# Ernexa Therapeutics Inc.: Form 10-Q for the period ended Mar 31, 2020

- Company: [Ernexa Therapeutics Inc.](/companies/erna.md) (CIK 748592)
- Form: 10-Q
- Filed: 2020-05-20
- Accepted by EDGAR: May 20, 2020, 16:16 ET
- Period: 2020-03-31
- Accession: 0001493152-20-009524
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/748592/000149315220009524/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/748592/000149315220009524/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2020-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2020-01-01 to 2020-03-31 | $2.4m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Selling, general and administrative | 3 months, 2020-01-01 to 2020-03-31 | $3.1m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2020-01-01 to 2020-03-31 | −$2.5m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2020-01-01 to 2020-03-31 | −$19.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2020-01-01 to 2020-03-31 | −$1.2m | us-gaap:NetIncomeLoss |
| Operating cash flow | 3 months, 2020-01-01 to 2020-03-31 | −$1.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2020-01-01 to 2020-03-31 | $19.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2020-03-31 | $2.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2020-03-31 | $4.3m | us-gaap:AssetsCurrent |
| Total assets | at 2020-03-31 | $11.0m | us-gaap:Assets |
| Current liabilities | at 2020-03-31 | $4.4m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2020-03-31 | $7.2m | us-gaap:Liabilities |
| Current portion of debt | at 2020-03-31 | $2.0m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2020-03-31 | $3.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 54,328 characters.

#### CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

This report and the documents incorporated by reference herein, if any, contain “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995, or the Forward-Looking Statements Safe Harbor, as codified in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical facts could be deemed forward-looking statements. We have tried, whenever possible, to identify these statements by using words such as “believes,” “estimates,” “anticipates,” “expects,” “intends,” “plans,” “seeks,” or words of similar meaning, or future or conditional verbs, such as “may,” “will,” “should,” “could,” “aims,” “intends” or “projects,” and similar expressions, whether in the negative or the affirmative. Forward-looking statements reflect management’s beliefs and assumptions, are all based on currently available operating, financial and competitive information and are subject to various risks and uncertainties. Forward-looking statements by their nature address matters that are, to different degrees, subject to risks and uncertainties that could cause actual results to differ materially and adversely from those expressed in any forward-looking statement. For us, particular factors that might cause or contribute to such differences include (1) our ability to raise substantial capital in the very near-term to allow us to maintain operations and sustain the negative impact of the COVID-19 pandemic on our business and financial condition, and if we are able to sustain such impact, our ability to recover from the impact; (2) our ability to successfully manage our liquidity and our working capital deficit by managing the timing of payments to our third parties; (3) our ability to comply with our financial covenants in our loan and security agreement with Avidbank and its right to declare a default if we do not, which could lead to all payment obligations becoming immediately due and payable and which could lead to a foreclosure on our assets; (4) when, and the extent to which, the negative impact of the pandemic will improve, including when restaurants will be permitted to offer on-site dining or when bars will be permitted to re-open and to what degree, when our customers will re-open, or if they will subscribe to our service if and when they do; (5) the negative impact that measures we implemented and may implement to reduce our operating expenses and planned capital expenses (including investments in our business) may have on our ability to effectively manage and operate our business; (5) our ability to maintain or grow our revenue; (6) our ability to compete effectively within the highly competitive interactive games, entertainment and marketing services industries, including our ability to successfully commercially launch attractive product offerings, and the impact of new products and technological change, especially in the mobile and wireless markets, on our operations and competitiveness; (7) our ability to adequately protect our proprietary rights and intellectual property; and (8) the other risks and uncertainties described in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (our “2019 10-K”), and described in other documents we file from time to time with the Securities and Exchange Commission, or SEC, including our Current Reports on Form 8-K filed with the SEC on March 30, 2020 and April 21, 2020, this report and our other Current Reports and Quarterly Reports.

Readers are urged not to place undue reliance on the forward-looking statements in this report or incorporated by reference herein, which speak only as of the date of this report. We are including this cautionary note to make applicable, and take advantage of, the safe harbor provisions of the Forward-Looking Statements Safe Harbor.

