# Ernexa Therapeutics Inc.: Form 10-Q for the period ended Sep 30, 2017

- Company: [Ernexa Therapeutics Inc.](/companies/erna.md) (CIK 748592)
- Form: 10-Q
- Filed: 2017-11-08
- Accepted by EDGAR: Nov 8, 2017, 16:31 ET
- Period: 2017-09-30
- Accession: 0001493152-17-012607
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/748592/000149315217012607/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/748592/000149315217012607/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2017-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Selling, general and administrative | 3 months, 2017-07-01 to 2017-09-30 | $3.6m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2017-01-01 to 2017-09-30 | $11.6m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2017-07-01 to 2017-09-30 | −$53.0k | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2017-01-01 to 2017-09-30 | −$913.0k | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2017-07-01 to 2017-09-30 | $9.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2017-01-01 to 2017-09-30 | $21.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2017-07-01 to 2017-09-30 | −$184.0k | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2017-01-01 to 2017-09-30 | −$438.0k | us-gaap:NetIncomeLoss |
| Operating cash flow | 9 months, 2017-01-01 to 2017-09-30 | $1.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2017-01-01 to 2017-09-30 | $562.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2017-09-30 | $4.5m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2017-09-30 | $10.7m | us-gaap:AssetsCurrent |
| Total assets | at 2017-09-30 | $17.6m | us-gaap:Assets |
| Current liabilities | at 2017-09-30 | $10.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2017-09-30 | $11.5m | us-gaap:Liabilities |
| Current portion of debt | at 2017-09-30 | $5.2m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2017-09-30 | $6.1m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 31,252 characters.

#### CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

*This report and the documents incorporated herein by reference, if any, contain “forward-looking statements” – that is statements related to future events, results, performance, prospects and opportunities, including statements related to our strategic plans and targets, revenue generation, product availability and offerings, capital needs, capital expenditures, industry trends and our financial position. Forward-looking statements are based on information currently available to us, on our current expectations, estimates, forecasts, and projections about the industries in which we operate and on the beliefs and assumptions of management. Forward looking statements often contain words such as “expects,” “anticipates,” “could,” “targets,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “may,” “will,” “would,” and similar expressions. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our business, and other characterizations of future events or circumstances, are forward-looking statements. Forward-looking statements by their nature address matters that are, to different degrees, subject to risks and uncertainties that could cause actual results to differ materially and adversely from those expressed in any forward-looking statements. For us, particular factors that might cause or contribute to such differences include (1) our ability to compete effectively within the highly competitive interactive games, entertainment and marketing services industries, (2) the impact of new products and technological change, especially in the mobile and wireless markets, on our operations and competitiveness, (3) our ability to maintain or improve our relationship with Buffalo Wild Wings, who together with its franchisees accounted for a significant portion of our revenues, (4) our ability to maintain an adequate supply of the tablet and related equipment used in our BEOND product line, (5) our ability to adequately protect our proprietary rights and intellectual property, (6) our ability to raise additional funds in the future on favorable terms; we have borrowed substantially all amounts available to us under existing credit facilities and, subject to limited exceptions, our loan and security agreement with East West Bank prohibits us from borrowing additional amounts from other lenders, (7) our ability to significantly grow our subscription revenue and implement our other business strategies, (8) our ability to successfully and efficiently manage the design, manufacturing and assembly process of our BEOND tablet platform and (9) the other risks and uncertainties described in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, and described in other documents we file from time to time with the Securities and Exchange Commission, or SEC, including this report and our other Quarterly Reports on Form 10-Q. Readers are urged not to place undue reliance on the forward-looking statements contained in this report or incorporated by reference herein, which speak only as of the date of this report. Except as required by law, we do not undertake any obligation to revise or update any such forward-looking statement to reflect future events or circumstances.*

*You should read the following discussion of our financial condition and results of operations in conjunction with the consolidated financial statements and the notes to those statements included elsewhere in this report.*

### INTRODUCTION

Management’s discussion and analysis of financial condition and results of operations is provided as a supplement to the accompanying unaudited condensed consolidated financial statements and notes, included in Item 1 of this Quarterly Report on Form 10-Q, to help provide an understanding of our financial condition, the changes in our financial condition and our results of operations. Our discussion is organized as follows:

