NTN Buzztime, Inc. — Q1 2020 Form 10-Q
Filing identity: The supplied filing is for NTN Buzztime, Inc., not Ernexa Therapeutics Inc. It covers the three months ended March 31, 2020; the statements are unaudited. The company reported significant COVID-19 disruptions and said these contributed to its late filing.
Business context
NTN Buzztime provides interactive entertainment, technology and advertising services to hospitality venues, including bars and restaurants. At quarter-end, 1,396 venues subscribed to its network, down from 2,632 a year earlier, primarily following the termination of Buffalo Wild Wings agreements in November 2019. The company also sold its Stump! Trivia and OpinioNation live-event assets in January 2020.
Financial performance and position
Amounts below are in U.S. dollars; financial-statement amounts are in thousands unless stated otherwise.
- Revenue: $2.394 million, down 50.5% from $4.832 million. Subscription revenue was $1.999 million, down 47.8%; hardware revenue was $16,000, down 92.2%; and other revenue was $379,000, down 52.3%.
- Profitability: Gross profit was $1.444 million versus $3.348 million; gross margin contracted to 60.3% from 69.3%. Operating loss was $2.521 million versus $217,000. Net loss was $1.218 million, or $0.42 per share, compared with a $313,000 loss, or $0.11 per share. EBITDA, a non-GAAP measure, was negative $646,000 versus positive $512,000.
- Unusual income and charges: Other income of $1.284 million included a $1.265 million gain on the live-trivia asset sale. The quarter also included $662,000 of goodwill impairment and $138,000 of capitalized-software impairment. Goodwill was reduced to zero.
- Cash flow: Operating activities used $1.165 million, versus $780,000 provided in Q1 2019. Investing activities used $140,000. Financing activities provided $388,000, including $1.166 million of net asset-sale proceeds and offset by debt payments. Cash, cash equivalents and restricted cash fell $988,000 to $2.421 million; unrestricted cash was $2.221 million.
- Liquidity and debt: Current assets were $4.265 million and current liabilities $4.352 million, a $87,000 working-capital deficit. Avidbank term-loan principal was $2.0 million at March 31. An amendment accelerated maturity to December 31, 2020 and scheduled principal payments through year-end. Total liabilities were $7.165 million, including $3.167 million of operating lease liabilities.
- Equity: Shareholders’ equity was $3.849 million, down from $5.091 million at December 31, 2019. Accumulated deficit was $132.675 million.
Material changes and management outlook
- Revenue declines reflected the loss of Buffalo Wild Wings business, lower average site count and revenue per site, the sale of live-trivia operations, and COVID-related disruption. Buffalo Wild Wings revenue fell to approximately $102,000 from $1.936 million.
- COVID-19 restrictions led customers to suspend subscriptions; at peak, approximately 70% requested temporary suspensions. Management expected the pandemic’s effects on subscription revenue, advertising revenue and cash flow to worsen in Q2 and persist while hospitality venues remained affected.
- Management said cash resources were expected to cover forecast outlays only through October 2020, conditional on a significant Q2 hardware order, continued working-capital management and no lender foreclosure. The company anticipated possible failure of its asset coverage ratio covenant at June month-end absent a rapid revenue recovery or substantial capital, potentially triggering default.
- Management concluded substantial doubt existed about the company’s ability to continue as a going concern for the twelve months after issuance. It was pursuing equity, alternative debt and strategic transactions, but had no arrangements or assurance of success. The board was evaluating strategic alternatives, including possible asset sales or a business combination; restructuring or liquidation were identified as possibilities.
- After quarter-end, the company received a $1.625 million Paycheck Protection Program loan on April 18, 2020, at 1% interest, maturing April 18, 2022. Some or all may be forgivable if used for qualifying costs; forgiveness was not assured.
- Cost reductions included eliminating capital projects and reducing staffing to 17 employees as of May 20, from 74 at December 31, 2019. The company was discussing loan covenant/payment relief, rent concessions and extended vendor terms. It also disclosed NYSE American listing noncompliance related to stockholders’ equity and prior losses; its compliance plan was awaiting a decision.
- The company stated its disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter. It reported no pending material legal proceedings.
Key investor verification points
- Confirm the correct issuer: this filing identifies NTN Buzztime, Inc., notwithstanding the request metadata naming Ernexa Therapeutics Inc.
- Review the Q2 subscription suspension and venue reopening trends, advertising recovery, and status of the anticipated hardware order.
- Verify cash runway, Avidbank covenant compliance and any loan modifications; assess the consequences of a covenant default given the lender’s first-priority security interest in personal property.
- Track capital-raising or strategic-transaction progress, restructuring risk, PPP loan use and any forgiveness determination.
- Monitor NYSE American’s decision on the compliance plan and the company’s ability to meet listing standards.
- Reconcile an apparent MD&A inconsistency: one liquidity discussion gives the quarterly net loss as $1.281 million, while the financial statements and other MD&A discussion report $1.218 million.