NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
(1)
|
BASIS
OF PRESENTATION
|
Description
of Business
NTN
Buzztime, Inc. (the “Company”) was incorporated in Delaware in 1984 as Alroy Industries and changed its corporate
name to NTN Communications, Inc. in 1985. The Company changed its name to NTN Buzztime, Inc. in 2005 to better reflect the growing
role of the Buzztime consumer brand.
The
Company delivers interactive entertainment and innovative technology, including performance analytics, to help its customers acquire,
engage and retain its patrons. The Company’s tablets and technology offer engaging solutions to establishments with guests
who experience dwell time, such as in bars, restaurants, casinos and senior living centers. Casual dining venues subscribe to
the Company’s customizable solution to differentiate themselves via competitive fun by offering guests trivia, card, sports
and arcade games. The Company’s platform creates connections among the players and venues, and amplifies guests’ positive
experiences, and its in-venue TV network creates one of the largest digital out of home advertising audiences in the United States
and Canada. The Company also continues to support its legacy network product line, which it calls its Classic platform.
The
Company generates revenue by charging subscription fees to partners for access to its 24/7 trivia network, by selling and leasing
tablet and hardware equipment for custom usage beyond trivia/entertainment, by selling digital-out-of-home (DOOH) advertising
direct to advertisers and on national ad exchanges, by licensing its entertainment and trivia content to other entities, and by
providing professional services such as custom game design or development of new platforms on its existing tablet form factor.
Until February 1, 2020, the Company also generated revenue from hosting live trivia events. The Company sold all of its assets
used to host live trivia events in January 2020.
At
June 30, 2020, 1,219 venues in the U.S. and Canada subscribed to the Company’s interactive entertainment network. See Note
2 for more information regarding the impact of COVID-19 on these venues and the Company’s subscription revenues.
Basis
of Accounting Presentation
The
accompanying unaudited interim condensed financial statements have been prepared in accordance with accounting principles generally
accepted in the United States (“GAAP”) for interim financial statements and with the instructions to Form 10-Q and
Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete
financial statements. In the opinion of management, the accompanying condensed consolidated financial statements include all adjustments
that are necessary, which are of a normal and recurring nature, for a fair presentation for the periods presented of the financial
position, results of operations and cash flows of the Company and its wholly-owned subsidiaries: IWN, Inc., IWN, L.P., Buzztime
Entertainment, Inc., NTN Wireless Communications, Inc., NTN Software Solutions, Inc., NTN Canada, Inc., and NTN Buzztime, Ltd.,
all of which, other than NTN Canada, Inc., are dormant subsidiaries. All significant intercompany transactions have been eliminated
in consolidation.
These
condensed consolidated financial statements should be read with the audited consolidated financial statements and notes thereto
contained in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2019. The accompanying condensed
consolidated balance sheet as of December 31, 2019 has been derived from the audited financial statements at that date but does
not include all of the information and footnotes required by GAAP for complete financial statements. The results of operations
for the three and six months ended June 30, 2020 are not necessarily indicative of the results to be anticipated for the entire
year ending December 31, 2020, or any other period.
Reclassifications
Certain
reclassifications have been made to the prior period’s financial statements to conform to the current period presentation.
These reclassifications had no effect on previously reported results of operations or retained earnings.
The
negative impact of the COVID-19 pandemic on the restaurant and bar industry was abrupt and substantial, and the Company’s
business, cash flows from operations and liquidity suffered, and continues to suffer, materially as a result. In many jurisdictions,
including those in which the Company has many customers and prospective customers, restaurants and bars were ordered by the government
to shut-down or close all on-site dining operations in the latter half of March 2020. Since then, governmental orders and restrictions
impacting restaurants and bars in certain jurisdictions were eased or lifted as the number of COVID-19 cases decreased or plateaued,
but as jurisdictions began experiencing a resurgence in COVID-19 cases, many jurisdictions reinstated such orders and restrictions,
including mandating the shut-down of bars and the closing of all on-site dining operations of restaurants. The Company has experienced
material decreases in subscription revenue, advertising revenue and cash flows from operations, which the Company expects to continue
for at least as long as the restaurant and bar industry continues to be negatively impacted by the COVID-19 pandemic, and which
may continue thereafter if restaurants and bars seek to reduce their operating costs or are unable to re-open even if restrictions
within their jurisdictions are eased or lifted. For example, at its peak, approximately 70% of the Company’s customers had
their subscriptions to our services temporarily suspended. As of August 5, 2020, approximately 35% of the Company’s
customers remain on subscription suspensions. See Item 2 “—Liquidity and Capital Resources,” and “Item
1A. Risk Factors” in Part II of this report for additional information regarding the impact of the pandemic on the Company’s
business and outlook.
While
the Company expects the effects of COVID-19 to negatively impact its future results of operations, cash flows and financial position,
the current level of uncertainty over the economic and operational impacts of COVID-19 means the related financial impact cannot
be reasonably estimated at this time. The Company’s consolidated financial statements reflect estimates and assumptions
made by management that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities,
if any, at the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting
periods presented. Such estimates and assumptions affect, among other things, the allowance for doubtful accounts, site equipment
to be installed, fixed assets, capitalized software development, goodwill and right-of-use assets. Events and changes in circumstances
arising after the issuance of the financial statements as of and for the three and six months ended June 30, 2020, including those
resulting from the impacts of COVID-19, will be reflected in management’s estimates for future periods.
|
(3)
|
going
concern uncertainty
|
In
connection with preparing its financial statements as of and for the three and six months ended June 30, 2020, the Company’s
management evaluated whether there are conditions or events, considered in the aggregate, that are known and reasonably knowable
that would raise substantial doubt about the Company’s ability to continue as a going concern through twelve months after
the date that such financial statements are issued. During the three and six months ended June 30, 2020, the Company incurred
a net loss of $2,023,000 and $3,241,000, respectively. As of June 30, 2020, the Company had $2,234,000 of unrestricted cash and
total debt outstanding of $3,250,000. The total debt outstanding consists of $1,625,000 of principal outstanding under each of
the Company’s term loan with Avidbank and the loan the Company received in April 2020 under the Paycheck Protection Program.
As
a result of the impact of the COVID-19 pandemic on the Company’s business and taking into account its current financial
condition and its existing sources of projected revenue and its projected subscription revenue, advertising revenue and cash flows
from operations, the Company believes it will have sufficient cash resources to pay forecasted cash outlays only through October
2020, assuming Avidbank does not take actions to foreclose on the Company’s assets in the event the Company becomes out
of compliance with its financial covenants, and the Company is able to continue to successfully manage its working capital deficit
by managing the timing of payments to its vendors and other third parties.
