Filing summary
Entity and period: The supplied filing is NTN Buzztime, Inc.’s Form 10-K for the fiscal year ended December 31, 2017, filed March 9, 2018. This does not match the request metadata identifying Ernexa Therapeutics Inc. or “2017 Q4”; the figures below cover the full fiscal year, not a standalone quarter.
Business context
NTN Buzztime provides subscription-based interactive entertainment and dining technology to bars and restaurants, primarily in North America. Its BEOND platform supports games and competitions as well as digital menus, ordering and payment. At year-end, 2,730 venues subscribed, down from 2,814 in 2016; approximately 81% used BEOND. Buffalo Wild Wings represented about 45% of venues and 41% of 2017 revenue.
Financial performance and condition
| Metric | 2017 | 2016 |
|---|---|---|
| Revenue | $21.274 million | $22.312 million |
| Gross margin | $14.519 million; 68.2% | $14.602 million; 65.4% |
| Operating loss | $1.402 million | $2.278 million |
| Net loss | $1.077 million | $2.923 million |
| EBITDA (non-GAAP) | $1.804 million | $0.578 million |
| Cash provided by operations | $0.549 million | $0.023 million |
Revenue declined 4.7%. Subscription revenue fell 2.9% to $16.949 million, attributed mainly to lower average site count; sales-type lease revenue fell 39.2% to $0.770 million. Gross margin percentage improved as direct costs decreased faster than revenue. The net loss narrowed, but 2017 included $0.889 million of other income, primarily a one-time supplier payment that management does not expect to recur.
Cash and cash equivalents were $3.378 million at year-end, down from $5.686 million. Investing activities used $1.452 million and financing activities used $1.468 million. The cash-flow statement reports a $2.371 million net decrease before the $0.063 million favorable exchange-rate effect; the resulting year-over-year cash decline was $2.308 million. Site equipment awaiting installation rose to $4.866 million from $2.998 million.
Working capital was negative $1.109 million, compared with positive $4.019 million in 2016. The principal driver was classification of the $4.5 million East West Bank term loan as current following a covenant breach. Total debt principal outstanding was approximately $5.123 million, including $0.623 million under equipment financing. Total shareholders’ equity was $5.536 million, below the NYSE American $6 million threshold discussed in the filing.
Material changes, outlook and risks
- Buffalo Wild Wings program: Buzztime completed much of the payment-functionality integration and delivered tablets to 28 locations. The broader rollout was put on hold following Buffalo Wild Wings’ acquisition by Arby’s, with a possible pause of up to six months.
- Other growth initiatives: Management expected casino slot-machine trivia installations under its Scientific Games license in Q2 2018. A tablet-sale contract signed in January 2018 was expected to generate deliveries and revenue between Q2 and Q3 2018. These are forward-looking expectations, not reported 2017 results.
- Credit covenant: The company breached the 1.25:1 minimum fixed-charge coverage covenant at December 31, 2017. It said the bank would forbear from action and management anticipated a waiver; the filing does not state that the waiver had been completed. The loan requires minimum unrestricted cash of $2 million, and scheduled principal-and-interest payments begin after the interest-only period ending June 2018. The facility matures November 29, 2020, and has no remaining borrowing availability.
- Liquidity and capital: Management stated it expected cash to cover operating needs and debt obligations for at least 12 months from issuance of the financial statements, while continuing to evaluate equity and other financing. Additional funding may be unavailable or dilutive; the credit agreement restricts additional borrowing.
- Customer and supply concentration: Buffalo Wild Wings contributed $8.678 million, or 41%, of 2017 revenue. One unaffiliated manufacturer supplied customized BEOND tablets, cases and charging trays, with no alternative supplier identified.
- Listing and other risks: The company warned that low equity could lead to renewed NYSE American noncompliance and potential delisting. Other disclosed risks include competition and technology shifts, execution and customer-retention challenges, cybersecurity and payment compliance, and sales/use-tax inquiries. No material litigation was reported as pending or threatened.
- Tax and unusual items: The 2017 tax provision was $66,000. The Tax Cuts and Jobs Act rate reduction required deferred-tax remeasurement and was reflected in an $8.791 million tax-reform impact in the tax reconciliation, substantially offset by a valuation-allowance change. Federal and state NOL carryforwards were approximately $66.554 million and $29.185 million, respectively; substantially all deferred tax assets had a valuation allowance.
Important facts for investors to verify
- Whether East West Bank formally waived the fixed-charge coverage covenant breach, and whether the company remained in compliance with all covenants after year-end.
- Subsequent cash balances, operating cash generation, debt payments and the company’s ability to maintain the $2 million minimum-liquidity covenant.
- Whether Buffalo Wild Wings resumed the BEOND menu, ordering and payment rollout, and the resulting customer concentration and revenue effects.
- Actual timing, installations and recognized revenue from Scientific Games and the 2018 tablet-sale contract.
- Any NYSE American compliance notice, equity financing, dilution or change in listing status.
- The effect of adopting ASC 606, which the company was still assessing and planned to implement using the full-retrospective method.