Business context and reporting period
The supplied filing is NTN Buzztime, Inc.’s unaudited Form 10-Q for the quarter ended September 30, 2011; it does not identify Ernexa Therapeutics Inc. Investors should verify the issuer before relying on this summary. NTN Buzztime provides interactive entertainment, advertising and marketing services to hospitality venues. About 98% of consolidated revenue came from recurring venue service fees; the network had 3,910 subscribers at quarter-end.
Financial results and position
Amounts below are in millions of dollars except per-share data and percentages.
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Revenue | $5.872 | $6.505 | $17.766 | $18.967 |
| Gross margin | $4.560; 78% | $4.983; 77% | $13.522; 76% | $14.378; 76% |
| Operating income (loss) | $(0.795) | $0.155 | $(2.368) | $(0.611) |
| Net income (loss) | $(0.837) | $0.124 | $(2.380) | $(0.722) |
| Net loss per share | $(0.01) | $0.00 | $(0.04) | $(0.01) |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $0.701 | $2.203 |
At September 30, 2011, cash was $2.462 million, current assets $3.484 million and current liabilities $3.844 million, producing negative working capital of $0.360 million. Total liabilities were $4.922 million. Capital-lease obligations totaled $0.451 million; a $0.123 million equipment-financing note was entered into in July at 5.85%, repayable over 36 months. Nine-month capital expenditures were $1.302 million and software development expenditures were $0.760 million. EBITDA, a non-GAAP measure reported by the company, was a loss of $0.067 million for Q3 and income of $0.017 million for the nine months.
Changes versus comparable periods
- Revenue declined 10% in Q3 and 6% year to date, attributed to fewer subscribers, lower average revenue per site, and weaker advertising and miscellaneous revenue. Subscribers fell from 4,015 to 3,910 year over year.
- Q3 results shifted from $0.124 million net income to a $0.837 million loss; the nine-month net loss widened from $0.722 million to $2.380 million.
- Q3 SG&A rose 11% to $5.180 million; nine-month SG&A rose 6% to $15.386 million, with payroll and marketing among the increases. Gross-margin percentage improved slightly in Q3 and was unchanged year to date.
- Nine-month operating cash flow fell by $1.502 million year over year, while cash declined $1.444 million from year-end 2010.
Outlook, risks 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 weaker cash generation could require reduced spending, asset sales or additional financing, which may not be available on acceptable terms. No numerical revenue or earnings guidance was provided.
- On October 5, 2011, after quarter-end, the company acquired assets of Trailside Entertainment for $250,000 plus potential earnout payments tied to 2012–2014 gross-profit targets. The preliminary allocation included $435,000 of customer-relationship intangibles and a $185,000 earnout liability; acquisition-related expenses of approximately $48,000 were recorded in Q3 SG&A.
- Sales-tax inquiries and assessments totaled $746,000; the company recorded a $690,000 liability and assessed the likelihood of paying all or part as reasonably possible.
- Buffalo Wild Wings and franchisees generated 22% of Q3 revenue and 21% of nine-month revenue. The company also relied on a single Taiwanese supplier for Playmaker devices, with no current alternative source.
- The company abandoned certain software projects and recorded impairment charges of $0.018 million in Q3 and $0.155 million for the nine months. It reported no goodwill impairment indicators at September 30.
- Management reported disclosure controls were effective and no material change in internal control over financial reporting. It stated there had been no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Confirm that NTN Buzztime, Inc., rather than Ernexa Therapeutics Inc., is the intended filing and issuer.
- Assess whether declining subscriber counts, per-site revenue and advertising can be reversed, and track customer concentration.
- Review cash burn, negative working capital, planned capital spending and management’s 12-month liquidity assessment.
- Follow the resolution and potential cash impact of sales-tax assessments, and the Trailside acquisition’s earnout and integration results.
- Monitor reliance on the sole Playmaker supplier and the company’s ability to fund operations if operating cash flows weaken.