- *Overview and Highlights*. This section provides a general description of our business and significant events and transactions that we believe are important in understanding our financial condition and results of operations.
- *Critical Accounting Policies*. This section provides a listing of our significant accounting policies, including any material changes in our critical accounting policies, estimates and judgments during the three and nine months ended September 30, 2017 from those described in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K for the year ended December 31, 2016.
- *Results of Operations*. This section provides an analysis of our results of operations presented in the accompanying unaudited condensed consolidated statements of operations by comparing the results for the three and nine months ended September 30, 2017 to the results for the three and nine months ended September 30, 2016.
- *Liquidity and Capital Resources*. This section provides an analysis of our historical cash flows, as well as our future capital requirements.

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### OVERVIEW AND HIGHLIGHTS

### About Our Business and How We Talk About It

We deliver interactive entertainment and innovative dining technology to bars and restaurants in North America. Customers license our customizable solution to differentiate themselves via competitive fun by offering guests trivia, card, sports and single player games, nationwide competitions, and by offering self-service dining features including dynamic menus, touchscreen ordering and secure payment. Our platform can improve operating efficiencies, create connections among the players and venues and amplify guests’ positive experiences. Built on an extended network platform, our interactive entertainment system has historically allowed multiple players to interact at the venue, and now also enables competition between venues, referred to as massively multiplayer gaming. Our current platform, which we refer to as Buzztime Entertainment On Demand, or BEOND, was first introduced as a pilot program in December 2012, was expanded commercially during 2013, and the expansion was scaled during 2014. We continue to enhance our network architecture and the BEOND tablet platform and player engagement paradigms. We also continue to support our legacy network product line, which we refer to as Classic.

We currently generate revenue by charging subscription fees for our service to our network subscribers, by leasing equipment (including tablets used in our BEOND tablet platform and the cases and charging trays for the tablets) to certain network subscribers, by hosting live trivia events, by selling advertising aired on in-venue screens and as part of customized games and by pay-to-play single player games.

Over 136 million games were played on our network during 2016, and as of September 30, 2017, approximately 55% of our network subscriber venues are affiliated with national and regional restaurant brands, including Buffalo Wild Wings, Buffalo Wings & Rings, Old Chicago, Native Grill & Wings, Houlihans, Beef O’Brady’s, Boston Pizza, and Arooga’s.

We own several trademarks and consider the Buzztime®, Playmaker®, Mobile Playmaker, BEOND Powered by Buzztime and Play Along trademarks to be among our most valuable assets. These and our other registered and unregistered trademarks used in this document are our property. Other trademarks are the property of their respective owners.

Unless otherwise indicated, references in this report: (a) to “Buzztime,” “NTN,” “we,” “us” and “our” refer to NTN Buzztime, Inc. and its consolidated subsidiaries; (b) to “network subscribers” or “customers” refer to hospitality locations that subscribe to our network service; (c) to “consumers” or “players” refer to the individuals that engage in our games, events, and entertainment experiences available at hospitality locations, and (d) to “hospitality locations,” “venues” or “sites” refer to locations (such as a bar or restaurant) of our customers at which our games, events, and entertainment experiences are available to consumers.

### Our Strategy and Current Highlights

Below is a discussion of our strategy and highlights of accomplishments and milestones achieved during 2017:

*Scale digital menu and payment functionality.* We continue focusing on delivering digital menu and payment functionality on the tablet platform, which we believe will improve the operational and marketing value of our product offering. This expanded functionality will help us deliver an enhanced guest experience. Rolling out this functionality will continue to be a key focus for us for the rest of 2017 and for 2018. As previously announced in March 2017, we have expanded our relations with Buffalo Wild Wings, who chose us to be its provider of digital menu, order, and payment functionality, and since that time, we have continued making progress on the software integration. We expect our inventory balances to increase as we prepare to expand and support this relationship. We expect to begin rolling out our improved tablet platform system at certain Buffalo Wild Wings locations in the first quarter of 2018, and after the initial set of locations is running smoothly, we anticipate rolling out our system throughout the rest of Buffalo Wild Wings corporate and franchise locations with which we have partnered.

