Business context and reporting period
This is NTN Buzztime, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2012. The filing describes an interactive entertainment and marketing-services business serving hospitality venues through subscriptions, advertising, and customized games; its network covered approximately 3,800 U.S. and Canadian locations. The filing names NTN Buzztime, Inc., not Ernexa Therapeutics Inc., as the registrant.
Financial performance and liquidity
Amounts below are in millions except per-share data and percentages.
| Metric | Three months ended June 30, 2012 | Six months ended June 30, 2012 |
|---|---|---|
| Revenue | $6.015 | $12.081 |
| Gross profit / margin | $4.461 / 74% | $8.910 / 74% |
| Operating loss | $(0.643) | $(1.640) |
| Net loss | $(0.633); $(0.01) per share | $(1.678); $(0.02) per share |
| EBITDA, a non-GAAP measure | $0.116 | $(0.177) |
| Operating cash flow | Not stated separately | $0.597 |
At June 30, cash and cash equivalents were $2.549 million; current assets were $3.754 million and current liabilities $3.655 million, leaving working capital of $0.099 million. Total liabilities were $5.161 million. Capital-lease obligations totaled $0.277 million ($0.215 million current); approximately $0.090 million remained on an equipment note payable. Cash increased from $1.374 million at year-end 2011, principally following $2.310 million of net proceeds from a February rights offering and related investment agreement. Six-month investing cash outflow was $1.537 million, including $0.819 million in capital expenditures and $0.718 million in software development expenditures.
Material changes versus comparable periods
- Quarterly revenue rose 2% year over year, while six-month revenue also rose 2%. Stump! Trivia contributed $0.435 million for the quarter and $0.875 million for the half-year, offset in part by lower subscription revenue associated with fewer sites and lower revenue per site.
- Network subscribers declined to 3,775 from 3,904 a year earlier. Buffalo Wild Wings and its franchisees accounted for approximately 23% of revenue in both 2012 periods, versus 21% in 2011.
- Gross margin declined from 76% to 74% for the quarter and from 75% to 74% for the half-year, with Stump! Trivia direct costs contributing to the increase.
- Quarterly net loss narrowed to $0.633 million from $0.984 million; six-month net loss widened to $1.678 million from $1.543 million. Six-month operating cash flow fell to $0.597 million from $0.819 million.
- SG&A was down 9% in the quarter and roughly flat for the half-year. Savings were partly offset by current-period severance and higher payroll and consulting costs.
Outlook, risks, contingencies, and unusual items
Management stated that existing cash and expected operating cash flows should cover operating cash requirements for at least the next twelve months. No specific revenue or earnings guidance was provided. Management cautioned that additional financing may not be available on acceptable terms if cash needs exceed available resources.
- A dispute with an equipment lessor has led to a Minnesota federal lawsuit and the lessor’s allegation of default. The company disputes default and says it is entitled to purchase expiring-lease equipment at fair market value; an adverse court outcome could trigger default across the lease facility.
- Sales-tax inquiries include formal assessments totaling $0.617 million. The company recorded a related liability of $0.500 million and assessed payment of all or part of the assessments as reasonably possible.
- The company relies on a single Taiwanese supplier for its Playmaker devices and reports no current alternative source; a supplier change could delay supply.
- Software projects were abandoned during the half-year, but the company reported no impairment loss because the assets had no remaining net book value. It reported no impairment of Canadian goodwill based on the business’s stability since its prior annual test.
- The Series A preferred stock carries a 10% cumulative annual dividend. The filing also reports a February 2012 equity issuance that raised $2.5 million gross and increased common shares outstanding.
Important facts for investors to verify
- Confirm the issuer: this source is NTN Buzztime, Inc.’s 10-Q, despite the request metadata naming Ernexa Therapeutics Inc.
- Review developments and potential exposure in the equipment-lease litigation, including any effect on equipment access or obligations.
- Track the outcome of the sales-tax assessments against the $0.500 million recorded liability.
- Assess whether the rights-offering proceeds and operating cash generation can sustain liquidity given ongoing losses and investment spending.
- Monitor subscriber trends, subscription revenue, and concentration in Buffalo Wild Wings, as well as the performance and expansion of Stump! Trivia.