Based
on the factors described above, management concluded that there is substantial doubt regarding the Company’s ability to
continue as a going concern through the twelve month period subsequent to the issuance date of these financial statements. Management’s
plans for addressing the liquidity shortfall include continuing efforts to raise additional capital through equity financings
and alternative sources of debt. However, there can be no assurances that the Company will be able to raise sufficient capital
when needed, on acceptable terms, or at all. In light of the substantial doubt regarding the Company’s ability to continue
as a going concern through the twelve month period subsequent to the issuance date of these financial statements, the Company’s
board of directors and its strategic committee continues to explore and evaluate strategic alternatives focused on maximizing
shareholder value.
The
accompanying condensed consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business. The accompanying consolidated financial statements
do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the
amounts and classifications of liabilities that may result from uncertainty related to the Company’s ability to continue
as a going concern.
At
the commencement date of the Company’s lease for its corporate headquarters on December 1, 2018, the Company’s bank,
Avidbank, issued a $250,000 letter of credit to the lessor as security, which amount was reduced by $50,000 on December 1, 2019
and was to be reduced by the same amount December 1 of each year thereafter, provided there has been no default under the lease.
Avidbank required the Company to deposit $250,000 in a restricted cash account maintained with the bank, which amount was and
would be reduced as the amount required under the letter of credit is reduced. The Company recorded the $250,000 deposit as restricted
cash on its balance sheet, with $50,000 plus any earned interest being recorded in short-term restricted cash and the balance
being recorded in long-term restricted cash.
In
June 2020, the Company terminated its lease for its corporate headquarters, and as part of the consideration to the lessor for
the early least termination, the lessor received the $200,000 of restricted cash provided for under the letter of credit in July
2020. (See Note 9 for more information on the lease termination.)
The
Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) No. 606, Revenue from Contracts
with Customers. ASC No. 606 provides a five-step analysis in determining when and how revenue is recognized:
|
|
1.
|
Identify
the contract(s) with customers
|
|
|
2.
|
Identify
the performance obligations
|
|
|
3.
|
Determine
the transaction price
|
|
|
4.
|
Allocate
the transaction price to the performance obligations
|
|
|
5.
|
Recognize
revenue when the performance obligations have been satisfied
|
ASC
No. 606 requires revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects
the consideration a company expects to receive in exchange for those goods or services.
The
Company generates revenue by charging subscription fees to partners for access to its 24/7 trivia network, by selling and leasing
tablet and hardware equipment for custom usage beyond trivia/entertainment, by selling DOOH advertising direct to advertisers
and on national ad exchanges, by licensing its entertainment and trivia content to other entities, and by providing professional
services such as custom game design or development of new platforms on its existing tablet form factor. Until February 1, 2020,
the Company also generated revenue from hosting live trivia events. The Company sold all of its assets used to host live trivia
events in January 2020.
In
general, when multiple performance obligations are present in a customer contract, the transaction price is allocated to the individual
performance obligation based on the relative stand-alone selling prices, and the revenue is recognized when or as each performance
obligation has been satisfied. Discounts are treated as a reduction to the overall transaction price and allocated to the performance
obligations based on the relative stand-alone selling prices. All revenues are recognized net of sales tax collected from the
customer.
ASC
No. 606 specifies certain criteria that an arrangement with a customer must have in order for a contract to exist for purposes
of revenue recognition, one of which is that it must be probable that the Company will collect the consideration to which it will
be entitled under the contract. As a result of the impact that the COVID-19 pandemic has had, and continues to have, on the Company’s
customers, the Company determined that due to the uncertainty of collectability of the subscription fees for certain customers,
the Company’s arrangement with those customers no longer meets all the criteria needed for a contract to exist for revenue
recognition purposes. Therefore, the Company did not recognize revenue for these customers and fully reserved for accounts receivable
in the allowance for doubtful accounts. The Company only recognized revenue for the arrangements that continued to meet the contract
criteria, including the criteria that collectability was probable.
Revenue
Streams
The
Company disaggregates revenue by material revenue stream as follows:
|
|
|
Three
months ended June 30,
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
%
of Total
Revenue
|
|
|
$
|
|
|
%
of Total
Revenue
|
|
|
$
Change
|
|
|
%
Change
|
|
|
Subscription revenue
|
|
|
727,000
|
|
|
|
96.4
|
%
|
|
|
3,800,000
|
|
|
|
73
|
%
|
|
|
(3,073,000
|
)
|
|
|
(80.9
|
)%
|
|
Hardware revenue
|
|
|
26,000
|
|
|
|
3.4
|
%
|
|
|
595,000
|
|
|
|
11
|
%
|
|
|
(569,000
|
)
|
|
|
(95.6
|
)%
|
|
Other revenue
|
|
|
1,000
|
|
|
|
0.1
|
%
|
|
|
831,000
|
|
|
|
16
|
%
|
|
|
(830,000
|
)
|
|
|
(99.9
|
)%
|
|
Total
|
|
|
754,000
|
|
|
|
100.0
|
%
|
|
|
5,226,000
|
|
|
|
100
|
%
|
|
|
(4,472,000
|
)
|
|
|
(85.6
|
)%
|
|
|
|
Six
months ended June 30,
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
%
of Total
Revenue
|
|
|
$
|
|
|
%
of Total
Revenue
|
|
|
$
Change
|
|
|
%
Change
|
|
|
Subscription revenue
|
|
|
2,726,000
|
|
|
|
87
|
%
|
|
|
7,633,000
|
|
|
|
76
|
%
|
|
|
(4,907,000
|
)
|
|
|
(64
|
)%
|
|
Hardware revenue
|
|
|
42,000
|
|
|
|
1
|
%
|
|
|
800,000
|
|
|
|
8
|
%
|
|
|
(758,000
|
)
|
|
|
(95
|
)%
|
|
Other revenue
|
|
|
380,000
|
|
|
|
12
|
%
|
|
|
1,625,000
|
|
|
|
16
|
%
|
|
|
(1,245,000
|
)
|
|
|
(77
|
)%
|
|
Total
|
|
|
3,148,000
|
|
|
|
100
|
%
|
|
|
10,058,000
|
|
|
|
100
|
%
|
|
|
(6,910,000
|
)
|
|
|
(69
|
)%
|
The
following describes how the Company recognizes revenue under ASC No. 606.
