Business context and reporting period
The supplied filing is NTN Buzztime, Inc.’s unaudited Form 10-Q for the three months ended March 31, 2017, filed May 4, 2017. This does not match the request metadata naming Ernexa Therapeutics Inc. NTN Buzztime provides interactive games and dining technology to bars and restaurants, earning revenue mainly from subscriptions, equipment leases, live events, advertising and games.
Financial performance
Amounts are in U.S. dollars; financial statement amounts below are in millions unless otherwise noted.
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Revenue | $5.231 | $5.482 |
| Gross margin | $3.388; 64.8% | $3.446; 62.9% |
| Operating loss | $(0.834) | $(0.868) |
| Net loss | $(0.090) | $(1.041) |
| Net loss per share, basic and diluted | $(0.04) | $(0.57) |
| EBITDA (non-GAAP) | $0.654 | $(0.138) |
| Operating cash flow | $(0.466) | $(0.504) |
| Investing cash flow | $(0.249) | $(0.276) |
| Financing cash flow | $1.135 | $1.053 |
Revenue declined 4.6%. Subscription revenue fell 3.4%, primarily due to lower average site count; sales-type lease revenue fell 53.3% with fewer BEOND installations; other revenue rose 15.2%, primarily on increased hosted events and professional services. Direct costs fell 9.5%, but gross profit declined 1.7%. Gross margin improved as equipment costs and depreciation declined, partly offset by $288,000 in tablet-case repairs.
Liquidity, debt and material changes
Cash was $6.113 million at March 31, versus $5.686 million at December 31, 2016. Working capital fell to $1.113 million from $4.019 million, primarily because $4.318 million of debt shifted into current liabilities. Total assets were $17.534 million and shareholders’ equity was $5.828 million.
Long-term debt totaled $7.752 million, including $7.306 million current and $0.446 million long-term; capital-lease obligations totaled $0.375 million. The East West Bank facility had $6.450 million outstanding at quarter-end and only approximately $20,000 available under the then-current borrowing base. In April, the company repaid the $2.0 million sublimit, leaving $4.450 million outstanding, and was required to maintain a deposit equal to all outstanding advances; it reported compliance. Advances mature January 15, 2018. Equipment notes had $1.302 million outstanding at March 31.
Operating cash use improved by $38,000 year over year. The company raised $1.554 million net in a March registered offering; cash increased by $427,000 from year-end, including the effect of exchange rates. The filing states management believed available cash would cover operating needs and debt obligations for at least 12 months from issuance, while continuing to evaluate further financing.
Outlook, commentary and risks
- Management expected 2017 selling, general and administrative expenses of approximately $17 million, with Q2 and Q3 expenses expected to exceed Q1 as it invests in growth and supports expanded Buffalo Wild Wings initiatives. It expected second-generation tablet-case repairs to decline as those cases were phased out by mid-2017, but cautioned that further equipment repairs could arise.
- Buffalo Wild Wings selected the company for digital menu, ordering and payment functionality. Buffalo Wild Wings corporate-owned restaurants and franchisees accounted for approximately 40% of Q1 revenue, versus 42% a year earlier. The company had 2,788 network subscribers, down from 2,903 a year earlier.
- Q1 other income included a one-time supplier payment related to a resolved supply-chain matter; management did not expect it to recur. Interest expense increased year over year.
- The company was not in compliance with NYSE MKT equity/listing standards and faced a May 13, 2017 plan deadline. After its April offering, it believed it would regain compliance, but the exchange would determine the outcome. Failure could lead to delisting.
- Key risks include reliance on Buffalo Wild Wings, a sole supplier for BEOND tablets and related equipment, limited remaining borrowing capacity and restrictions on additional borrowing, ability to raise capital, competition and execution of growth plans. Management reported effective disclosure controls; no material change in internal control was reported. No legal proceedings were listed.
Investor facts to verify
- Confirm the filing belongs to NTN Buzztime, not Ernexa Therapeutics, and verify the issuer and reporting period.
- Check the exchange’s determination on continued-listing compliance after the April 2017 equity offering.
- Review the credit facility’s borrowing-base calculations, deposit requirement, covenants and January 2018 maturity against subsequent disclosures.
- Track Buffalo Wild Wings relationship developments, customer concentration and subscriber trends.
- Assess recurring cash generation separately from the nonrecurring supplier payment and equity-offering proceeds.