Filing summary
Entity discrepancy: The supplied filing is NTN Buzztime, Inc.’s Form 10-K, not an Ernexa Therapeutics Inc. filing. It reports the fiscal year ended December 31, 2011; quarterly figures below are for the three months ended December 31, 2011.
Business context
NTN Buzztime provides interactive trivia, sports and other games, advertising, and marketing services to hospitality venues. At year-end, its network served 3,932 locations in the United States and Canada, compared with 3,925 a year earlier. In October 2011, it acquired assets of Stump! Trivia, a live hosted-trivia business.
Financial performance and liquidity
- Full-year revenue: $23.87 million, down 6% from $25.31 million in 2010. Lower subscription revenue, fewer average sites, lower average revenue per site, and a $553,000 decline in advertising and other revenue were partly offset by $357,000 from Stump! Trivia.
- Profitability: Gross profit was $18.06 million versus $19.25 million; gross margin held at 76%. Operating loss widened to $3.28 million from $325,000, and net loss increased to $3.42 million from $400,000. Basic and diluted loss per share was $0.06 versus $0.01.
- Fourth quarter: Revenue was $6.10 million versus $6.34 million in Q4 2010. Operating loss was $908,000 and net loss was $1.04 million, compared with operating income of $286,000 and net income of $322,000 a year earlier.
- EBITDA: Full-year EBITDA, a non-GAAP measure, was $53,000 versus $2.94 million in 2010. Q4 EBITDA was $36,000 versus $1.14 million.
- Cash flow: Operating activities provided $574,000, down from $2.83 million. Investing activities used $2.79 million, including $1.59 million of capital expenditures, $1.08 million of software development spending, and $200,000 for acquisitions. Financing activities used $300,000.
- Balance sheet and liquidity: Cash and cash equivalents were $1.37 million, down from $3.91 million. Working capital shifted from positive $1.89 million to negative $1.07 million. Total assets were $11.65 million, total liabilities $5.30 million, and shareholders’ equity $6.35 million.
- Debt and obligations: The company reported $450,000 of capital-lease obligations and $110,000 outstanding on an equipment note payable at year-end. It also disclosed $4.34 million in future operating-lease payments.
Material changes and unusual items
- SG&A rose 8% to $20.45 million, driven mainly by higher payroll and headcount, executive severance and recruiting costs, consulting and legal fees, marketing, Playmaker development, and office relocation expenses.
- Depreciation and amortization outside direct costs increased to $891,000 from $665,000. The company also accelerated approximately $187,000 of amortization on a previously acquired customer-list intangible after customer attrition.
- The Stump! Trivia acquisition cost $250,000 in cash and included a $185,000 estimated earn-out liability. The acquired business contributed $357,000 of revenue and $15,000 of earnings after acquisition during 2011.
- Buffalo Wild Wings and its franchisees accounted for approximately 21% of 2011 revenue, up from 19% in 2010.
- A February 2012 rights offering and related investment agreement generated $2.5 million in gross proceeds. Matador Capital Partners, whose general partner is managed by director Jeff Berg, purchased 8 million shares at $0.25 per share under the agreement. The filing says cash, operating funds, and these proceeds were expected to cover operating cash needs for at least 12 months.
Outlook, risks and contingencies
Management’s strategy centers on growing subscriptions and advertising, expanding national accounts and live trivia, developing player rewards and marketing tools, and launching a tablet-style Playmaker device expected in late 2012. These are plans and expectations, not guaranteed outcomes; the filing provides no quantified revenue or earnings guidance.
- The company had a history of losses and a $110.72 million accumulated deficit. Management warned that additional capital might be needed and could be unavailable or dilutive; negative working capital and declining operating cash flow underscore this liquidity risk.
- Business risks include dependence on hospitality-sector demand, competition and rapid technology change, reliance on one Taiwanese Playmaker supplier, system outages, and customer concentration. Buffalo Wild Wings is a significant revenue source.
- Formal sales-tax assessments totaled $641,000. The company recorded a net liability of $604,000 at year-end and assessed payment of all or part of the assessments as reasonably possible. Other ordinary-course legal and tax inquiries were also disclosed.
- Federal and state net operating loss carryforwards were approximately $53.1 million and $20.0 million, respectively, but were subject to expiration beginning in 2012 and potential ownership-change limitations. A full valuation allowance covered substantially all deferred tax assets.
- NYSE Amex listing risk was disclosed: shares had traded below $1 for an extended period, and equity was $6.35 million after losses in each of the five most recent fiscal years.
Most important facts to verify
- Confirm the intended issuer: this filing is for NTN Buzztime, Inc., not Ernexa Therapeutics Inc.
- Review the audited financial statements and subsequent filings for cash burn, post-offering cash, and whether the stated 12-month liquidity expectation was achieved.
- Track subscriber-site trends, subscription revenue per site, advertising performance, and the Buffalo Wild Wings relationship.
- Check the outcome of the sales-tax assessments and any changes in the related reserve or liability.
- Assess the progress, cost, and commercial adoption of the new Playmaker and other planned digital and live-trivia initiatives.
- Verify the effect of the February 2012 share issuance on dilution, ownership, and exchange-listing compliance.