We historically have operated in a continually changing business environment. The country and both the global economy generally and, for our purposes, the U.S. economy face profound dislocations and unprecedented uncertainty as a result of the COVID-19 pandemic. The full extent to which the COVID-19 pandemic will, directly or indirectly, impact our business, results of operations and financial condition is currently highly uncertain, including due to factors that currently are also highly uncertain, including a resurgence in COVID-19 transmission or infection after the easing or lifting of stay-at-home restrictions, actions required or recommended to contain or treat COVID-19, and the direct and indirect economic impact of COVID-19.

We believe that the expectations reflected in forward-looking statements in this report or incorporated herein by reference are based upon reasonable assumptions at the time made. However, given the risks and uncertainties, you should not rely on any forward- looking statements as a prediction of actual results, developments or other outcomes. You should read these forward-looking statements with the understanding that we may be unable to achieve projected results, developments or other outcomes and that actual results, developments or other outcomes may be materially different from what we expect. You are cautioned not to place undue reliance on these forward-looking statements.

We intend forward-looking statements to speak only as of the time they are made. Except as required by law, we do not undertake, and expressly disclaim any obligation, to disseminate, after the date hereof, any updates or revisions to any such forward-looking statements to reflect any change in expectations or events, conditions or circumstances on which any such statements are based.

### INTRODUCTION

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

- *Overview and Highlights.* This section describes our business and significant events and transactions we believe are important in understanding our financial condition and results of operations.
- *Critical Accounting Policies.* This section lists our significant accounting policies, including any material changes in our critical accounting policies, estimates and judgments during the three months ended March 31, 2020 from those described in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our 2019 10-K.
- *Results of Operations.* This section provides an analysis of our results of operations presented in the accompanying unaudited condensed consolidated statements of operations by comparing the results for the three months ended March 31, 2020 to the results for the three months ended March 31, 2019.
- *Liquidity and Capital Resources.* This section provides an analysis of our historical cash flows, and our future capital requirements.
- *Recent Accounting Pronouncements.* This section provides information related to new or updated accounting guidance that may impact our consolidated financial statements.
- *Off-Balance Sheet Arrangements*. This section provides information related to any off-balance sheet arrangement we may have that would affect our consolidated finance statements.

### OVERVIEW AND HIGHLIGHTS

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

We deliver interactive entertainment and innovative technology to our partners in a wide range of verticals – from bars and restaurants to casinos and senior living centers. By enhancing the overall guest experience, we believe we help our hospitality partners acquire, engage, and retain patrons.

Through social fun and friendly competition, our platform creates bonds between our hospitality partners and their patrons, and between patrons themselves. We believe this unique experience increases dwell time, revenue, and repeat business for venues – and has also created a large and engaged audience which we connect with through our in-venue TV network. Until the significant disruptions to the restaurant and bar industry resulting from the COVID-19 pandemic that began in March 2020, over 1 million hours of trivia, card, sports and arcade games were played on our network each month.

We generate revenue by charging subscription fees to our partners for access to our 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 our entertainment and trivia content to other parties, and by providing professional services such as custom game design or development of new platforms on our existing tablet form factor. Up until February 1, 2020, we also generated revenue by hosting live trivia events (see Note 5 to the consolidated financial statements included in Item 1 of this report).