*Improve value and price for our “independent” customers.* During 2017, we continue to make progress on our hardware design and quality in order to reduce expense, while expanding capabilities, retaining consistency in the design and giving us the ability to offer flexibility in our pricing for quality independent customers.

*Refine our commercial execution.* We are focused on increasing our site count of both independent customers and chain customers. Receiving a reference from a national chain account, such as Buffalo Wild Wings, is critical to our chain efforts, and our ability to demonstrate Buffalo Wild Wings as a strategic user of the menu, order and pay functionality is critical to receiving that reference. For our independent customers, we continue to model and test our go-to-market efforts by improving our sales processes, technology and people.

*Expand revenue opportunities.* We intend to grow the consumer audience by engaging them more with improved entertainment experiences and providing premium content that we can monetize through direct payment. In addition, we have been researching and testing our services within adjacent markets, such as senior centers, car dealerships and casinos. As we announced earlier this year, we entered into a licensing agreement with Scientific Games to license our trivia games for installation on casino slot machines where we will earn a per game license fee for each slot machine that has one of our trivia games installed on it. We have completed our software integration and sales training, and we are excited about the value we feel we can bring to this market. We also continue to monetize the network through local and national advertising revenue streams. During the third quarter of 2017, we partnered with The Chive, a digital media company, to expand the size and reach of our network, which we believe will allow us to expand our advertising revenues.

### CRITICAL ACCOUNTING POLICIES

The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (GAAP). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to deferred costs and revenues, depreciation of fixed assets, the provision for income taxes including the valuation allowance, stock-based compensation, bad debts, investments, impairment of software development costs, goodwill, fixed assets, intangible assets and contingencies, including the reserve for sales tax inquiries. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Critical accounting policies and estimates are defined as those that are both most important to the portrayal of our financial condition and results and require management’s most subjective judgments.

There have been no material changes in our critical accounting policies, estimates and judgments during the three and nine months ended September 30, 2017 from those described in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K for the year ended December 31, 2016.

### RESULTS OF OPERATIONS

### Three and nine months ended September 30, 2017 compared to the three and nine months ended September 30, 2016

We generated a net loss of $184,000 and $438,000 for the three and nine months ended September 30, 2017, respectively, compared to a net loss of $573,000 and $2,464,000 for the three and nine months ended September 30, 2016, respectively.

### Revenue

The table below summarizes the type and amount of revenue we generated for the three and nine months ended September 30, 2017 and 2016:

|  | Three months ended September 30, 2017 $% of Total Revenue |  | 2016 $% of Total Revenue |  | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Subscription revenue | 4,279,000 | 82.3% | 4,378,000 | 80.4% | (99,000) | (2.3%) |
| Sales-type lease revenue | 116,000 | 2.2% | 142,000 | 2.6% | (26,000) | (18.3%) |
| Other revenue | 803,000 | 15.5% | 923,000 | 17.0% | (120,000) | (13.0%) |
| Total | 5,198,000 | 100.0% | 5,443,000 | 100.0% | (245,000) | (4.5%) |

|  | Nine months ended September 30, 2017 $% of Total Revenue |  | 2016 $% of Total Revenue |  | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Subscription revenue | 12,737,000 | 79.7% | 13,107,000 | 80.3% | (370,000) | (2.8%) |
| Sales-type lease revenue | 524,000 | 3.4% | 839,000 | 5.1% | (315,000) | (37.5%) |
| Other revenue | 2,717,000 | 16.9% | 2,386,000 | 14.6% | 331,000 | 13.9% |
| Total | 15,978,000 | 100.0% | 16,332,000 | 100.0% | (354,000) | (2.2%) |

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Subscription revenue decreased for the three and nine months ended September 30, 2017 primarily due to lower average site count when compared to the same periods in 2016. During the three and nine months ended September 30, 2017, equipment lease revenue recognized under sales-type lease arrangements decreased due to fewer installations of our BEOND platform for certain customers under sales-type lease arrangements when compared to the same periods in 2016. Equipment lease revenue is recognized when we lease the equipment. The equipment lease revenue is a one-time payment that covers the lease of the equipment for three-years, after which the lessee may purchase the equipment for a nominal fee or lease new equipment. We expect the amount of equipment lease revenue to continue fluctuating in correlation with customer contracts under sales-type lease arrangements. Other revenue decreased for the three months ended September 30, 2017 due primarily to a decrease in non-recurring professional services, offset by increased premium games revenue and our live hosted events when compared to the same period in 2016. For the nine months ended September 30, 2017, other revenue increased due to increases in non-recurring professional services, premium games revenue and our live hosted events when compared to the same period in 2016.

