Business context and reporting period
The supplied filing is NTN Buzztime, Inc.’s unaudited Form 10-Q for the quarter ended June 30, 2011, not a filing identified as Ernexa Therapeutics Inc. The company provides interactive entertainment and games to hospitality venues; it reported 3,904 network subscribers at quarter-end. About 98% of revenue came from recurring venue service fees.
Financial performance
Amounts are in U.S. dollars; financial statement amounts are in thousands unless stated otherwise.
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Revenue | $5.893 million | $6.191 million | $11.894 million | $12.462 million |
| Gross margin | $4.485 million; 76% | $4.664 million; 75% | $8.962 million; 75% | $9.395 million; 75% |
| Operating loss | $1.053 million | $407,000 | $1.573 million | $766,000 |
| Net loss | $984,000 | $457,000 | $1.543 million | $846,000 |
| EBITDA, non-GAAP | $(197,000) | $377,000 | $84,000 | $831,000 |
Six-month operating cash flow was $819,000, versus $868,000 in 2010. Investing activities used $1.430 million, including $1.062 million in capital expenditures and $458,000 in software development spending; financing activities used $207,000. Cash decreased $821,000 to $3.085 million. At June 30, current assets were $4.140 million and current liabilities $3.920 million, leaving working capital of $220,000, down from $1.891 million at year-end 2010.
Total liabilities were $4.753 million. The company reported no debt obligations other than capital leases, which totaled approximately $365,000, including current and long-term portions. Shareholders’ equity was $8.121 million.
Material changes versus prior periods
- Revenue fell 5% year over year for both the quarter and first half, primarily from lower subscriber counts and lower average revenue per site. Total subscribers declined to 3,904 from 4,009 a year earlier; U.S. subscribers were 3,657 and Canadian subscribers 247.
- Quarterly SG&A rose 9.7% to $5.374 million, mainly due to payroll, consulting for Playmaker development, and relocation expenses. First-half SG&A rose 4% to $10.206 million; lower bad-debt expense partly offset higher payroll and relocation costs.
- Net losses widened in both comparison periods. Six-month EBITDA fell to $84,000 from $831,000.
- Cash used in investing increased to $1.430 million from $1.090 million, primarily reflecting higher equipment purchases.
- Buffalo Wild Wings and its franchisees accounted for about 21% of revenue in both the quarter and first half of 2011.
Outlook, risks, contingencies, and unusual items
- Management said cash on hand and expected operating cash flows should cover operating requirements for at least the next 12 months. It cautioned that additional capital might be needed if cash and operating inflows prove insufficient, and financing may not be available on acceptable terms or at all.
- Management cited a $49,000 sales-tax refund and a $59,000 reduction in a 2009 acquisition earnout liability as key contributors to improved other income. Relocation expenses also affected SG&A; the headquarters move occurred in June 2011.
- Ongoing sales-tax inquiries include formal assessments totaling $705,000. The company recorded a related liability of $687,000 at June 30, 2011 and said payment of all or part of assessments was reasonably possible. Headquarters restoration costs were estimated and recorded, but the final amount remained under discussion with the landlord.
- The company relied on a single Taiwanese supplier for Playmaker devices and had no alternative source at the filing date; a supplier change could delay supply and harm operations.
- During the quarter the company sold most of its eBet investment for about $90,000 and recognized an $18,000 loss; it reported selling the remaining shares after quarter-end.
- Management reported effective disclosure controls and no material change in internal control during the quarter. It reported no material changes to previously disclosed risk factors and no legal proceedings.
Important facts for investors to verify
- Confirm the issuer identity: the supplied document is for NTN Buzztime, Inc., despite the request metadata naming Ernexa Therapeutics Inc.
- Track subscriber counts, revenue per site, and customer concentration, particularly the share attributable to Buffalo Wild Wings and its franchisees.
- Assess whether operating cash generation can support capital spending and liquidity, given the sharp decline in working capital and stated reliance on cash and operations.
- Review the status and potential outcome of the sales-tax assessments, headquarters restoration obligations, and Playmaker supplier dependence.
- Reconcile reported GAAP losses with the company’s non-GAAP EBITDA measure and monitor relocation, development, and other unusual costs.