Subscription
Revenue - Prior to the COVID-19 pandemic, the Company recognized the recurring subscription fees it received for its services
over time as customers received and consumed the benefits of such services, the Company’s equipment to access the Company’s
content and the installation of the equipment. In general, customers pay for the subscription services during the month in which
they receive the services. Due to the timing of providing the services and receiving payment for the services, the Company does
not record any unbilled contract asset. Occasionally, a customer will prepay up to one year of services, in which case, the Company
will record deferred revenue on the balance sheet related to such prepayment and will recognize the revenue over the time the
customer receives the Company’s services. Revenue from installation services is also recorded as deferred revenue and recognized
over the longer of the contract term and the expected term of the customer relationship using the straight-line method. The Company
has certain contingent performance obligations with respect to repairing or replacing equipment and will recognize any revenue
related to the performance of such obligations at the point in time the Company performs them.
As
discussed above, as a result of the impact that the COVID-19 pandemic has had, and continues to have, on the Company’s customers,
the Company determined that due to the uncertainty of collectability of the subscription fees for certain customers, the Company’s
arrangement with those customers no longer meets all the criteria needed for a contract to exist for revenue recognition purposes.
Therefore, the Company did not recognize revenue for these customers and fully reserved for accounts receivable in the allowance
for doubtful accounts.
Costs
associated with installing the equipment are considered direct costs. Costs associated with sales commissions are considered incremental
costs for obtaining the contract because such costs would not have been incurred without obtaining the contract. The Company expects
to recover both costs through future fees it collects and both costs are recorded in deferred costs on the balance sheet and amortized
on a straight-line basis. For installation costs that are of an amount that is less than or equal to the deferred installation
revenue for the related contract, the amortization period approximates the longer of the contract term and the expected term of
the customer relationship. For any excess costs that exceed the deferred revenue, the amortization period of the excess cost is
the initial term of the contract, which is generally one to two years because the Company can still recover that excess cost in
the initial term of the contract. The Company amortizes commissions over the longer of the contract term and the expected term
of the customer relationship.
Sales-type
Lease Revenue – For certain customers that lease equipment under sale-type lease arrangements, the Company recognizes
revenue in accordance with ASC No. 842, Leases. Such revenue is recognized at the time of installation based on the net
present value of the leased equipment. Interest income is recognized over the life of the lease for customers who have remaining
lease payments to make. In the event a customer under a sales-type lease arrangement prepays for the lease in full prior to receiving
the equipment under the lease, such amounts are recorded in deferred revenue and recognized as revenue once the equipment has
been installed and activated at the customer’s location. The cost of the leased equipment is recognized at the same time
as the revenue. The Company does not expect to recognize revenue under sales-type lease arrangements after the year ended December
31, 2019.
Equipment
Sales – The Company recognizes revenue from equipment sales at a point in time, which is when control has been transferred
to the customer, the customer holds legal title and the customer has significant risks and rewards of ownership. Generally, the
Company has determined that any customer acceptance provisions of the equipment is a formality, as the Company has historically
demonstrated the ability to produce and deliver similar equipment. If the Company sells equipment with unique specifications,
then customer control of the equipment will occur upon customer acceptance as defined in the contract, and revenue will be recognized
at that time. Costs associated with the equipment sold is recognized at the same point in time as the revenue.
Advertising
Revenue – The Company recognizes advertising revenue either over the time the advertising campaign airs in its customers’
locations or at a point in time by impression. For advertising campaigns that are airing over a specific period of time (regardless
of number of impressions), the Company uses the time elapsed output method to measure its progress toward satisfying the performance
obligation. When the Company contracts with an advertising agent, the Company shares in the advertising revenue generated with
that agent. In these cases, the Company generally recognizes revenue on a net basis, as the agent typically has the responsibility
for the relationship with the advertiser and the credit risk. When the Company contracts directly with the advertiser, it will
recognize the revenue on a gross basis and will recognize any revenue share arrangement it has with a third party as a direct
expense, as the Company has the responsibility for the relationship with the advertiser and the credit risk. Generally, there
is no unbilled revenue associated with the Company’s advertising activities.
Content
Licensing – The Company licenses content (trivia packages) to a certain customer, who in turn installs the content on
its equipment that it sells to its customers. The content license is characterized as a “right to use intellectual property
as it exists at the point in time at which the license is granted,” meaning the Company is not expected to undertake activities
that affect the intellectual property or any such activities would not affect the intellectual property the customer is using.
The content license is considered to be on consignment, and the Company retains title of the licensed content throughout the license
period. The Company’s customer has no obligation to pay for the licensed content until the customer sells and installs the
content to its customer. Accordingly, the Company recognizes revenue at the point in time when such installation occurs. The Company
recognizes costs related to developing the content during the period incurred.
Live-hosted
Trivia Revenue – As of February 1, 2020, the Company no longer has revenue related to hosting live- trivia events as
a result of the sale of all of the Company’s assets used to host live trivia events in January 2020. The Company recognized
revenue from hosting live-trivia events at a point in time, which is when the event took place. Some customers hosted their own
trivia events and the Company provided the game materials. In those cases, the Company recognized the revenue at the point in
time the Company sent the game materials to the customer. The Company recognized related costs at the same point in time the revenue
was recognized. Generally, there was no unbilled revenue or deferred revenue associated with live-hosted trivia events.
Professional
Development Revenue – Depending on the type of development work the Company is performing, the Company will recognize
revenue, and associated costs, at the point in time when the Company satisfies each performance obligation, which is generally
when the customer can direct the use of, and obtain substantially all of the remaining benefits of the goods or service provided.
For services provided over time, the corresponding revenue is generally recognized over the time the Company provides such services.
Any payments received before satisfying the performance obligations are recorded as deferred revenue and recognized as revenue
when or as such obligations are satisfied. The Company does not have unbilled revenue assets associated with professional development
services.
Revenue
Concentrations
The
Company’s customers predominantly range from small independently operated bars and restaurants to bars and restaurants operated
by national chains. This results in diverse venue sizes and locations. As of June 30, 2019, 2,609 venues in the U.S. and Canada
subscribed to the Company’s interactive entertainment network, of which approximately 47% were Buffalo Wild Wings corporate-owned
restaurants and its franchisees. As of June 30, 2020, the number declined to 1,219 venues, primarily due to the termination of
its agreements with Buffalo Wild Wings corporate-owned restaurants and most of its franchisees in November 2019 in accordance
with their terms and also in part to customers terminating their subscriptions or going out of business relating to the effects
of the COVID-19 pandemic on their business.