Geographic breakdown of our network subscribers is as follows:

|  | Network Subscribers as of September 30, 2017 | 2016 |
| --- | ---: | ---: |
| United States | 2,599 | 2,687 |
| Canada | 135 | 161 |
| Total | 2,734 | 2,848 |

### Direct Costs and Gross Margin

A comparison of direct costs and gross margin for the three and nine months ended September 30, 2017 and 2016 is shown in the table below:

|  | For the three months ended September 30, 2017 | 2016 | For the nine months ended September 30, 2017 | 2016 |
| --- | ---: | ---: | ---: | ---: |
| Revenues | $5,198,000 | $5,443,000 | $15,978,000 | $16,332,000 |
| Direct Costs | 1,539,000 | 1,747,000 | 5,013,000 | 5,623,000 |
| Gross Margin | $3,659,000 | $3,696,000 | $10,965,000 | $10,709,000 |
| Gross Margin Percentage | 70% | 68% | 69% | 66% |

The decrease in direct costs for the three and nine months ended September 30, 2017 compared to the same periods in 2016 was primarily due to decreased depreciation expense for capitalized site equipment and software development programs of $91,000 and $398,000, respectively, decreased equipment expense of approximately $54,000 and $189,000, respectively, which was related to lower sale-type lease revenue offset by increased repair expense, and decreased service provider fees of $56,000 and $239,000, respectively. These decreases were primarily offset by an increase in freight expense of approximately $33,000 and $212,000, respectively, for the three and nine months ended September 30, 2017 when compared to the same periods in 2016. At this time, we believe we have addressed the challenges we experienced in the past with our Gen II tablet platform equipment for which we previously recognized repair expense.

### Operating Expenses

|  | For the three months ended September 30, 2017 | 2016 | Change | For the nine months ended September 30, 2017 | 2016 | Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Selling, general and administrative | $3,636,000 | $4,007,000 | $(371,000) | $11,628,000 | $12,360,000 | $(732,000) |
| Depreciation and amortization (non-direct) | $76,000 | $103,000 | $(27,000) | $250,000 | $327,000 | $(77,000) |

#### Selling, General and Administrative Expenses

The decrease in selling, general and administrative expenses for the three months ended September 30, 2017 was primarily due to decreased payroll and related expense of $165,000, decreased marketing expense of approximately $61,000, decreased equipment expense of $57,000, decreased professional fees of $38,000 and decreased bad debt expense of $35,000 when compared to the same period in 2016.

The decrease in selling, general and administrative expenses for the nine months ended September 30, 2017 was primarily due to decreased payroll and related expense of $242,000, decreased marketing expense of approximately $199,000, decreased equipment expense of $91,000, decreased shareholder relations expense of $70,000, decreased occupancy fees of $68,000 and decreased service and professional fees of $57,000 when compared to the same period in 2016.

We anticipate that selling, general and administrative expenses will be just under $16.0 million for the full year 2017.

#### Depreciation and Amortization Expense

The decrease in depreciation and amortization expense for the three and nine months ended September 30, 2017 compared to the same periods in 2016 is primarily due to assets becoming fully depreciated or amortized sooner than we are replenishing with new assets.

### Other Income (Expense), Net

|  | For the three months ended September 30, 2017 | 2016 | Increase in expense, net | For the nine months ended September 30, 2017 | 2016 | Increase in income net |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Total other (expense) income, net | $(122,000) | $(152,000) | $30,000 | $496,000 | $(455,000) | $951,000 |

The decrease in other expense, net for the three months ended September 30, 2017 was primarily due to less interest expense due to less outstanding long-term debt, offset by increased foreign currency transaction losses when compared to the same period in 2016. For the nine months ended September 30, 2017, the increase in total other income, net is primarily due to a one-time payment from a supplier as well as less interest expense due to less long-term debt outstanding. The one-time payment related to a supply chain matter that was resolved in exchange for such payment and which we do not expect to receive again.

