Eterna Therapeutics (US:ERNA)2020-11-13 22:00PART I – FINANCIAL INFORMATION Item 1. Financial Statements The financial statements for the period ended September 30, 2020, reflect significant financial deterioration, net loss, and a going concern warning Condensed Consolidated Balance Sheets The balance sheet shows a significant contraction by September 30, 2020, with total assets down 64% and equity down 90% Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $1,710 | $3,209 | | Accounts receivable, net | $132 | $1,195 | | Goodwill | $0 | $696 | | Total Assets | $5,054 | $14,125 | | Liabilities & Equity | | | | Total current liabilities | $2,930 | $6,095 | | Total liabilities | $4,559 | $9,034 | | Total shareholders' equity | $495 | $5,091 | Condensed Consolidated Statements of Operations and Comprehensive Loss Operational performance worsened significantly, with total revenues falling 68% and net loss increasing to $4.7 million Statement of Operations Highlights (in thousands, except per share amounts) | Metric | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Subscription revenue | $3,779 | $11,356 | | Total revenue | $4,625 | $14,638 | | Total operating expenses | $10,196 | $15,173 | | Operating loss | $(5,571) | $(535) | | Net loss attributable to common shareholders | $(4,730) | $(762) | | Net loss per common share | $(1.62) | $(0.27) | Condensed Consolidated Statements of Cash Flows Cash flow from operations was a net use of $3.3 million, a sharp reversal from the prior year, leading to a $1.7 million decrease in cash Cash Flow Summary (in thousands) | Activity | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(3,280) | $1,761 | | Net cash used in investing activities | $(194) | $(964) | | Net cash provided by (used in) financing activities | $1,765 | $(826) | | Net decrease in cash, cash equivalents and restricted cash | $(1,699) | $(2) | Notes to Condensed Consolidated Financial Statements Notes detail a proposed merger and asset sale, severe COVID-19 impact, a going concern warning, goodwill impairment, and debt obligations - The company has entered into a merger agreement with Brooklyn Immunotherapeutics LLC and an asset purchase agreement with eGames.com Holdings LLC to sell its current business assets for $2.0 million and pivot to Brooklyn's biopharmaceutical business3941 - The COVID-19 pandemic has had an abrupt and substantial negative impact, causing material decreases in revenue and cash flow. At its peak, approximately 70% of customers had temporarily suspended their subscriptions44 - Management has concluded there is substantial doubt about the company's ability to continue as a going concern. Without the proposed merger/asset sale or new capital, the company projects it will only have sufficient cash through mid-December 2020 or mid-January 2021, depending on an additional loan4950 - In March 2020, the company recognized a full goodwill impairment charge of $662,000 related to its Canadian business, citing the uncertain impact of the COVID-19 pandemic135 - The company obtained a $1.625 million PPP loan in April 2020. Subsequently, in November 2020, approximately $1.093 million of this loan was forgiven103141 - The company terminated its corporate headquarters lease in June 2020 to reduce operating expenses, resulting in a gain on termination of approximately $8,000 and writing off related assets112115 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses severe operational and financial challenges due to COVID-19, drastic cost-cutting, and critical liquidity issues Overview and Highlights This section outlines the company's business, transformative strategic actions, and severe COVID-19 impact with cost-saving measures - The company has entered into a definitive merger agreement with Brooklyn Immunotherapeutics and an asset purchase agreement with eGames.com, signaling a complete exit from its historical interactive entertainment business163164165 - In response to the COVID-19 pandemic's impact, the company implemented significant cost-reduction measures, including reducing headcount from 74 to 22, terminating its corporate headquarters lease, and deferring a portion of the CEO's salary180184185 - The company secured a $1.0 million bridge loan from an affiliate of eGames.com in connection with the asset sale agreement to fund working capital and transaction-related costs177 Results of Operations Operating results deteriorated significantly, with total revenue decreasing 68% and net loss increasing to $4.7 million despite cost cuts Revenue Breakdown (Nine months ended September 30) | Revenue Stream | 2020 (in thousands) | 2019 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Subscription revenue | $3,779 | $11,356 | (67)% | | Hardware revenue | $421 | $811 | (48)% | | Other revenue | $425 | $2,471 | (83)% | | Total | $4,625 | $14,638 | (68)% | - The decrease in subscription revenue was driven by lower site count after the termination of the Buffalo Wild Wings agreement in November 2019 and the impact of the COVID-19 pandemic194 - Selling, general and administrative (SG&A) expenses for the nine months