Filing summary
Entity: The filing identifies the registrant as NTN Buzztime, Inc., not Ernexa Therapeutics Inc. This is its unaudited Form 10-Q for the quarter and nine months ended September 30, 2020, filed November 13, 2020. Financial statement amounts below are in U.S. dollars.
Business context and reporting period
NTN provided interactive entertainment, games, tablets, and advertising services primarily to bars and restaurants. At September 30, 2020, 1,080 venues subscribed, down from 2,565 a year earlier. The company had sold its live-trivia assets in January 2020 and was pursuing a proposed merger with Brooklyn Immunotherapeutics and a sale of its legacy operating assets to eGames.com.
Financial performance and position
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Revenue, 2020 | $1.477 million | $4.625 million |
| Revenue, 2019 | $4.580 million | $14.638 million |
| Operating loss, 2020 | $1.418 million | $5.571 million |
| Net loss, 2020 | $1.481 million | $4.722 million |
| Net loss, 2019 | $0.351 million | $0.754 million |
| Gross margin percentage | 46% (2019: 71%) | 49% (2019: 69%) |
Revenue fell 68% in both comparison periods. Subscription revenue declined 72% in the quarter and 67% year to date; management attributed the decrease to COVID-19 disruption, fewer sites, lower revenue per site, and the loss of Buffalo Wild Wings locations. SG&A decreased to $2.068 million for the quarter and $6.743 million year to date, mainly reflecting lower staffing and spending; transaction-related professional fees partly offset these reductions.
For the first nine months, operating cash flow was negative $3.280 million, versus positive $1.761 million in 2019. Investing cash outflow was $0.194 million and financing cash inflow was $1.765 million. Cash and cash equivalents were $1.710 million at September 30, compared with $3.209 million at December 31, 2019. Working capital was negative $0.137 million.
Total assets were $5.054 million and shareholders’ equity was $0.495 million at September 30. Reported debt outstanding was approximately $3.350 million: $0.725 million under the Avidbank term loan, $1.625 million under the PPP loan, and $1.000 million under the bridge loan. The Avidbank term loan had a December 31, 2020 maturity and restrictive financial covenants; the company reported compliance at quarter-end.
Material changes and unusual items
- Quarterly subscription revenue declined to $1.053 million from $3.723 million. Venue count fell to 1,080 from 2,565; the filing cites both the termination of Buffalo Wild Wings agreements in 2019 and pandemic-related closures and customer losses.
- Other income for the nine months included a $1.225 million gain on the live-trivia asset sale. The company also recorded $0.662 million of goodwill impairment and $0.238 million of software impairment during the nine months.
- The company terminated its corporate headquarters lease, reporting approximately $3.5 million of reduced future lease cash obligations, subject to specified payments. It reduced headcount from 74 at year-end 2019 to 19 at September 30.
- In November 2020, the SBA approved forgiveness of approximately $1.093 million of the $1.625 million PPP loan, leaving about $0.532 million outstanding.
Outlook, transactions, risks, and contingencies
Management stated that COVID-19 materially harmed revenue, operating cash flow, and liquidity, and that the future financial effect could not be reasonably estimated. Approximately 11% of customers remained on subscription suspensions as of November 10, 2020; about 70% had been suspended at the pandemic peak. Management did not expect to replace the lost Buffalo Wild Wings revenue in the foreseeable future and expected advertising revenue to remain pressured.
Management concluded that substantial doubt existed about the company’s ability to continue as a going concern through the twelve months after issuance. It estimated available cash would fund forecast outlays only through mid-December 2020, or mid-January 2021 if it obtained an additional $0.5 million loan. Those estimates assumed continued management of vendor-payment timing and no Avidbank foreclosure action. Management said it needed to complete the merger or asset sale, or raise capital, to meet debt service and working-capital needs.
The proposed merger would make Brooklyn Immunotherapeutics a wholly owned subsidiary; Brooklyn’s members were expected to own approximately 94.08%–96.74% of the combined company on a fully diluted basis. The separate proposed asset sale would transfer NTN’s legacy business assets to eGames.com for $2.0 million, with the existing $1.0 million bridge loan applied to the purchase price if the sale closes. Both transactions remained subject to conditions, including stockholder approvals, and the filing gave no assurance either would close. The bridge loan bears 8% interest, increases to 15% upon default, and is due upon specified events, including December 31, 2020 if not otherwise resolved.
Six purported stockholder lawsuits filed in October 2020 challenged merger-related disclosures and sought, among other relief, an injunction or rescission. The company and directors denied the allegations and said they would contest them. NTN also reported NYSE American equity-listing deficiencies and a compliance plan period through September 27, 2021; delisting remained a risk. The company disclosed no material change in internal control over financial reporting and no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether and when the merger and asset sale closed, and the final transaction terms, approvals, ownership dilution, and any termination fees.
- Actual cash runway, financing availability, debt payments, and ongoing compliance with Avidbank covenants; the additional $0.5 million loan was not assured.
- The status and effects of PPP loan forgiveness, including the remaining balance.
- Changes in venue count, subscription suspensions, customer collections, and advertising revenue as pandemic conditions evolve.
- The outcome and potential cost of the merger-related litigation and the company’s NYSE American listing compliance.