The
table below sets forth the approximate amount of revenue the Company generated from Buffalo Wild Wings corporate-owned restaurants
and its franchisees during the three and six months ended June 30, 2020 and 2019, and the percentage of total revenue that such
amount represents for such periods:
|
|
|
Three
months ended
June 30,
|
|
|
Six
months ended
June 30,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Buffalo Wild Wings revenue
|
|
$
|
49,000
|
|
|
$
|
2,279,000
|
|
|
$
|
151,000
|
|
|
$
|
4,215,000
|
|
|
Percent of total revenue
|
|
|
6
|
%
|
|
|
44
|
%
|
|
|
5
|
%
|
|
|
42
|
%
|
As
of June 30, 2020 and December 31, 2019, approximately $131,000 and $158,000, respectively, was included in accounts receivable
from Buffalo Wild Wings corporate-owned restaurants and its franchisees.
The
geographic breakdown of the Company’s revenue for the three and six months ended June 30, 2020 and 2019 were as follows:
|
|
|
Three
months ended
June 30,
|
|
|
Six
months ended
June 30,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
United States
|
|
$
|
722,000
|
|
|
$
|
5,063,000
|
|
|
$
|
2,393,000
|
|
|
$
|
9,724,000
|
|
|
Canada
|
|
|
32,000
|
|
|
|
163,000
|
|
|
|
755,000
|
|
|
|
334,000
|
|
|
Total
revenue
|
|
$
|
754,000
|
|
|
$
|
5,226,000
|
|
|
$
|
3,148,000
|
|
|
$
|
10,058,000
|
|
Contract
Assets and Liabilities
The
Company enters into contracts and may recognize contract assets and liabilities that arise from these contracts. The Company recognizes
revenue and corresponding cash for customers who auto pay via their bank account or credit card, or the Company recognizes a corresponding
accounts receivable for customers the Company invoices. The Company may receive consideration from customers, per the terms of
the contract, prior to transferring goods or services to the customer. In such instances, the Company records a contract liability
and recognizes the contract liability as revenue when all revenue recognition criteria are met. The table below shows the balance
of contract liabilities as of January 1, 2020 and June 30, 2020, including the change during the period.
|
|
|
Deferred
Revenue
|
|
|
Balance at January 1, 2020
|
|
$
|
460,000
|
|
|
New performance obligations
|
|
|
184,000
|
|
|
Revenue recognized
|
|
|
(266,000
|
)
|
|
Balance at June 30, 2020
|
|
|
378,000
|
|
|
Less
non-current portion
|
|
|
(1,000
|
)
|
|
Current portion at June 30, 2020
|
|
$
|
377,000
|
|
The
Company capitalizes installation costs associated with installing equipment in a customer location and sales commissions as a
deferred cost asset on the balance sheet. For installation costs that are of an amount that is less than or equal to the deferred
installation revenue for the related contract, the amortization period approximates the longer of the contract term and the expected
term of the customer relationship. For any excess installation costs that exceed the deferred revenue, the amortization period
of the excess cost is the initial term of the contract, which is generally one to two years because the Company can still recover
that excess cost in the initial term of the contract. The Company amortizes commission costs over the longer of the contract term
and the expected term of the customer relationship. The table below shows the balance of the unamortized installation cost and
sales commissions as of January 1, 2020 and June 30, 2020, including the change during the period.
|
|
|
Installation
Costs
|
|
|
Sales
Commissions
|
|
|
Total
Deferred Costs
|
|
|
Balance at January 1, 2020
|
|
$
|
187,000
|
|
|
$
|
87,000
|
|
|
$
|
274,000
|
|
|
Incremental costs deferred
|
|
|
74,000
|
|
|
|
54,000
|
|
|
|
128,000
|
|
|
Deferred costs
recognized
|
|
|
(157,000
|
)
|
|
|
(93,000
|
)
|
|
|
(250,000
|
)
|
|
Balance at June 30, 2020
|
|
|
104,000
|
|
|
|
48,000
|
|
|
|
152,000
|
|
|
(6)
|
Basic
and Diluted Earnings Per Common Share
|
Basic
net loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the period,
without consideration of potential common shares. Diluted net loss per share is calculated by dividing net loss by the weighted-average
number of common shares outstanding plus potential common shares. Stock options, restricted stock units, and other convertible
securities are considered potential common shares and are included in the calculation of diluted net loss per share using the
treasury method when their effect is dilutive. Options, restricted stock units and convertible preferred stock representing approximately
169,000 and 247,000 shares of common stock were excluded from the computations of diluted net loss per common share for the three
and six months ended June 30, 2020 and 2019, respectively, as their effect was anti-dilutive.
Equity
Incentive Plans
The
Company’s stock-based compensation plans include the NTN Buzztime, Inc. 2019 Performance Incentive Plan (the “2019
Plan”), the NTN Buzztime, Inc. Amended 2010 Performance Incentive Plan (the “2010 Plan”) and the NTN Buzztime,
Inc. 2014 Inducement Plan (the “2014 Plan”). The Company’s board of directors designated its nominating and
corporate governance/compensation committee as the administrator of the foregoing plans (the “Plan Administrator”).
Among other things, the Plan Administrator selects persons to receive awards and determines the number of shares subject to each
award and the terms, conditions, performance measures, if any, and other provisions of the award.
The
2019 Plan provides for the issuance of up to 240,000 shares of Company common stock. Awards under the 2019 Plan may be granted
to officers, directors, employees and consultants of the Company. Stock options granted under the 2019 Plan may either be incentive
stock options or nonqualified stock options, have a term of up to ten years, and are exercisable at a price per share not less
than the fair market value on the date of grant. As of June 30, 2020, there were stock options to purchase approximately 2,000
shares of common stock and 114,000 restricted stock units outstanding under the 2019 Plan.
As
a result of stockholder approval of the 2019 Plan in June 2019, no future grants will be made under the 2010 Plan. All awards
that are outstanding under the 2010 Plan will continue to be governed by the 2010 Plan until they are exercised or expire in accordance
with the terms of the applicable award or the 2010 Plan. As of June 30, 2020, there were stock options to purchase approximately
26,000 shares of common stock and 15,000 restricted stock units outstanding under the 2010 Plan.
The
2014 Plan provides for the grant of up to 85,000 share-based awards to a new employee as an inducement material to the new employee
entering into employment with the Company and expires in September 2024. As of June 30, 2020, there were no equity grants outstanding
under the 2014 Plan.
