Business context and reporting period
This filing is NTN Buzztime, Inc.’s unaudited Form 10-Q for the quarter ended September 30, 2013; the request metadata’s “Ernexa Therapeutics Inc.” does not match the issuer named in the filing. NTN Buzztime provides interactive games and marketing services to hospitality venues, primarily earning subscription and advertising revenue. Its network operated in 3,220 U.S. and Canadian locations at quarter-end, down from 3,739 a year earlier.
Unless noted otherwise, financial amounts below are in millions of U.S. dollars. The company reported results for the three and nine months ended September 30, 2013, compared with the same 2012 periods.
Financial performance and liquidity
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $5.526 | $6.050 | $17.174 | $18.131 |
| Gross margin | $3.994; 72% | $4.531; 75% | $12.157; 71% | $13.441; 74% |
| Operating income (loss) | $(0.236) | $0.099 | $(0.717) | $(1.541) |
| Net income (loss) | $(0.234) | $0.054 | $(0.702) | $(1.624) |
| EBITDA, non-GAAP | $0.445 | $0.803 | $1.485 | $0.626 |
For the nine months, operating cash flow was $1.069 million, investing cash outflow was $1.743 million, and financing cash inflow was $0.145 million. Cash decreased $0.553 million from year-end 2012 to $2.168 million. Working capital was $0.988 million, versus $0.841 million at December 31, 2012. At September 30, total liabilities were $4.407 million; the company reported approximately $0.320 million of notes payable and $0.089 million of capital lease balances. No debt-to-equity or interest-coverage measure is provided.
Material changes versus prior comparable period
- Revenue declined 9% in Q3 and 5% year to date. Management attributed the declines primarily to fewer network subscriber locations; slightly higher revenue per unit and, year to date, higher advertising revenue partly offset the decrease.
- Q3 gross margin fell to 72% from 75%; year-to-date margin fell to 71% from 74%. Direct operating costs rose 1% in Q3 and 7% year to date, notably reflecting equipment and content license costs.
- SG&A declined 5% in Q3 and 15% year to date, mainly due to lower payroll and other operating expenses. Year-to-date operating loss narrowed by $0.824 million and net loss by $0.922 million, but Q3 moved from income to a loss.
- Year-to-date operating cash flow increased $0.075 million, while investing cash use decreased $0.284 million. Financing cash inflow was substantially lower than in 2012, when the company received rights-offering proceeds.
Outlook, risks, contingencies, and unusual items
- Management stated that cash on hand, operating cash flows, and proceeds from the November 2013 private placement were expected to fund operating cash requirements for at least the next 12 months. The company was also evaluating additional financing; it cautioned that financing might not be available on acceptable terms or at all, and that expense reductions or asset sales might not cover a shortfall.
- After quarter-end, on November 12, 2013, the company raised $2.4 million gross in a private placement, issuing 6.0 million common shares and five-year warrants for 3.6 million shares at a $0.40 exercise price. This provided cash but diluted existing shareholders and may result in further dilution if warrants are exercised.
- Buffalo Wild Wings and its franchisees accounted for approximately 28% of revenue in both the three- and nine-month 2013 periods, compared with 22% and 23%, respectively, in 2012. The company also reported having no alternative sources at the time for certain Classic and tablet-playmaker equipment; supplier changes could disrupt operations.
- Ongoing sales-tax inquiries resulted in a recorded net liability of $29,000 at September 30, 2013. Management considered payment of all or part of assessments reasonably possible. The company recorded $115,000 of software-development impairment for the nine-month period, including $23,000 in Q3, after abandoning projects.
- Management reported no material change to previously disclosed risk factors. It also said disclosure controls were effective and no material internal-control change occurred during the quarter. The filing provides no formal numerical revenue or earnings guidance.
Important facts for investors to verify
- Confirm issuer identity: the filing is for NTN Buzztime, Inc., not Ernexa Therapeutics Inc.
- Assess whether subscriber losses and lower revenue can stabilize, and whether the company can restore gross margins.
- Review cash burn, operating cash-flow sustainability, capital needs, and the effect of the November equity-and-warrant financing on per-share ownership.
- Monitor Buffalo Wild Wings concentration, equipment-supplier continuity, and the resolution and potential cost of sales-tax inquiries.
- Check the reported debt and lease balances and the company’s ability to meet its stated 12-month liquidity expectation.