Business
Update
We
previously reported that our subscription revenue would materially decrease beginning in the first quarter of 2020 if we did not
add network subscribers or other revenue sources sufficient to replace the revenue historically received from Buffalo Wild Wings
corporate-owned restaurants and its franchisees (“BWW”), after our existing relationships with BWW terminated in November
2019. We have not yet been able to offset the lost subscription revenue from BWW.
Moreover,
the COVID-19 pandemic has quickly negatively impacted the restaurant and bar industry, and our business has suffered as a result.
In many jurisdictions, including those in which we have many customers and prospective customers, restaurants and bars have been
ordered by the government to shut down or close all on-site dining. As a result, we expect material decreases in subscription
revenue, advertising revenue and cash flows from operations for the first quarter of 2020 and for such time thereafter as the
restaurant and bar industry continues to be negatively impacted by the COVID-19 pandemic.
In
light of the foregoing circumstances, we are carefully monitoring our liquidity, which has been materially and adversely impacted
by the COVID-19 pandemic, and have taken steps to further reduce our operating expenses and preserve capital. In addition to implementing
the 45% base salary deferral for our chief executive officer, as discussed above under Item 5.02, we have further reduced our
headcount from 39 to 17 employees, or by 56%, which we expect will save us $146,000 in monthly payroll expenses. This
reduction in headcount could adversely affect our ability to manage and operate our business. We may be required to implement
additional cost-reduction measures going forward.
We
estimate that we will have cash, cash equivalents and restricted cash of approximately $2.4 million as of March 31, 2020. As of
that date $2.0 million of principal will be outstanding under our term loan with Avidbank. While we expect to meet our near term
debt service obligations under the loan and security agreement with Avidbank governing the term loan and we expect to satisfy
our financial covenants thereunder as of March 31, 2020, we expect that it will be difficult for us to do so in subsequent periods.
See “Supplemental Risk Factor,” below. To help with our liquidity needs, we are evaluating, among other things, obtaining
a loan or other benefits under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) that was signed into law on
March 27, 2020.
The
estimated amount of cash, cash equivalents and restricted cash as of March 31, 2020 is unaudited and preliminary, and does not
present all information necessary for an understanding of our financial condition as of March 31, 2020. The review of our financial
statements for the three months ending March 31, 2020 has not commenced and could result in changes to this amount due to the
completion of financial closing procedures, final adjustments and other developments that may arise between now and the time our
financial statements for the three months ended March 31, 2020 are finalized and publicly released. Our independent registered
public accounting firm has not audited, reviewed, or compiled this estimate.
Supplemental
Risk Factor
In
light of recent developments relating to the COVID-19 pandemic, we are supplementing the risk factors previously disclosed in
Item 1A. of our Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the Securities and Exchange Commission
on March 19, 2020, as follows:
Our
cash flows from operations and liquidity have been materially adversely affected by the effects of the COVID-19 pandemic. We need
to raise capital in the near term and our inability to do so could result in our lender foreclosing on all of our assets and/or
us pursuing a restructuring, which may include a reorganization or bankruptcy under Federal bankruptcy laws, or a dissolution,
liquidation and/or winding up.
As
of March 27, 2020, we had cash, cash equivalents and restricted cash of approximately $2.4 million, and as of that date $2.0 million
of principal was outstanding under our term loan with Avidbank. We are required to make principal payments plus accrued interest
on the last day of each month beginning on April 30, 2020. The principal payment we must make each month will be $125,000 for
each of April, May and June, $300,000 for each of July, August, September, October and November, and $125,000 for December. Subject
to limited exceptions, our loan and security agreement with Avidbank prohibits us from borrowing additional amounts from other
lenders. In addition, we have two financial covenants under our loan and security agreement with Avidbank: our asset coverage
ratio must be no less than 1.25 to 1.00 as of the last day of each calendar month and at all times our minimum liquidity must
be not less than the outstanding principal of our loan.
Our
cash flows from operations and liquidity have been materially adversely affected by the effects of the COVID-19 pandemic. While
we expect to meet our near term debt service obligations to Avidbank and we expect to satisfy our financial covenants as of March
31, 2020, we expect that it will be difficult for us to do so in subsequent periods. Our ability to meet our debt service obligations
and to satisfy our financial covenants will depend on our ability to operate and manage our business during this challenging time,
particularly in light of having only 17 employees (as compared to 74 at December 31, 2019), on the extent to which the COVID-19
pandemic ultimately impacts our cash flows and on the duration of the impact, and on our ability to recover from the impact, all
of which are uncertain and difficult to predict at this time.
We
currently have no arrangements for capital and no assurances can be given that we will be able to raise sufficient capital when
needed, on acceptable terms, or at all. The effects of the COVID-19 pandemic on macroeconomic conditions and the capital markets
make it more challenging to raise capital. If we are unable to raise sufficient additional capital in the very near term, we may
default on our payment obligations to Avidbank or not satisfy our financial covenants to Avidbank, and if we do, Avidbank may
declare a default, which could lead to all payment obligations becoming immediately due and payable. Avidbank has a first-priority
security interest in all our personal property and may foreclose on our personal property to satisfy our payment obligations.
In addition, we will be required to curtail or terminate some or all of our business operations and we may determine to pursue
a restructuring, which may include a reorganization or bankruptcy under Federal bankruptcy laws, or a dissolution, liquidation
and/or winding up. Our investors may lose their entire investment in the event Avidbank forecloses on our personal property to
satisfy our payment obligations and/or in the event of a reorganization, bankruptcy, liquidation, dissolution or winding up.