Stock-Based
Compensation
The
Company records stock-based compensation in accordance with ASC No. 718, Compensation – Stock Compensation. The Company
estimates the fair value of stock options using the Black-Scholes option pricing model. The fair value of stock options granted
is recognized as expense over the requisite service period. Stock-based compensation expense for share-based payment awards is
recognized using the straight-line single-option method.
The
Company uses the historical stock price volatility as an input to value its stock options under ASC No. 718. The expected term
of stock options represents the period of time options are expected to be outstanding and is based on observed historical exercise
patterns of the Company, which the Company believes are indicative of future exercise behavior. For the risk-free interest rate,
the Company uses the observed interest rates appropriate for the term of time options are expected to be outstanding. The dividend
yield assumption is based on the Company’s history and expectation of dividend payouts.
The
Company did not grant any stock options and no options were exercised during the three or six months ended June 30, 2020. During
the three and six months ended June 30, 2019, the Company granted stock options to purchase approximately 2,000 shares of common
stock, and no options were exercised.
The
Company estimates forfeitures, based on historical activity, at the time of grant and revised if necessary in subsequent periods
if actual forfeiture rates differ from those estimates. Stock-based compensation expense for the three months ended June 30, 2020
and 2019 was $43,000 and $50,000, respectively, and $82,000 and $109,000 for the six months ended June 30, 2020 and 2019, respectively,
and is expensed in selling, general and administrative expenses and credited to additional paid-in-capital.
Outstanding
restricted stock units (“RSUs”) are settled in an equal number of shares of common stock on the vesting date of the
award. An RSU award is settled only to the extent vested. Vesting generally requires the continued employment or service by the
award recipient through the respective vesting date. Because RSUs are settled in an equal number of shares of common stock without
any offsetting payment by the recipient, the measurement of cost is based on the quoted market price of the stock at the measurement
date, which is the grant date. During the three months ended June 30, 2020, the Company granted 20,000 RSUs. No RSUs were granted
during the three months ended June 30, 2019. During the six months ended June 30, 2020 and 2019, the Company granted 172,000 and
47,000 RSUs, respectively. The RSUs granted during 2019 vest over 36 months, with the first tranche vesting on the six month anniversary
of the grant date, then in 30 substantially equal installments thereafter. The RSUs granted during 2020 vest quarterly over 24
months.
The
following table shows the number of RSUs that vested and were settled during the three and six months ended June 30, 2020 and
2019, as well as the number of shares of common stock issued upon settlement. In lieu of paying cash to satisfy withholding taxes
due upon the settlement of vested RSUs, an employee may elect to have shares of common stock withheld that would otherwise be
issued at settlement, the value of which is equal to the amount of withholding taxes payable.
|
|
|
Three
months ended
June 30,
|
|
|
Six
months ended
June 30,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Restricted stock units vested
and settled
|
|
|
16,000
|
|
|
|
7,000
|
|
|
|
20,000
|
|
|
|
11,000
|
|
|
Common stock issued, net of shares withheld
|
|
|
12,000
|
|
|
|
4,000
|
|
|
|
14,000
|
|
|
|
7,000
|
|
Term
Loan
In
September 2018, the Company entered into a loan and security agreement with Avidbank for a 48-month term loan in the amount of
$4,000,000. In February 2020, the Company made a pre-payment on the term loan of approximately $150,000 following the sale of
all of the Company’s assets used to conduct the live-hosted knowledge-based trivia events in January 2020. In March 2020,
the Company and Avidbank entered into an amendment to the loan and security agreement (“Amendment #1”). In connection
with entering into Amendment #1, the Company made a $433,000 payment on the term loan, which included the $83,333 monthly principal
payment plus accrued interest for March 2020 and a $350,000 principal prepayment, thereby reducing the outstanding principal balance
of the term loan to $2,000,000 as of March 31, 2020.
The
Company incurred approximately $26,000 of debt issuance costs related to loan and security agreement and its amendment, of which
approximately $3,000 was related to Amendment #1. The debt issuance costs are being amortized to interest expense using the effective
interest rate method over the life of the loan. The unamortized balance of the debt issuance costs as of June 30, 2020 and December
31, 2019 was $5,000 and $11,000, respectively, and is recorded as a reduction of long-term debt.
Under
the terms of Amendment #1, the Company’s financial covenants were changed as described below, the maturity date was changed
from September 28, 2022 to December 31, 2020, and the amount of the Company’s monthly payment obligations increased as described
below.
Before
entering into Amendment #1, the Company’s adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”)
was required to be at least $1,000,000 for the trailing six-month period as of the last day of each fiscal quarter and the aggregate
amount of unrestricted cash it had in deposit accounts or securities accounts maintained with Avidbank must be not less than $2,000,000
at all times. Under the terms of Amendment #1, the minimum EBITDA covenant was replaced with a monthly minimum asset coverage
ratio covenant, which the Company refers to as the ACR covenant, and the minimum liquidity covenant was amended to provide that
the aggregate amount of unrestricted cash the Company has in deposit accounts or securities accounts maintained with Avidbank
must be at all times not less than the principal balance outstanding under the term loan. Under the ACR covenant, the ratio of
(i) the Company’s unrestricted cash at Avidbank as of the last day of a calendar month plus 75% of its outstanding accounts
receivable accounts that are within 90 days of invoice date to (ii) the outstanding principal balance of the term loan on such
day must be no less than 1.25 to 1.00. As of June 30, 2020, the Company was in compliance with both of those covenants.
Before
entering into Amendment #1, the Company was required to make monthly principal payments of approximately $83,000 plus accrued
and unpaid interest. Under the terms of the amendment, the monthly principal payment increased to $125,000 for each of April,
May and June 2020, to $300,000 for each of July, August, September, October and November 2020, and to $125,000 for December 2020.
As of June 30, 2020, the outstanding principal balance of the term loan was $1,625,000.
On
June 1, 2020, the Company and Avidbank entered into an amendment to the loan and security agreement to formally memorialize Avidbank’s
consent to the Company receiving the PPP Loan (as defined below). Avidbank initially consented to the Company receiving the PPP
loan in April 2020.
Paycheck
Protection Program Loan
On
April 18, 2020, the Company issued a note in the principal amount of approximately $1,625,000 to Level One Bank evidencing the
loan (the “PPP Loan”) the Company received under the Paycheck Protection Program (the “PPP”) of the Coronavirus
Aid, Relief, and Economic Security Act administered by the U.S. Small Business Administration (the “CARES Act”). As
of June 30, 2020, the outstanding principal balance of the PPP Loan was approximately $1,625,000.
