Business context and reporting period
The supplied filing is NTN Buzztime, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2016, not a filing identified as Ernexa Therapeutics Inc. NTN Buzztime provides interactive entertainment and dining technology to bars and restaurants, through subscription services, equipment leasing, live trivia and advertising. It reported approximately 2,903 subscriber venues, about 65% using its BEOND tablet platform.
Financial results and liquidity
Unless otherwise noted, amounts are in U.S. dollars. Revenue declined 4.3% to $5.482 million from $5.726 million in Q1 2015. Subscription revenue rose 4.1% to $4.374 million; sales-type lease revenue fell 52.9% to $396,000, primarily reflecting fewer BEOND installations; other revenue rose 3.8% to $712,000.
Gross margin increased to $3.446 million, or 63% of revenue, from $3.077 million, or 54%. The filing attributes the improvement mainly to lower equipment, scrap and repair costs. Operating expenses declined to $6.350 million from $7.932 million, including lower SG&A following 2015 restructuring and lower marketing expense. Operating loss was $868,000 versus $2.206 million; net loss improved to $1.041 million, or $0.01 per share, from $2.263 million, or $0.02 per share. Adjusted EBITDA, a non-GAAP measure, was positive $73,000 versus negative $1.132 million.
Operating cash flow was negative $504,000 versus positive $995,000; investing cash flow was negative $276,000 versus negative $437,000; financing cash flow was positive $1.053 million versus negative $632,000. Cash increased $326,000 during the quarter to $3.549 million. The company reported working capital of $2.292 million, down from $3.988 million at year-end, largely because $1.972 million of debt was reclassified as current.
Total debt was approximately $8.517 million at quarter-end: $6.5 million under the East West Bank facility and approximately $2.017 million under equipment financing. East West Bank availability was approximately $103,000 based on the borrowing base; approximately $551,000 remained available under the equipment financing arrangement. Management said existing cash and credit availability should cover operating needs and debt obligations for at least 12 months, while also evaluating additional financing alternatives.
Material changes, outlook and risks
- March 2016 amendments to the East West Bank loan increased interest margins through March 31, 2017, accelerated maturity to December 31, 2017, changed borrowing-base terms and added deposit and liquidity covenants. Rates on advances after the amendment were approximately 6.125%–6.188%. The company met adjusted EBITDA and trailing three-month churn targets at quarter-end; the lender waived a default arising from failure to meet the January monthly churn target.
- Management anticipated rolling out a redesigned pay-to-play arcade offering in Q2 2016 and scaling it during the year. A pay-to-play games lobby had launched at a few sites. Digital menu and payment functionality was in a Buffalo Wild Wings pilot.
- Buffalo Wild Wings and its franchisees accounted for approximately 42% of revenue in both periods, creating significant customer concentration. The filing also notes limited alternative supply sources for BEOND tablets and related equipment, and possible future repair costs.
- The company was out of compliance with NYSE MKT equity-related listing standards and had until May 13, 2017 to regain compliance under its accepted plan. It also disclosed an additional listing deficiency in April 2016 and the possibility of delisting. Management expected to seek shareholder approval for a proposed reverse/forward stock split; there was no assurance it would resolve listing concerns.
- Management reported no material change in critical accounting policies, no legal proceedings, and effective disclosure controls and procedures. The company expected state income tax liabilities in 2016 and Canadian income taxes due to its subsidiary’s profitability.
Important facts to verify
- Confirm the issuer identity: the supplied filing names NTN Buzztime, Inc., despite the request metadata naming Ernexa Therapeutics Inc.
- Verify subsequent results for revenue, recurring subscription growth, BEOND deployment costs and the planned premium-content rollout.
- Track cash burn, borrowing-base availability, debt maturities, interest costs and compliance with the amended loan covenants.
- Monitor progress toward NYSE MKT listing compliance, including the proposed reverse/forward split and potential dilution or liquidity effects.
- Assess the effects of Buffalo Wild Wings concentration and reliance on limited tablet and equipment supply sources.