On
June 27, 2018, we issued a press release regarding the offering, a copy of which is attached as an exhibit to this report.
Recent
Developments
East
West Bank Credit Facility
. In March 2018, we entered into an amendment to the amended and restated loan and security agreement
we entered into with East West Bank on November 29, 2017. This amendment (i) waived our minimum fixed charge coverage ratio covenant
default for the fiscal quarter ended December 31, 2017; (ii) suspended the minimum fixed charge coverage ratio covenant until
the quarter ending March 31, 2019; and (iii) added a minimum adjusted EBITDA covenant on a trailing six-month period ending March
31, 2018, June 30, 2018, September 30, 2018 and December 31, 2018. Based on information available to us at this time, the amount
of our adjusted EBITDA for the six-month period ending June 30, 2018 may be less than the target amount of the minimum adjusted
EBITDA for such period under the applicable covenant, which is $1.2 million. The shortfall is not expected to be a significant
amount and, if we are not compliant with such covenant, we will request a waiver from the lender for such default. Based on current
discussions with the lender, we anticipate that such waiver will be granted, however, no assurances can be given in this regard.
In accordance with the terms of the amended and restated loan and security agreement, beginning with the payment due on June 30,
2018, our payments under this credit facility will become principal and interest, whereas they have historically been interest
only.
Buffalo
Wild Wings
. In March 2017, Buffalo Wild Wings chose us to be its provider of digital menu, order, and payment functionality.
In November 2017, we expected to begin rolling out our improved tablet platform system at certain Buffalo Wild Wings locations
during the first quarter of 2018 and, after an initial set of locations was running smoothly, throughout the rest of the Buffalo
Wild Wings corporate and franchise locations with which we had partnered. Due to the acquisition of Buffalo Wild Wings by Arby’s
Restaurant Group, Inc. (which renamed itself Inspire Brands Inc.) in February 2018 and to the attendant changes with Buffalo Wild
Wings’ operations, the rollout of our expanded functionality tablet platform system was put on hold to allow its new ownership
to assess all the programs at Buffalo Wild Wings. Since that time, we have been working with Inspire Brands as it integrates Buffalo
Wild Wings into its portfolio and determines its brand priorities. Our updated tablet platform system is currently live at 31
Buffalo Wild Wings locations with our order, payment and guest insights functionality. We continue to believe that a long-term
relationship with Inspire Brands presents numerous opportunities as it intends to add several more brands to its portfolio, and
that our discussions with Inspire Brands have been going well. At this time we are not certain to what extent or which of our
offerings, if any, will fit within its updated brand strategy, or when it will make this determination. Aside from existing contractual
obligations under agreements we have entered into in the ordinary course of business, Inspire Brands has no obligation to continue
or to expand our current relationship. We continue to believe our player engagement and loyalty as well as expanded product offerings
will offer us a way to continue supporting the Buffalo Wild Wings brand under the Inspire Brands umbrella.
Risk
Factors
An
investment in our common stock involves a high degree of risk. 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, 2017 and Item 1A of Part II of our Quarterly Report on Form 10-Q
for the quarter ended March 31, 2018 together with all other information contained or incorporated by reference in those reports,
should be considered carefully before making any decision to invest in our common stock. If any of the risks described therein
or below were to occur, our business, financial condition, results of operations and our future growth prospects could be materially
and adversely affected, and the trading price of our common stock could decline, resulting in a loss of all or part of any investment
in our common stock. Except as set forth below, 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 and Quarterly Report referenced above other than as stated
below.
If
we fail to satisfy our financial covenants to our primary lender, the lender may declare a default, which could lead to all payment
obligations becoming immediately due and payable and have a material adverse effect on our financial condition and business.
Our
amended and restated loan and security agreement with East West Bank contains certain financial covenants with which we must comply,
including minimum adjusted EBITDA, minimum liquidity and a maximum senior leverage ratio, and beginning with the quarter ending
March 31, 2019, a minimum fixed charge coverage ratio. If we fail to satisfy these covenants, East West Bank may declare a default,
which could lead to all payment obligations becoming immediately due and payable and have a material adverse effect on our financial
condition and business. East West Bank has a first-priority security interest in all our existing and future personal property,
including our intellectual property, subject to limited exceptions. Accordingly, in an event of a default, East West Bank could
dispose of such assets to satisfy our payment obligations.
As
of March 31, 2018, we were in compliance with all covenants. However, there can be no assurance we will be in compliance with
all covenants in the future, including due to including due to events or conditions outside of our control. For example, fluctuations
in our operating results, such as may result from delays in or failure on the part of Inspire Brands Inc. to maintain or expand
our relationship with Buffalo Wild Wings as was anticipated before its acquisition, could result in violation of the adjusted
EBITDA covenant under our amended and restated loan and security agreement. Even though it has done so previously, East West Bank
may not be willing to waive future incidences of covenant default. Based on information available to us at this time, the amount
of our adjusted EBITDA for the six-month period ending June 30, 2018 may be less than the target amount of the minimum adjusted
EBITDA for such period under the applicable covenant, which is $1.2 million. The shortfall is not expected to be a significant
amount and, if we are not compliant with such covenant, we will request a waiver from East West Bank for such default. There is
no assurance that East West Bank will grant such waiver.
Our
cash flow may not cover our capital needs and we may need to raise additional funds in the future. Such funds may not be available
when needed, on acceptable terms or at all and, if available, may dilute current stockholders.