The
PPP Loan matures on April 18, 2022 and bears interest at a rate of 1.0% per annum. The Company must make monthly interest only
payments beginning on November 18, 2020. One final payment of all unforgiven principal plus any accrued unpaid interest is due
at maturity. Under the terms of the PPP, the Company may prepay the PPP Loan at any time with no prepayment penalties. The Company
may use funds from the PPP Loan for payroll costs, costs used to continue group health care benefits, mortgage interest payments,
rent payments, utility payments, and interest payments on other debt obligations incurred before February 15, 2020. The Company
intends to use the entire PPP Loan for qualifying expenses. Under the terms of the PPP, certain amounts of the PPP Loan may be
forgiven if they are used for qualifying expenses as described in the CARES Act. No assurance is provided that the Company will
obtain forgiveness of the PPP Loan in whole or in part.
As
Lessee
The
Company has operating leases for its warehouse facility and for equipment under agreements that expire at various dates through
2023. Certain of these leases contain renewal provisions and the warehouse lease requires the Company to pay utilities, insurance,
taxes and other operating expenses. The Company terminated its lease for its corporate headquarters as of June 30, 2020, which
is discussed further below. The Company also has property held under finance leases that expire at various dates through 2021.
The Company’s leases do not contain any residual value guarantees or material restrictive covenants.
Upon
adoption of ASC No. 842, Leases (“ASC No. 842”), the Company recognized on its consolidated balance sheet as
of January 1, 2019 an initial measurement of approximately $3,458,000 of operating lease liabilities and approximately $2,336,000
of corresponding operating right-of use assets, net of tenant improvement allowances, the amounts of which were primarily related
to the Company’s corporate headquarters. The initial measurement of the finance leases under ASC No. 842 did not have a
material change from the balances of the finance lease liabilities and assets recorded prior to the adoption of ASC No. 842. There
was also no cumulative effect adjustment to retained earnings as a result of the transition to ASC No. 842. The Company recorded
the initial recognition of the operating leases as a supplemental noncash financing activity on the accompanying consolidated
statement of cash flows. The adoption of ASC No. 842 did not have a material impact on the Company’s consolidated statement
of operations.
Lease
Termination
As
part of the Company’s on-going efforts to implement measures designed to reduce operating expenses and preserve capital
as it continues to seek to mitigate the substantial negative impact of the COVID-19 pandemic on the Company’s business,
on June 25, 2020, the Company entered into a Lease Termination, Surrender and Buy-Out Agreement (the “Lease Termination
Agreement”) with Burke Aston Partners, LLC (the “Lessor”) to terminate, effective June 30, 2020, the lease dated
July 26, 2018 for the Company’s corporate headquarters. Absent the Lease Termination Agreement, the lease would have expired
in accordance with its terms in April 2026. Since January 1, 2020, the Company reduced its headcount from 74 to 19 employees,
all of whom are currently working remotely, and the Company did not currently need a corporate headquarters of the size subject
to that lease. After paying all the amounts the Company potentially could be required to pay under the Lease Termination Agreement,
including both contingent payments described below, the Company will have reduced its future cash obligations under the lease
by approximately $3.5 million as compared to the amount of rent the Company would have otherwise paid if the lease remained in
effect for the duration of its original term.
Pursuant
to the Lease Termination Agreement, in exchange for allowing the Company to terminate the lease early, the Company agreed to (i)
allow the Lessor to keep its security deposits of approximately $260,000, which includes $200,000 of restricted cash under a letter
of credit, (ii) pay the Lessor approximately $121,000 for past due rent, and (iii) pay the Lessor $80,000 if the Company sells
all or any material part of its assets or all or any material part of its equity interests and $5,000 if the Lessor needs to dispose
of furniture that remained in the office space.
As
a result of the lease termination, the Company recorded a gain on the termination of the lease of approximately $8,000 during
the three months ended June 30, 2020, which includes writing off the remaining balances of the right-of-use asset of approximately
$1,913,000 and the corresponding lease liability of approximately $3,135,000, applying the principal portion of past due rents
to be paid in July 2020 of approximately $64,000, writing off of the unamortized tenant improvement allowance of approximately
$890,000, and applying the security deposit of approximately $260,000.
Additionally,
as part of the lease termination and vacating the facility, the Company recorded a loss on the disposal of fixed assets of approximately
$282,000 during the three months ended June 30, 2020, which includes approximately $197,000 in furniture and fixtures and the
Company’s vehicle, and $85,000 in other leasehold improvement assets.
The
tables below show the beginning balances of the operating lease right-of-use assets and liabilities as of January 1, 2019 and
the ending balances as of June 30, 2020, including the changes during the periods.
|
|
|
Operating
lease right-of-use
assets
|
|
|
Operating lease right-of
use assets at January 1, 2020
|
|
$
|
2,101,000
|
|
|
Amortization of
operating lease right-of-use assets
|
|
|
(146,000
|
)
|
|
Addition of operating
lease right-of -use asset
|
|
|
28,000
|
|
|
Write-off of right-of-use
asset related to January 2020 asset sale
|
|
|
(26,000
|
)
|
|
Write-off
of right-of-use asset due to lease termination
|
|
|
(1,913,000
|
)
|
|
Operating lease
right-of-use assets at June 30, 2020
|
|
$
|
44,000
|
|
|
|
|
Operating
lease
liabilities
|
|
|
Operating lease liabilities
at January 1, 2020
|
|
$
|
3,300,000
|
|
|
Principal payments
on operating lease liabilities
|
|
|
(120,000
|
)
|
|
Addition of operating
lease liability
|
|
|
28,000
|
|
|
Write-off of lease
liability related to January 2020 asset sale
|
|
|
(27,000
|
)
|
|
Write-off
of lease liability related to lease termination
|
|
|
(3,135,000
|
)
|
|
Operating lease liabilities at June
30, 2020
|
|
|
46,000
|
|
|
Less
non-current portion
|
|
|
(28,000
|
)
|
|
Current portion at June 30, 2020
|
|
$
|
18,000
|
|
As
of June 30, 2020, the Company’s operating leases have a weighted-average remaining lease term of 2.1 years and a weighted-average
discount rate of 6.23%. The maturities of the operating lease liabilities are as follows:
|
|
|
As
of
|
|
|
|
|
June
30, 2020
|
|
|
2020
|
|
$
|
26,000
|
|
|
2021
|
|
|
8,000
|
|
|
2022
|
|
|
8,000
|
|
|
2023
|
|
|
8,000
|
|
|
Total operating lease
payments
|
|
|
50,000
|
|
|
Less
imputed interest
|
|
|
(4,000
|
)
|
|
Present
value of operating lease liabilities
|
|
$
|
46,000
|
|
For
the three months ended June 30, 2020 and 2019, total lease expense under operating leases was approximately $131,000 and $135,000,
respectively. For the six months ended June 30, 2020 and 2019, total lease expense under operating leases was approximately $264,000
and $270,000, respectively. Lease expense is recorded in selling, general and administrative expenses.
