Filing summary
Registrant identity: The request names Ernexa Therapeutics Inc., but the supplied filing is NTN Buzztime, Inc.’s Form 10-Q. This summary reflects the filing itself. It covers the quarter and six months ended June 30, 2019; financial amounts below are in U.S. dollars, generally thousands unless noted.
Business context and reporting period
NTN Buzztime provides interactive games, entertainment and technology to bars, restaurants and other venues, earning revenue from subscriptions, equipment, advertising and related services. It reported 2,609 subscriber venues at June 30, 2019, down from 2,703 a year earlier. Buffalo Wild Wings corporate restaurants and franchisees accounted for approximately 47% of venues and 42% of first-half 2019 revenue.
Financial performance and position
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $5.226m | $5.651m | $10.058m | $11.412m |
| Operating loss | $2k | $27k | $219k | $340k |
| Net loss | $90k | $124k | $403k | $533k |
| Net loss per common share | $0.03 | $0.05 | $0.14 | $0.22 |
| Gross margin | 67% | 66% | 68% | 66% |
| EBITDA, company-reported non-GAAP | $686k | $691k | $1.198m | $1.016m |
For the first half, subscription revenue was $7.633m, hardware revenue $800k and other revenue $1.625m. Subscription revenue fell 6% year over year in both Q2 and the first half; total revenue declined 7.5% in Q2 and 12% in the first half. SG&A decreased 6.5% in Q2 and 10% in the first half. Interest expense and foreign-exchange losses contributed to other expense.
Six-month operating cash flow was $1.339m, compared with $239k in 2018; investing cash use was $718k and financing cash use was $468k. The operating cash inflow included favorable changes in operating assets and liabilities, including a $866k reduction in deferred revenue. Cash, cash equivalents and restricted cash totaled $2.978m at June 30; cash and cash equivalents alone were $2.727m, of which $251k was restricted. Working capital was $2.139m, down from $2.761m at year-end 2018.
At June 30, total assets were $15.639m, total liabilities $8.972m and shareholders’ equity $6.667m. Avidbank term debt was approximately $3.333m gross, due September 2022, with monthly principal payments of about $83k plus interest. The balance sheet also recognized $3.453m of operating lease liabilities following adoption of the new lease standard.
Material changes versus the prior comparable period
- First-half revenue fell $1.354m, mainly reflecting lower subscription, hardware and other revenue; venue count decreased by 94 year over year.
- Gross margin percentage improved to 68% from 66% for the first half, partly due to revenue mix and lower direct costs.
- Net loss narrowed by $130k for the first half. Operating cash flow increased, while financing cash flow shifted to a use of cash, in part because the 2018 period included $1.381m of proceeds from a registered direct offering.
- Adoption of ASC 842 in January 2019 added operating lease right-of-use assets and liabilities; management said the adoption did not materially affect earnings.
Outlook, risks and unusual items
- Buffalo Wild Wings concentration: Existing agreements were scheduled to terminate in November 2019. The company was discussing extensions, but expected any continuing relationship could be materially different and possibly mobile-only. One franchisee extended services at 64 locations through December 2020. Without replacement business or extensions, management expected subscription revenue to materially decrease beginning in Q1 2020.
- Liquidity and capital: Management said it believed available cash would cover operating needs and debt obligations for at least the next 12 months after the financial statements’ issuance. It was also evaluating additional financing, including equity and alternative debt; financing might not be available on acceptable terms or at all. The loan agreement restricts additional borrowing, subject to exceptions.
- Debt covenants: The company reported compliance at June 30 with a minimum trailing-six-month EBITDA covenant of $1m and a requirement to maintain at least $2m of unrestricted cash in Avidbank accounts. A covenant breach could permit acceleration of debt.
- Cost and product plans: The company had begun reducing certain expenses in anticipation of the Buffalo Wild Wings contract transition and expected 2019 SG&A to be less than $13.5m. It began field-testing lower-cost Buzztime Basic, then deployed in 80 locations, and released an open-beta mobile app. It completed rollout of a new advertising platform in Q2.
- Strategic alternatives: A process announced in December 2018, including a potential company or asset sale, remained ongoing; no decision or timetable was reported.
- Other disclosures: No pending material legal proceedings or off-balance-sheet arrangements were reported. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Key facts for investors to verify
- Confirm the intended issuer: the supplied 10-Q is for NTN Buzztime, Inc., not Ernexa Therapeutics Inc.
- Check the outcome of Buffalo Wild Wings and franchisee negotiations, contract expirations, and the resulting revenue and venue-count changes.
- Monitor unrestricted cash against the $2m loan covenant, covenant EBITDA, debt service and access to additional financing.
- Assess whether Buzztime Basic, the mobile app and the advertising platform generate enough new venues and revenue to offset customer concentration and subscription declines.
- Review the composition and sustainability of operating cash flow, particularly the effects of deferred revenue and other working-capital movements.
- Track execution and any announcement arising from the strategic-alternatives process.