### Income Taxes

|  | For the three months ended September 30, 2017 | 2016 | For the nine months ended September 30, 2017 | 2016 |
| --- | ---: | ---: | ---: | ---: |
| Provision for income taxes | $(9,000) | $(7,000) | $(21,000) | $(31,000) |

We expect to incur state income tax liability in 2017 related to our U.S. operations. We also expect to pay income taxes in Canada due to profitability of our Canadian subsidiary. We have established a full valuation allowance for substantially all deferred tax assets, including our net operating loss carryforwards, since we could not conclude that we were more likely than not able to generate future taxable income to realize these assets.

### EBITDA—Consolidated Operations

Earnings before interest, taxes, depreciation and amortization, or EBITDA, is not intended to represent a measure of performance in accordance with GAAP. Nor should EBITDA be considered as an alternative to statements of cash flows as a measure of liquidity. EBITDA is included herein because we believe it is a measure of operating performance that financial analysts, lenders, investors and other interested parties find to be a useful tool for analyzing companies like us that carry significant levels of non-cash depreciation and amortization charges in comparison to their net income or loss calculation in accordance with GAAP.

The reconciliation of our consolidated net loss calculated in accordance with GAAP to EBITDA for the three and nine months ended September 30, 2017 and 2016 is shown in the table below. EBITDA should not be considered as substitutes for, or superior to, net loss calculated in accordance with GAAP.

|  | For the three months ended September 30, 2017 | 2016 | For the nine months ended September 30, 2017 | 2016 |
| --- | ---: | ---: | ---: | ---: |
| Net loss per GAAP | $(184,000) | $(573,000) | $(438,000) | $(2,464,000) |
| Interest expense, net | 106,000 | 150,000 | 388,000 | 430,000 |
| Income tax provision | 9,000 | 7,000 | 21,000 | 31,000 |
| Depreciation and amortization | 586,000 | 704,000 | 1,716,000 | 2,191,000 |
| EBITDA | 517,000 | 288,000 | 1,687,000 | 188,000 |

### LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2017, we had cash and cash equivalents of $4,464,000 compared to $5,686,000 as of December 31, 2016.

As of September 30, 2017, we borrowed $6,500,000 in the aggregate under the EWB credit facility, of which $4,450,000 remained outstanding after paying in full the $2,000,000 outstanding under the sublimit in April 2017 and $50,000 on the revolving line. The remaining $4,450,000 is recorded in current portion of long-term debt on the accompanying consolidated balance sheet. As of September 30, 2017 and based on our borrowing base calculated as of that date, approximately $84,000 was available to borrow. All advances are due on January 15, 2018. Under the EWB credit facility, we are required to meet a minimum adjusted EBITDA target and churn rate targets. We were in compliance with these covenants as of September 30, 2017. As a result of paying the sublimit in full in April 2017, we were required to have a balance on deposit with EWB equal to 100% of the aggregate outstanding principal amount of the advances at that time. We complied with this covenant. For other information regarding the EWB credit facility, including how our borrowing base is determined, see “Note 4—Debt” to the Notes to Condensed Consolidated Financial Statements included in this report.

We have another financing arrangement with an equipment lender under which we may request funds to finance the purchase of certain capital equipment. The lender determines whether to extend such funds on a case-by-case basis, taking into account such factors as the lender considers relevant, including the amount outstanding under this financing arrangement. Through September 30, 2017, we borrowed $9,690,000 under this financing arrangement, and as of September, 2017, $804,000 remained outstanding. We currently do not expect the lender to lend any additional funds under this financing arrangement, and other than the EWB credit facility, we currently do not have any other source of debt financing. In addition, other than up to $2,000,000 in the aggregate that we may borrow for equipment financing with EWB’s consent, the EWB credit facility prohibits us from borrowing additional amounts from other lenders.