The
tables below show the beginning balances of the finance lease right-of-use assets and liabilities as of January 1, 2020 and the
ending balances as of June 30, 2020, including the changes during the periods. The Company’s finance lease right-of-use
assets are included in “Fixed assets, net” on the accompanying consolidated balance sheet.
|
|
|
Finance
lease right-of-use
assets
|
|
|
Finance lease right-of use
assets at January 1, 2020
|
|
$
|
41,000
|
|
|
Depreciation
of finance lease right-of-use assets
|
|
|
(10,000
|
)
|
|
Finance lease
right-of-use assets at June 30, 2020
|
|
$
|
31,000
|
|
|
|
|
Finace
lease
liabilities
|
|
|
Finance lease liabilities
at January 1, 2020
|
|
$
|
41,000
|
|
|
Principal payments on finance lease
liabilities as of June 30, 2020
|
|
|
(8,000
|
)
|
|
Finance lease liabilities at June 30,
2020
|
|
|
33,000
|
|
|
Less non-current
portion
|
|
|
(9,000
|
)
|
|
Current portion at June 30, 2020
|
|
$
|
24,000
|
|
As
of June 30, 2020, the Company’s finance leases have a weighted-average remaining lease term of 1.4 years and a weighted-average
discount rate of 5.52%. The maturities of the finance lease liabilities are as follows:
|
|
|
As
of
|
|
|
|
|
June
30, 2020
|
|
|
2020
|
|
|
13,000
|
|
|
2021
|
|
|
21,000
|
|
|
Total Finance lease payments
|
|
|
34,000
|
|
|
Less
imputed interest
|
|
|
(1,000
|
)
|
|
Present value
of Finance lease liabilities
|
|
$
|
33,000
|
|
For
the three months ended June 30, 2020 and 2019, total lease costs under finance leases were approximately $4,000 and $10,000, respectively.
For the six months ended June 30, 2020 and 2019, total lease costs under finance leases were approximately $10,000 and $32,000,
respectively.
As
Lessor
ASC
No. 842 did not make fundamental changes to lease accounting guidance for lessors. Therefore there was no financial statement
impact due to the adoption of ASC No. 842. As a lessor, the Company has two types of customer contracts that involve leases: right-to-use
operating leases and sales-type leases.
Right-to-use
operating leases. Certain customers enter into contracts to obtain subscription services from the Company, which includes
the Company’s content (nonlease component) and equipment installed in the customer locations so the customer can access
the content (lease component). The timing and pattern of the transfer of both the subscription services and the equipment are
the same, that is, the Company’s subscription services are made available to its customer at the same time as the equipment
is installed. Additionally, the Company has determined that the lease component of these customer contracts is an operating lease.
Accordingly, the Company has concluded that these contracts qualify for the practical expedient permitted under ASC No. 842 to
not separate the nonlease component from the related lease component. Instead, the Company treats the combined component as a
single performance obligation under Topic 606, Revenue from Contracts with Customers, as the Company has concluded that
the nonlease component (subscription services) is the predominant component of the combined component.
Sales-type
leases. As with the contracts under right-of-use operating leases, certain customers enter into contracts to obtain subscription
services from the Company, which includes the Company’s content (nonlease component) and equipment installed in the customer
locations so the customer can access the content (lease component). Generally, the equipment lease term is for three years and
the customer prepays its lease in full. After the lease term, the lessee may purchase the equipment for a nominal fee or lease
new equipment. Although the timing and pattern of the transfer of both the subscription services and the equipment may be the
same, the provisions of the contract related to the equipment results in a sales-type lease, and therefore, the Company cannot
treat both the nonlease component and the lease component as a combined component. Accordingly, the nonlease component is accounted
for under Topic 606 and the sales-type lease is accounted for under Topic 842 and separately disaggregated on the Company’s
statement of operations. The Company does not anticipate entering into any sales-type lease arrangements after December 31, 2019.
The Company has not recognized any sales-type lease revenue for the three or six months ended June 30, 2020.
|
(10)
|
DISPOSITION
OF SITE EQUIPMENT TO BE INSTALLED AND FIXED ASSETS
|
Site
equipment to be installed consists of fixed assets related to the Company’s tablet platform that have not yet been placed
in service and are stated at cost. These assets remain in site equipment to be installed until they are deployed at the Company’s
customer sites. For tablet platform customers that are under sales-type lease arrangements, the cost of the equipment is recognized
in direct costs upon installation. For all other tablet platform customers, the cost of the equipment is reclassified to fixed
assets upon installation and depreciated over its estimated useful life. The Company evaluates the recoverability of site equipment
to be installed and fixed assets for impairment whenever events or circumstances indicate that the carrying amounts of such assets
may not be recoverable. Recoverability is measured by comparing the carrying amount of an asset or asset group to estimated undiscounted
future net cash flows expected to be generated. If the carrying amount of the asset or asset group is not recoverable on an undiscounted
cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair value. Fair value is determined
through various valuation techniques including discounted cash flow models, quoted market values, and third-party independent
appraisals, as considered necessary.
The
COVID-19 pandemic has had, and continues to have, a significant adverse impact on the Company’s business, cash flows from
operations and liquidity. However, based on the cash flows the Company is receiving from its customers during the pandemic and
the future undiscounted cash flows the Company expects to receive from these customers, the Company has determined that recoverability
of the carrying amounts of its site equipment to be installed and the site equipment in fixed assets is probable and, therefore,
during the three months ended June 30, 2020, the Company did not record any impairment charges on these assets, other than disposals
of approximately $32,000 in the ordinary course of business.