decreased by $3.6 million (35%) due to reduced payroll, marketing, and lease expenses, partially offset by increased professional fees for the merger and asset sale transactions209 - A full goodwill impairment charge of $662,000 was recorded in the first quarter of 2020 due to the uncertain future operating results of the Canadian business unit caused by the pandemic213 Liquidity and Capital Resources The company's liquidity is critical, with substantial doubt about its going concern ability and reliance on new capital or strategic transactions - Management concluded there is substantial doubt about the company's ability to continue as a going concern for the next twelve months220225 - The company projects its cash resources will only be sufficient to pay forecasted outlays through mid-December 2020. This could be extended to mid-January 2021 if an additional $500,000 loan is obtained222 - The company must comply with financial covenants on its Avidbank term loan, including a minimum liquidity covenant. Failure to comply, which is a risk in December 2020, could lead to default and foreclosure on all company assets223229 - To bolster liquidity, the company received a $1.625 million PPP loan in April 2020 and a $1.0 million bridge loan in September 2020234236 Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, NTN Buzztime, Inc. is not required to provide this information - The company is a smaller reporting company and is not required to provide the information for this item252 Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective, with no material changes in internal control over financial reporting - The Chief Executive Officer and Senior Vice President of Finance concluded that the company's disclosure controls and procedures were effective as of the end of the period255 - There were no material changes in internal control over financial reporting during the most recently completed fiscal quarter256 PART II – OTHER INFORMATION Item 1. Legal Proceedings The company and directors face six lawsuits alleging material omissions in the merger's S-4 Registration Statement, seeking to enjoin the merger - The company and its directors are defendants in six substantially similar lawsuits brought by stockholders arising from the proposed merger with Brooklyn Immunotherapeutics260 - The complaints allege violations of the Securities Exchange Act, claiming the Form S-4 Registration Statement failed to disclose material information regarding financial projections, conflicts of interest, and the sales process260 - The plaintiffs are seeking to enjoin the merger, receive damages, and force the dissemination of a revised Registration Statement260 Item 1A. Risk Factors The company highlights significant risks related to the proposed merger, ongoing COVID-19 impact, going concern issues, and potential delisting Risks Related to the Proposed Merger and Asset Sale Numerous risks exist for the proposed merger and asset sale, including failure to close, termination fees, significant stockholder dilution, and litigation - Failure to complete the merger may require NTN or Brooklyn to pay a $750,000 termination fee to the other party and would significantly harm NTN's stock price and future operations270271 - NTN stockholders will experience significant dilution, owning between approximately 3.26% and 5.92% of the combined company after the merger279 - There is a risk the merger will not close if conditions are not met, such as NTN's net cash deficit exceeding $3.0 million or Brooklyn failing to secure at least $10 million in cash268269 - Litigation related to the merger could incur significant costs, distract management, and potentially delay or enjoin the transaction293294 Risks Related to Our Business Fundamental business risks are severe, including COVID-19 impact, going concern warning, loan default risk, and potential NYSE American delisting - The company's cash flow and liquidity have been materially harmed by COVID-19, and it needs to raise capital or complete a strategic transaction in the near term to avoid potential restructuring, bankruptcy, or liquidation307312 - Failure to comply with financial covenants in the Avidbank loan agreement could lead to a default, making all debt immediately due and potentially resulting in foreclosure on all of the company's assets313314 - The company is not in compliance with NYSE American continued listing criteria regarding minimum stockholders' equity and is at risk of being delisted, which would harm its stock's liquidity and its ability to raise capital316318319 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds None - None324 Item 3. Defaults Upon Senior Securities None - None325 Item 4. Mine Safety Disclosures Not Applicable - Not Applicable326 Item 5. Other Information None - None327 Item 6. Exhibits This section lists key exhibits filed with the quarterly report, including merger and asset purchase agreements and loan notes - Key exhibits filed include the Agreement and Plan of Merger and Reorganization, the Asset Purchase Agreement, and the 8% Promissory Note related to the bridge loan329