Business context and reporting period
Entity discrepancy: The request identifies Ernexa Therapeutics Inc., but the supplied Form 10-Q is for NTN Buzztime, Inc. This summary reflects the filing provided. It covers the quarter and nine months ended September 30, 2016; financial amounts below are in U.S. dollars.
NTN Buzztime provides interactive entertainment and dining technology to bars and restaurants, including games, advertising and tablet-based services. At quarter-end, 2,848 venues subscribed, about 69% using its BEOND tablet platform. Buffalo Wild Wings and its franchisees represented 38% of third-quarter revenue and 40% of nine-month revenue.
Financial performance and liquidity
- Revenue: Third-quarter revenue was $5.44 million, down 10.5% year over year. Nine-month revenue was $16.33 million, down 9.3%. Subscription revenue increased 2.6% and 3.4%, respectively, while sales-type lease revenue fell 85.6% and 72.7%.
- Profitability: Third-quarter net loss was $573,000 versus $1.35 million; nine-month net loss was $2.46 million versus $6.24 million. Operating losses were $414,000 and $1.98 million, respectively. EBITDA, a non-GAAP measure, was $288,000 for the quarter and $188,000 for nine months, compared with losses of $526,000 and $3.68 million in 2015.
- Margins: Gross margin improved to 68% from 47% for the quarter and to 66% from 49% for nine months. Lower equipment costs, fewer lease-related installations and reduced scrap and repair costs contributed to the improvement.
- Cash flow: Nine-month operating cash use was $28,000, versus $2.22 million in 2015; investing cash use was $684,000 versus $1.29 million. Financing provided $464,000. Cash declined $207,000 to $3.02 million from year-end 2015.
- Liquidity: Working capital was $1.20 million, down from $3.99 million at December 31, 2015, primarily reflecting increased current debt maturities. Total current assets were $7.76 million and current liabilities $6.56 million.
- Debt and equity: Long-term debt, including current maturities, totaled approximately $7.99 million; capital lease obligations totaled $431,000. Shareholders’ equity was $1.79 million, down from $3.85 million at year-end.
Material changes versus the prior comparable period
- Revenue declined despite modest subscription growth, mainly because fewer BEOND installations reduced one-time sales-type lease revenue. Subscriber venues fell to 2,848 from 2,952 a year earlier.
- Lower direct costs and reduced selling, general and administrative expenses helped narrow losses. Nine-month SG&A fell $1.75 million, principally due to lower payroll costs.
- Other expense rose to $455,000 for nine months from $231,000, mainly due to higher interest expense and foreign-currency gains and losses.
- The March 2016 amendment to the East West Bank facility increased borrowing costs through March 2017, changed covenant measurement periods, required a cash-deposit balance beginning in March 2017 and moved the debt due date to December 31, 2017. The company reported meeting the specified Adjusted EBITDA and trailing-three-month churn targets through September; a January 2016 monthly churn miss had been waived by the lender.
Outlook, risks and unusual items
- Management stated that cash, the November equity-offering proceeds and East West Bank facility availability were expected to cover operating needs and debt obligations for at least the next 12 months. It was also evaluating further financing; no specific revenue or earnings guidance was provided.
- On November 4, 2016, after quarter-end, the company sold 412,071 shares at $6.64 per share and received approximately $2.7 million net. Proceeds were intended for general corporate purposes. Certain existing holders and senior executives participated.
- The company was out of compliance with multiple NYSE MKT equity listing standards, including the standard involving equity below $2 million. Its plan period to regain compliance with one standard ran through May 13, 2017; management warned that delisting remained possible and that the equity offering did not restore compliance with all applicable standards.
- Borrowing capacity was constrained: $6.5 million was outstanding under the East West facility and approximately $139,000 was available under its borrowing base at September 30. Management cited limited access to additional debt, potential need for further equity, dilution and the possibility that financing may not be available on acceptable terms.
- Execution risks include dependence on Buffalo Wild Wings, competition and technology changes, tablet supply and quality, and the ability to grow subscriptions. A Buffalo Wild Wings digital menu/payment pilot at 15 sites ended October 2; the company said it expected a customer decision by early January 2017. The filing also noted possible future tablet scrap and repair costs.
- The company had a full valuation allowance against substantially all deferred tax assets. No material change in critical accounting policies was reported; no legal proceedings were listed.
Important facts for investors to verify
- Confirm the intended issuer: the supplied filing is NTN Buzztime, not Ernexa Therapeutics.
- Review the debt agreement’s borrowing-base availability, covenant requirements, cash-deposit provisions and December 2017 maturity.
- Track progress toward NYSE MKT listing compliance and whether additional capital is needed.
- Assess the effect of the November share issuance on outstanding shares, dilution and liquidity.
- Monitor subscriber counts, subscription revenue, Buffalo Wild Wings relationship developments and the economics of the BEOND platform.