In connection with preparing the financial statement as of and for the three and nine months ended September 30, 2017, we evaluated whether there are conditions and events, considered in the aggregate, that are known and reasonably knowable that would raise substantial doubt about our ability to continue as a going concern within one year after the date that such financial statements are issued. As a result of such evaluation, we believe we will have sufficient cash to meet our operating cash requirements and to fulfill our debt obligations for at least the next twelve months from the issuance date of such financial statements. To increase the likelihood that we will be able to successfully execute our operating and strategic plan and to position us to better take advantage of market opportunities for growth, we are continuing to evaluate additional financing alternatives, including additional equity financings and alternative sources of debt. If our cash and cash equivalents are not sufficient to meet future cash requirements, we may be required to reduce planned capital expenses, reduce operational cash uses or raise capital on terms that are not as favorable to us as they otherwise might be. Any actions we may undertake to reduce planned capital purchases or reduce expenses may be insufficient to cover shortfalls in available funds. If we require additional capital, we may be unable to secure additional financing on terms that are acceptable to us, or at all.

#### Working Capital

As of September 30, 2017, we had negative working capital (current liabilities in excess of current assets) of $192,000 compared to working capital (current assets in excess of current liabilities) of $4,019,000 as of December 31, 2016. The following table shows our change in working capital from December 31, 2016 to September 30, 2017.

|  | Increase (Decrease) |
| --- | ---: |
| Working capital as of December 31, 2016 | $4,019,000 |
| Changes in current assets: |  |
| Cash and cash equivalents | (1,222,000) |
| Accounts receivable, net of allowance | (301,000) |
| Site equipment to be installed | 1,656,000 |
| Prepaid expenses and other current assets | (50,000) |
| Change in total current assets | 83,000 |
| Changes in current liabilities: |  |
| Accounts payable | 332,000 |
| Accrued compensation | (643,000) |
| Accrued expenses | 14,000 |
| Sales taxes payable | (53,000) |
| Income taxes payable | (1,000) |
| Current portion of long-term debt | 2,174,000 |
| Current portion of obligations under capital leases | 1,000 |
| Deferred revenue | 2,655,000 |
| Other current liabilities | (185,000) |
| Change in total current liabilities | 4,294,000 |
| Net change in working capital | (4,211,000) |
| Working capital as of September 30, 2017 | $(192,000) |

#### Cash Flows

Cash flows from operating, investing and financing activities, as reflected in the accompanying consolidated statements of cash flows, are summarized as follows:

| Cash provided by (used in): | For the nine months ended September 30, 2017 | 2016 |
| --- | ---: | ---: |
| Operating activities | $1,056,000 | $(28,000) |
| Investing activities | (1,118,000) | (684,000) |
| Financing activities | (1,230,000) | 464,000 |
| Effect of exchange rates | 70,000 | 41,000 |
| Net decrease in cash and cash equivalents | $(1,222,000) | $(207,000) |

*Net cash provided by operating activities.* The $1,084,000 increase in cash provided by operating activities was due to a net decrease in net loss of $1,726,000, after giving effect to adjustments made for non-cash transactions, and an increase in operating assets and liabilities of $642,000 during the nine months ended September 30, 2017 compared to the same period in 2016. The increase in operating assets and liabilities was primarily due to increased purchases of site equipment to be installed of $3,073,000 in preparation of expanding our relationship with Buffalo Wild Wings and to support that expansion. These purchases were offset by an increase in deferred revenue of $2,485,000, which was primarily related to a prepayment from Buffalo Wild Wings for equipment and services to be delivered in the future.

Our largest use of cash is payroll and related costs. Cash used for payroll and related costs decreased approximately $89,000 to $7,825,000 for the nine months ended September 30, 2017 from $7,914,000 during the same period in 2016.

Our primary source of cash is cash we generate from customers. Cash received from customers increased $3,412,000 to $20,724,000 for the nine months ended September 30, 2017 from $17,312,000 during the same period in 2016. This increase was primarily related to a prepayment from Buffalo Wild Wings for equipment and services to be delivered in the future.

*Net cash used in investing activities.* The $434,000 increase in cash used in investing activities was primarily due to increased software development expenditures and capital expenditures.

*Net cash (used in) provided by financing activities.* The $1,694,000 increase in cash used in financing activities was primarily attributable to the following:

- During the nine months ended September 30, 2016, we received proceeds from long-term debt of $2,114,000; there was no similar event during the same period in 2017;
- During the nine months ended September 30, 2017, our payments on long-term debt increased by $1,289,000 compared to the same period in 2016; and
- During the nine months ended September 30, 2017, we received net proceeds of $1,773,000 from our common stock offerings in March 2017 and April 2017; there were no similar events during the same period in 2016.

