenants at June 30, 2018, but identified covenant failure as a risk that could accelerate debt repayment. The bank holds a first-priority security interest in substantially all personal property, including intellectual property. The filing lists minimum Adjusted EBITDA thresholds for 2018; beginning with the quarter ending March 31, 2019, a minimum fixed-charge coverage ratio replaces that covenant.
- NYSE American had accepted a plan allowing the listing to continue through March 20, 2019 while the company seeks compliance with the stockholders’ equity standard. The company said it must maintain at least $6 million of equity for two consecutive quarters; delisting proceedings could follow if it fails to regain compliance or make adequate progress.
- One unaffiliated supplier provides the tablets, cases, and charging trays, with no stated alternative supplier. Management also highlighted competition, technology change, customer concentration, financing needs, and execution risks. No pending material legal proceedings were reported. Management concluded disclosure controls were effective.
Important facts for investors to verify
- Confirm the issuer identity: the supplied filing is for NTN Buzztime, Inc., despite the request metadata naming Ernexa Therapeutics Inc.
- Review Buffalo Wild Wings/Inspire Brands contract status, deployment decisions, and the revenue concentration they represent.
- Check the company’s covenant calculations and compliance, particularly the Adjusted EBITDA thresholds and the transition to fixed-charge coverage requirements.
- Track cash use, scheduled principal-and-interest payments, potential financing needs, and progress toward NYSE American equity compliance.
- Assess whether site count, subscription revenue, margins, and new product initiatives support management’s stated operating plans.