As
of March 31, 2018, we had cash and cash equivalents of $2,635,000. 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. As of March 31, 2018, $4,500,000 was outstanding under that loan agreement,
of which $1,500,000 is recorded in current portion of long-term debt and $3,000,000 is recorded in long-term debt on our consolidated
balance sheet. The loan matures on November 29, 2020. Payments are interest only until the payment due on June 30, 2018, at which
time we are required to make principal plus interest payments. In addition, as of March 31, 2018, $442,000 was outstanding under
a financing arrangement with an equipment lender and recorded in current portion of long-term debt on our consolidated balance
sheet.
Our
ability to meet our debt service obligations and to fund working capital, capital expenditures and investments in our business,
will depend upon our future performance, which will depend on many factors, including:
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ability to generate cash from operating activities;
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acceptance
of, and demand for, our interactive games and entertainment;
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the
costs of continuing to develop and implement our BEOND tablet platform and product line;
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the
costs of developing new entertainment content, products, or technology or expanding our offering to new media platforms such
as the internet and mobile phones;
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the
extent to which we invest in the creation of new entertainment content and new technology; and
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the
number and timing of acquisitions and other strategic transactions, if any.
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In
addition, in order to fully execute on our long-term strategic initiatives, we believe we will likely require additional funding
in the future.
We
cannot ensure that we will generate cash flow from operations in an amount sufficient to enable us to meet our debt service obligations
or to fund our working capital needs, capital expenditures and investments in our business. East West Bank has a first-priority
security interest in all our existing and future personal property, including our intellectual property, subject to limited exceptions,
and our equipment lender has a first-priority security interest in the equipment we purchased with the funds borrowed, subject
to a subordination agreement with East West Bank. If we default on our monthly payment obligations to our lenders, and our debt
obligations become immediately due and payable in full, our lenders may dispose of our personal property to satisfy our payment
obligations. If we need to raise additional funds in the future, such funds may not be available when needed, on acceptable terms,
or at all. Furthermore, if we issue equity or debt securities to raise additional funds, our existing stockholders may experience
dilution, and the new equity or debt securities may have rights, preferences, and privileges senior to those of our existing stockholders.
If we cannot raise funds on acceptable terms, or at all, we may not be able to continue to develop and implement our BEOND technology
platform and product line, develop or enhance our other products and services, successfully execute our business plan or any or
all of our strategic initiatives, take advantage of future opportunities, or respond to competitive pressures or unanticipated
customer requirements.
We
receive a significant portion of our revenues from Buffalo Wild Wings, and any decrease in the amount of their business could
materially and adversely affect our cash flow and revenue.
For
the year ended December 31, 2017, Buffalo Wild Wings corporate-owned restaurants and its franchisees accounted for approximately
41%, or $8,678,000, of our total revenue. For the three months ended March 31, 2018, Buffalo Wild Wings corporate-owned restaurants
and its franchisees accounted for approximately 49%, or $2,798,000, of our total revenue. As of March 31, 2018 and December 31,
2017, approximately $504,000 and $191,000, respectively, was included in accounts receivable from Buffalo Wild Wings corporate-owned
restaurants and its franchisees.
In
March 2017, Buffalo Wild Wings chose us to be its provider of digital menu, order, and payment functionality. In November 2017,
we expected to begin rolling out our improved tablet platform system at certain Buffalo Wild Wings locations during the first
quarter of 2018 and, after an initial set of locations was running smoothly, throughout the rest of the Buffalo Wild Wings corporate
and franchise locations with which we had partnered. Due to the acquisition of Buffalo Wild Wings by Arby’s Restaurant Group,
Inc. (which renamed itself Inspire Brands Inc.) in February 2018 and to the attendant changes with Buffalo Wild Wings’ operations,
the rollout of our expanded functionality tablet platform system was put on hold to allow its new ownership to assess all the
programs at Buffalo Wild Wings. Since that time, we have been working with Inspire Brands as it integrates Buffalo Wild Wings
into its portfolio and determines its brand priorities. Our updated tablet platform system is currently live at 31 Buffalo Wild
Wings locations with our order, payment and guest insights functionality. We continue to believe that a long-term relationship
with Inspire Brands presents numerous opportunities as it intends to add several more brands to its portfolio, and that our discussions
with Inspire Brands have been going well. At this time we are not certain to what extent or which of our offerings, if any, will
fit within its updated brand strategy, or when it will make this determination. Aside from existing contractual obligations under
agreements we have entered into in the ordinary course of business, Inspire Brands has no obligation to continue or to expand
our current relationship. We continue to believe our player engagement and loyalty as well as expanded product offerings will
offer us a way to continue supporting the Buffalo Wild Wings brand under the Inspire Brands umbrella.
If
we are unable to maintain or expand our current relationship with Buffalo Wild Wings (now under the Inspire Brands umbrella) or
its franchisees, we could lose a significant portion of our revenues, which could materially and adversely affect our operating
results and cash flows. In addition, inability to demonstrate Buffalo Wild Wings as a strategic user of our expanded functionality
tablet platform system could negatively impact achievement of our chain customer site growth goals. Likewise, if any other customer
who may in the future represent a significant portion of our revenue were to breach or terminate their subscriptions or otherwise
decrease the amount of business they transact with us, we could lose a significant portion of our revenues and cash flow.
Forward-Looking
Statements
Certain
statements in this report are forward-looking statements that involve a number of risks and uncertainties. Such forward-looking
statements include statements about the expected settlement of the sale and purchase of securities described herein, our receipt
of net proceeds therefrom and our future financial performance or position. For such statements, we claim the protection of the
Private Securities Litigation Reform Act of 1995. Actual events or results may differ materially from expectations indicated by
these forward-looking statements. Factors that could cause actual results to differ materially from the forward-looking statements
include, but are not limited to, our ability to satisfy applicable closing conditions under the subscription agreement and the
placement agency agreement and the risks described in this report and in our other reports filed with the SEC.