### RECENT ACCOUNTING PRONOUNCEMENTS

We have considered all recent accounting pronouncements issued since the last reporting of our consolidated financial statements, and we believe that these recent pronouncements will not have a material effect on our consolidated financial statements.

### OFF-BALANCE SHEET ARRANGEMENTS

We have no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in our financial condition, expenses, results of operations, liquidity, capital expenditures or capital resources.

## Market risk

As filed, 183 characters.

Under Securities and Exchange Commission, or SEC, rules and regulations, as a smaller reporting company we are not required to provide the information otherwise required by this item.

## Controls and procedures

As filed, 1,416 characters.

#### Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, our management evaluated our disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, or the Exchange Act) as to whether such disclosure controls and procedures were effective in providing reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and ensuring that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Based on our evaluation, our principal executive officer and principal financial officer concluded that such disclosure controls and procedures were effective as of the end of the period covered by this report.

#### Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 4,215 characters.

An investment in our common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described under Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2016 together with all other information contained or incorporated by reference in this report before you decide to invest in our common stock. If any of the risks described in this report or in our annual report occur, our business, financial condition, results of operations and our future growth prospects could be materially and adversely affected. Under these circumstances, the trading price of our common stock could decline, and you may lose all or part of your investment. As of the date of this report, we do not believe that there have been any material changes to the risk factors previously disclosed in our annual report other than as stated below.

***Although we have regained compliance with the continued listing standards of the NYSE American (formerly NYSE MKT) with which we were previously not compliant, if we are again determined to be non-compliant with any of its continued listing standards within twelve months of May 12, 2017, depending on the nature of such non-compliance, NYSE Regulation may truncate the compliance procedures available to us or immediately initiate delisting proceedings.***

On May 12, 2017, as previously reported, we received a letter from NYSE Regulation Inc. notifying us that we have regained compliance with Sections 1003(a)(ii) and (iii) of the NYSE American Company Guide. As previously reported, NYSE Regulation previously notified us that we were not in compliance with Section 1003(a)(iii) because we reported stockholders’ equity of less than $6 million as of September 30, 2015 and had net losses in five of our most recent fiscal years ended December 31, 2014 and that we were not in compliance with Section 1003(a)(ii) because we reported stockholders’ equity of less than $4 million as of December 31, 2015 and had net losses in three of our four most recent fiscal years ended December 31, 2015.

We will continue to be subject to NYSE Regulations’ normal monitoring. In accordance with Section 1009(h) of the Company Guide, if we are again determined to be below any of the continued listing standards within twelve months of May 12, 2017, NYSE Regulation will examine the relationship between the two incidents of noncompliance and re-evaluate our method of financial recovery from the first incident. NYSE Regulation will then take appropriate action, which, depending on the circumstances, may include truncating the compliance procedures described in Section 1009 of the Company Guide or immediately initiating delisting proceedings.

We can give no assurances that we will be able to maintain the listing of our common stock on the NYSE American. Our common stock could be delisted because we fall below compliance with any NYSE American listing standards. In addition, we may determine to pursue business opportunities or grow our business at levels or on timelines that reduces our stockholders’ equity below the level required to maintain compliance with NYSE American continued listing standards. The delisting of our common stock for whatever reason could, among other things, substantially impair our ability to raise additional capital; result in a loss of institutional investor interest and fewer financing opportunities for us; and/or result in potential breaches of representations or covenants of our warrants or other agreements pursuant to which we made representations or covenants relating to our compliance with applicable listing requirements. Claims related to any such breaches, with or without merit, could result in costly litigation, significant liabilities and diversion of our management’s time and attention and could have a material adverse effect on our financial condition, business and results of operations. In addition, the delisting of our common stock for whatever reason may materially impair our stockholders’ ability to buy and sell shares of our common stock and could have an adverse effect on the market price of, and the efficiency of the trading market for, our common stock.

Filed Nov 8, 2017.
Source: SEC EDGAR, the filing index for accession 0001493152-17-012607. Last ingested by Listed: Nov 6, 2026, 17:52 ET. No prices; not investment advice.