SEC Filing Summary: NTN Buzztime, Inc. (10-Q)
Business Context and Reporting Period
This summary covers the quarterly report on Form 10-Q for NTN Buzztime, Inc. for the period ended September 30, 2008. The company operates primarily through its Entertainment division, which runs the Buzztime iTV Network, an interactive television promotional game network distributed to restaurants and sports bars. The company's former Hospitality division (NTN Wireless and Software Solutions) has been classified as discontinued operations following divestitures completed in 2007 and the wind-down of remaining services in Q3 2008. The company ceased operations in the United Kingdom during the third quarter of 2008.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2008 | Nine Months Ended Sep 30, 2008 |
|---|---|---|
| Revenue (Continuing Ops) | $6.77 million | $20.97 million |
| Net Loss (GAAP) | $(0.86) million | $(5.78) million |
| Net Loss (Continuing Ops) | $(1.03) million | $(5.44) million |
| Income (Discontinued Ops) | $0.18 million | $(0.33) million |
| Gross Margin % | 71% | 71% |
| Cash and Equivalents | $5.26 million (Sep 30, 2008) | $5.26 million (Sep 30, 2008) |
| Working Capital | $1.80 million | $1.80 million |
| EBITDA (Consolidated) | $(0.06) million | $(3.32) million |
Liquidity and Debt: As of September 30, 2008, the company held $5.26 million in cash and cash equivalents. The company has no debt obligations other than capital leases. Total liabilities were $5.12 million, primarily consisting of current liabilities including $1.12 million in sales tax payable.
Material Changes vs. Prior Period
- Revenue Decline: Revenue from continuing operations decreased 9% ($0.70 million) in the three months ended September 30, 2008, compared to the prior year period. This was driven by the closure of UK operations, the Chapter 7 bankruptcy of the Bennigan's restaurant chain, and pricing strategy changes. For the nine months, revenue decreased 8% ($1.88 million).
- Operating Expenses: Selling, general, and administrative (SG&A) expenses increased significantly for the nine months ended September 30, 2008, rising 16% ($2.76 million) compared to the prior year. This increase was primarily due to $1.01 million in consulting fees, $0.99 million in severance costs (including UK office closure and CEO departure), and increased legal and bad debt expenses.
- Discontinued Operations: The company recorded a net income of $0.18 million from discontinued operations in Q3 2008, largely due to the reversal of customer and warranty reserves deemed no longer necessary. This contrasts with a net loss of $0.17 million in the same period in 2007.
- Site Count: Total network subscribers decreased from 3,872 in September 2007 to 3,745 in September 2008, with the UK count dropping to zero.
Guidance, Outlook, and Risks
Outlook and Liquidity: Management believes existing cash and funds generated from operations will be sufficient to meet operating requirements for the next 12 months. The company anticipates investing approximately $300,000 to $400,000 in the fourth quarter of 2008 for capital equipment. No specific revenue or earnings guidance was provided in the text.
Risks and Contingencies:
- Legal Proceedings: On October 17, 2008, Trinad Capital Master Fund, Ltd. (a 12.2% shareholder) filed a "books and records" proceeding in Delaware Chancery Court, alleging mismanagement and fraud. The company intends to vigorously defend the claim.
- Sales Tax Exposure: The company is undergoing sales tax audits in several states. A reserve of $1.04 million has been recorded for sales tax exposure, including a significant assessment from Texas regarding cable television services. The company expects a settlement with Texas by December 31, 2008.
- Management Transition: The company is operating under an Interim CEO (Michael Fleming) following the departure of former CEO Dario Santana in May 2008, creating potential operational uncertainty.
- Investment Risk: The company holds an investment in eBet Limited (Australia) which has declined in value. While previously impaired, further declines are recorded in other comprehensive income.
Key Facts for Investor Verification
- Cash Burn Rate: Verify the sustainability of the $5.26 million cash balance given the net cash used in operating activities of $2.23 million for the nine months ended September 30, 2008.
- Sales Tax Resolution: Monitor the outcome of the Texas sales tax audit and settlement discussions, as the $1.04 million reserve represents a significant portion of current liabilities.
- Legal Defense Costs: Assess the potential financial and operational impact of the litigation filed by Trinad Capital Master Fund, Ltd.
- Revenue Concentration: Note that approximately 11-12% of revenue is derived from a single customer (Buffalo Wild Wings and franchises).
- Discontinued Operations Wind-down: Confirm that no further significant costs are expected from the wind-down of the Hospitality division, as management stated no additional expenses are anticipated.