Business Context and Reporting Period
This summary covers the Form 10-Q filed by NTN Buzztime, Inc. for the quarterly period ended March 31, 2008. The registrant operates primarily through its Entertainment division, which runs the Buzztime iTV Network for interactive television games in hospitality venues across North America and the UK. The company's Hospitality division (NTN Wireless and Software Solutions) has been classified as discontinued operations following a divestiture plan initiated in 2006.
Key Financial Metrics
| Metric | Q1 2008 | Q1 2007 |
|---|---|---|
| Revenues (Continuing Ops) | $7,182,000 | $7,733,000 |
| Net Loss | $(2,574,000) | $(767,000) |
| Operating Loss (Continuing Ops) | $(2,301,000) | $(812,000) |
| Gross Margin | 71% | 71% |
| Cash and Cash Equivalents | $7,854,000 | $10,273,000 (Dec 31, 2007) |
| Working Capital | $5,024,000 | $7,698,000 (Dec 31, 2007) |
| Net Cash Used in Operating Activities | $(1,238,000) | $251,000 (Provided) |
| EBITDA | $(1,751,000) | $288,000 |
Material Changes vs. Prior Period
- Revenue Decline: Revenues from continuing operations decreased by 7% ($551,000) primarily due to a reduction in the number of network subscribers (3,777 in Q1 2008 vs. 3,954 in Q1 2007).
- Increased Operating Expenses: Selling, general, and administrative (SG&A) expenses rose 27% to $7.23 million. This increase was driven by higher personnel costs ($804,000), bad debt expense ($130,000), marketing studies ($115,000), and a $292,000 impairment charge for abandoned software projects.
- Discontinued Operations: The Hospitality division reported a loss of $291,000 in Q1 2008, compared to a nominal loss of $4,000 in Q1 2007. The prior year included a $396,000 gain on the sale of NTN Wireless assets.
- Cash Flow Deterioration: The company shifted from generating $251,000 in operating cash flow in Q1 2007 to using $1.24 million in Q1 2008, largely due to the increased net loss.
Outlook, Risks, and Management Commentary
- Liquidity: Management believes existing cash ($7.85 million) and funds from operations are sufficient to meet requirements for the next 12 months. The company anticipates investing $1.5 million to $2.0 million in capital equipment in 2008.
- Restructuring: No restructuring costs were incurred in Q1 2008. The company previously restructured Canadian operations in 2007 and continues to wind down the Hospitality division, expecting dissolution of remaining services by June 2008.
- Legal Contingencies: The company is subject to sales and use tax audits in several states, including a significant audit in Texas. A reserve of $916,000 has been recorded for potential tax liabilities.
- Market Risk: The company holds an investment in an Australian licensee (eBet Limited) subject to market and currency risk. The investment value decreased by $125,000 in Q1 2008, recorded as other comprehensive loss.
Investor Verification Checklist
- Verify the sustainability of the 71% gross margin given the decline in subscriber count.
- Monitor the resolution of the Texas sales tax audit and the adequacy of the $916,000 reserve.
- Assess the impact of the $292,000 software impairment charge on future R&D productivity.
- Track the timeline for the complete wind-down of the Hospitality division and associated exit costs.
- Review the valuation and liquidity of the eBet Limited investment given continued market volatility.