Filing summary
Entity note: The supplied filing is NTN Buzztime, Inc.’s Form 10-Q, not an Ernexa Therapeutics Inc. filing. It covers the quarter ended September 30, 2012; financial statements are unaudited. Dollar amounts below are in millions unless stated otherwise.
Business context and reporting period
NTN Buzztime provides interactive games, live events, loyalty, digital signage and marketing services to hospitality venues, earning subscription and advertising revenue. Its network served 3,739 venues in the U.S. and Canada at quarter-end, down from 3,910 a year earlier. The company also acquired the Stump! Trivia hosted-events business in October 2011.
Financial performance and liquidity
- Third-quarter revenue: $6.05 million, up 3% from $5.87 million. Gross margin was $4.53 million (75% of revenue), versus $4.56 million (78%) a year earlier. Operating income was $99,000, compared with an operating loss of $795,000; net income was $54,000, versus a net loss of $837,000. Diluted earnings per share were reported as $0.00.
- Nine-month revenue: $18.13 million, up 2% from $17.77 million. Gross margin was $13.44 million (74%), compared with $13.52 million (76%). Operating loss was $1.54 million, versus $2.37 million; net loss was $1.62 million, versus $2.38 million. Diluted loss per share was $0.02, versus $0.04.
- Cash flow, first nine months: Operating activities provided $994,000, compared with $701,000. Investing activities used $2.03 million, including $966,000 in capital expenditures and $1.06 million in software development spending. Financing activities provided $2.03 million, largely from the February rights offering.
- Cash and working capital: Cash and cash equivalents were $2.41 million at September 30, up from $1.37 million at December 31, 2011. Working capital was positive $453,000, versus negative $1.07 million at year-end 2011. Current assets were $4.32 million and current liabilities $3.87 million.
- Debt and equity: The company reported $80,000 outstanding on an equipment financing note and $202,000 in capital lease obligations at quarter-end. It raised $2.5 million gross through a rights offering and related investment agreement, issuing shares at $0.25 each; net proceeds reported in cash flow were $2.31 million. Common shares outstanding increased to 71.1 million from 60.9 million at year-end.
Changes versus the prior comparable periods
- Stump! Trivia contributed $433,000 of third-quarter revenue and $1.31 million for the nine-month period, partly offsetting lower subscription revenue. Management attributed subscription declines to fewer average sites and lower average revenue per site.
- Third-quarter SG&A fell 18% to $4.26 million, and nine-month SG&A fell 6% to $14.44 million. The filing attributes reductions mainly to the second-quarter 2012 reorganization, partly offset by higher consulting, maintenance and, for the nine-month period, severance and bad-debt expenses.
- Direct costs rose faster than revenue in both comparisons, reducing gross margin percentages by three percentage points in the quarter and two points for the nine months.
- Nine-month EBITDA, a non-GAAP measure, was $626,000 versus $17,000. Third-quarter EBITDA was $803,000 versus negative $67,000.
Outlook, risks and unusual items
- Management said cash on hand and expected operating cash flows should meet operating requirements for at least the next 12 months. It cautioned that a shortfall could require reduced spending, asset sales or additional financing, which might not be available on acceptable terms or at all. No specific financial guidance was provided.
- Buffalo Wild Wings and its franchisees represented approximately 22% of third-quarter revenue and 23% of nine-month revenue in 2012, creating customer concentration risk.
- The company had no alternative supplier for its traditional Playmaker devices; a supplier change could delay supply. It also had a verbal commitment to purchase approximately $320,000 of tablets, with most purchases expected in fourth-quarter 2012.
- Sales and use tax inquiries included formal assessments totaling $665,000. The recorded sales-tax liability was $450,000 at September 30; management considered payment of all or part of the assessments reasonably possible.
- A dispute and lawsuit concerning expired equipment leases were resolved in September 2012. The negotiated equipment purchase cost was reflected in the financial statements and was not materially different from the estimate previously recorded. The filing reports no other legal proceedings.
- Management reported no indication of goodwill impairment at September 30. Certain abandoned software projects had no net book value and therefore no 2012 impairment loss was recorded.
Important facts for investors to verify
- Confirm the issuer identity: this filing is for NTN Buzztime, Inc., notwithstanding the request metadata naming Ernexa Therapeutics Inc.
- Track subscriber counts, subscription revenue per site and Stump! Trivia’s contribution and profitability, since acquired-business revenue partly offset core subscription declines.
- Assess whether operating cash generation can fund planned software development, capital spending and the tablet rollout without further financing.
- Review the outcome and potential cash impact of the sales-tax assessments, and monitor reliance on Buffalo Wild Wings and the single-source Playmaker supplier.
- Consider the impact of the rights offering and increased share count on per-share results and potential dilution.