As
previously discussed, the Company terminated its lease for its corporate headquarters and vacated the facility as of June 30,
2020. (See Note 9) As a result, during the three months ended June 30, 2020, the Company wrote-off approximately $890,000 of unamortized
tenant improvement allowance that is recorded as part of the gain on termination of lease, as well as approximately $85,000 in
leasehold improvement assets and $197,000 in furniture and fixtures and the Company’s vehicle. For the three months ended
June 30, 2019, the Company wrote off approximately $10,000 of assets in the ordinary course of business.
For
the six months ended June 30, 2020 and 2019, the Company wrote off approximately $1,392,000 and $19,000, respectively, of site
equipment to be installed and fixed assets. For the six months ended June 30, 2020, the Company wrote off $890,000 of unamortized
tenant improvement allowance, which was recorded as part of the gain on lease termination, plus $502,000 of other fixed assets,
which includes $197,000 of furniture and fixtures, $85,000 in leasehold improvements and approximately $220,000 related to older
equipment it determined would no longer be deployed. The Company will continue to monitor the recoverability of its site equipment
and other fixed assets as it relates to the continued impact of the COVID-19 pandemic and will recognize any additional write-offs
during the period in which it determines that impairment exists.
|
(11)
|
SOFTWARE
DEVELOPMENT COSTS
|
The
Company capitalizes costs related to developing certain software programs in accordance with ASC No. 350, Intangibles –
Goodwill and Other. When the Company deploys the programs, it begins to recognize costs related to the programs on a straight-line
basis over the programs’ estimated useful lives, generally two to three years. Amortization expense relating to capitalized
software development costs totaled $144,000 and $96,000 for the three months ended June 30, 2020 and 2019, respectively, and $293,000
and $193,000 for the six months ended June 30, 2020 and 2019, respectively. As of June 30, 2020 and December 31, 2019, approximately
$53,000 and $177,000, respectively, of capitalized software costs were not subject to amortization as the development of various
software projects was not complete.
The
Company performed its quarterly review of software development projects for the three and six months ended June 30, 2020 and 2019,
and determined to abandon various software development projects that the Company concluded were no longer a current strategic
fit or for which it determined that the marketability of the content had decreased due to obtaining additional information regarding
the specific industry for which the content was intended. As a result, the Company recognized an impairment charge of $100,000
for the three months ended June 30, 2020. There was no impairment charge for the three months ended June 30, 2019. For the six
month ended June 30, 2020 and 2019, the Company recognized impairment charges of $238,000 and $1,000, respectively. Impairment
of capitalized software is shown separately on the Company’s consolidated statement of operations.
Taking
into consideration the impact the COVID-19 pandemic has had, and continues to have, on the Company’s business, the Company
determined that based on the future undiscounted cash flows the Company expects to receive from its customers, recoverability
of the carrying amounts of capitalized software development costs is probable and, therefore, no additional impairment charges
were required to be recognized other than as discussed above. The Company will continue to monitor the recoverability of these
assets as it relates to the continued impact of the COVID-19 pandemic on the Company’s business and recognize any additional
write-offs during the period in which it determines that impairment exists.
The
Company’s goodwill balance of $696,000 as of December 31, 2019 relates to the excess of costs over the fair value of assets
the Company acquired in 2003 related to its Canadian business (the “Reporting Unit”). In the Company’s evaluation
of impairment indicators as of March 31, 2020, it determined that the uncertainty relating to the impact of the COVID-19 pandemic
on the Reporting Unit’s future operating results represented an indicator of impairment. Accordingly, the Company compared
the estimated fair value of the Reporting Unit to its carrying value at March 31, 2020, determined that a full impairment loss
was warranted and recognized an impairment charge of $662,000 for the three months ended March 31, 2020. No further evaluations
are necessary after March 31, 2020. There was no goodwill impairment recorded for the three or six months ended June 30, 2019.
In
addition to the impairment loss recognized, fluctuations in the amount of goodwill shown on the accompanying balance sheets can
occur due to changes in the foreign currency exchange rates used when translating NTN Canada’s financial statement from
Canadian dollars to US dollars during consolidation. The following table shows the changes in the carrying amount of goodwill
for the six months ended June 30, 2020.
|
Goodwill balance at January 1, 2020
|
|
$
|
696,000
|
|
|
Activity for the three months ended March 31, 2020
|
|
|
|
|
|
Effects of foreign
currency
|
|
|
(34,000
|
)
|
|
Goodwill
impairment
|
|
|
(662,000
|
)
|
|
Goodwill balance at March 31, 2020
|
|
|
-
|
|
|
Goodwill balance at June 30, 2020
|
|
$
|
-
|
|
|
(13)
|
ACCUMULATED
OTHER COMPREHENSIVE INCOME
|
The
United States dollar is the Company’s functional currency, except for its operations in Canada where the functional currency
is the Canadian dollar. The financial position and results of operations of the Company’s foreign subsidiaries are measured
using the foreign subsidiary’s local currency as the functional currency. In accordance with ASC No. 830, Foreign Currency
Matters, revenues and expenses of the Company’s foreign subsidiaries have been translated into U.S. dollars using the
average exchange rates during the reporting period, and the assets and liabilities of such subsidiaries have been translated using
the period end exchange rate. Accumulated other comprehensive income includes the accumulated gains or losses from these foreign
currency translation adjustments. As of June 30, 2020 and December 31, 2019, $240,000 and $268,000 of foreign currency translation
adjustments were recorded in accumulated other comprehensive income, respectively.
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RECENT
ACCOUNTING PRONOUNCEMENTS
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In
December 2019, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2019-12, Income Taxes (Topic
740) – Simplifying the Accounting for Income Taxes. This ASU enhances and simplifies various aspect of the income tax
accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business
combination, ownership changes in investments, methodology for calculating income taxes in an interim period when a year-to-date
loss exceeds the anticipated loss for the year and interim-period accounting for enacted changes in tax law. The amendment will
be effective for public companies with fiscal years beginning after December 15, 2020, (which will be January 1, 2021 for the
Company); early adoption is permitted. The Company is currently assessing the impact of this pronouncement to its consolidated
financial statements.
In
June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which supersedes current
guidance requiring recognition of credit losses when it is probable that a loss has been incurred. The ASU requires an entity
to establish an allowance for estimated credit losses on financial assets, including trade and other receivables, at each reporting
date. This ASU will result in earlier recognition of allowances for losses on trade and other receivables and other contractual
rights to receive cash. For smaller reporting companies, the effective date for this standard has been delayed and will be effective
for fiscal years beginning after December 15, 2022 (which will be January 1, 2023 for the Company). The Company is evaluating
the impact that the adoption of this standard will have on its consolidated financial statements.