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

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

### Recent Developments

#### COVID-19 Impact Update

The negative impact of the COVID-19 pandemic on the restaurant and bar industry was abrupt and substantial, and our business, cash flows from operations and liquidity suffered, and continues to suffer, materially 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 since the latter half of March 2020. At its peak, approximately 70% of our customers requested that their subscriptions to our services be temporarily suspended. As governmental orders and restrictions impacting restaurants and bars are eased or lifted, we expect the temporary subscription suspensions to end, however, even in jurisdictions in which such orders and restrictions are eased or lifted, our customers could request to continue their subscription suspensions if, for example, such customers choose not to re-open despite being permitted to do so. We have experienced material decreases in subscription revenue, advertising revenue and cash flows from operations, which we expect 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 states are lifted. We cannot predict with certainty whether, when or the manner in which the impact of the pandemic will improve, including when restaurants will be permitted to offer on-site dining or when bars will be permitted to re-open or to what degree, when our customers will re-open, or if they will subscribe to our service if and when they do, or if and when there will be a resurgence in COVID-19 transmission or infection after the easing or lifting of stay-at-home orders, and if there is, the impact of such resurgence on our business. Similarly, we cannot predict with certainty the duration of the negative effects of the pandemic on our business and liquidity, however, unless in the very near term our subscription revenue, advertising revenue and cash flows from operations return to pre-pandemic levels and/or we raise substantial capital, the amount of time and the amount of cash we have to maintain operations and sustain the negative effects of the pandemic is very limited. See “—Liquidity and Capital Resources,” below, and “Item 1A. Risk Factors” in Part II of this report for additional information regarding the impact of the pandemic on our business and outlook.

Our current focus is on maintaining operations and at this time we are no longer focusing on the areas in which we intended to focus during 2020 as reported in the section titled, “Our Strategy,” in ITEM 1. Business of our 2019 10-K.

#### Paycheck Protection Program Note

In April 2020, we received a $1,625,100 loan under the Paycheck Protection Program of the Coronavirus Aid, Relief, and Economic Security Act administered by the U.S. Small Business Administration. The loan matures on April 18, 2022 and bears interest at a rate of 1.0% per annum. We 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. See “—Liquidity and Capital Resources,” below.

#### Amended Loan and Security Agreement

On March 12, 2020, we entered into an amendment to the loan and security agreement that we entered into with Avidbank in September 2018 for a $4,000,000 four-year term loan. In connection with entering into the amendment, we made a $433,000 payment on our term loan, which includes 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 our term loan to $2.0 million. Additionally, under the terms of the amendment, the maturity date of our term loan was changed from September 28, 2022 to December 31, 2020, and the amount and timing of our payment obligations accelerated significantly.

#### Other

In January 2020, we sold all of our assets used to conduct the live-hosted knowledge-based trivia events known as Stump! Trivia and OpinioNation for approximately $1.4 million in cash.

### Strategic Process

Our board of directors continues to explore and evaluate strategic alternatives focused on maximizing shareholder value, while also exploring and evaluating financing alternatives to increase the likelihood that we will be able to avoid a restructuring, which may include a reorganization, bankruptcy, assignment for the benefit of creditors, or a dissolution, liquidation and/or winding up, in the event the strategic process does not result in a transaction. Our board of directors has not set a timetable for the strategic process nor has it made any decisions relating to any strategic alternatives at this time, and no assurance can be given as to the outcome of the process. We do not intend to disclose additional details regarding the strategic process unless and until further disclosure is appropriate or necessary.

### CRITICAL ACCOUNTING POLICIES

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

There have been no material changes in our critical accounting policies, estimates and judgments during the three months ended March 31, 2020 from those described in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our 2019 10-K.

### RESULTS OF OPERATIONS

We incurred a net loss of $1,218,000 for the three months ended March 31, 2020, compared to a net loss of $313,000 for the three months March 31, 2019.

### Revenue

We generate revenue by charging subscription fees to our partners for access to our 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 our entertainment and trivia content to other parties, and by providing professional services such as custom game design or development of new platforms on our existing tablet form factor. Up until February 1, 2020, we also generated revenue by hosting live trivia events (see Note 5 to the consolidated financial statements included in Item 1 of this report). The table below summarizes the type of revenue we generated for the three months ended March 31, 2020 and 2019 and the change in such revenue between the two periods:

|  | Three months ended March 31, 2020 $% of Total Revenue |  | 2019 $% of Total Revenue |  | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Subscription revenue | 1,999,000 | 83.5% | 3,833,000 | 79.3% | (1,834,000) | (47.8)% |
| Hardware revenue | 16,000 | 0.7% | 205,000 | 4.2% | (189,000) | (92.2)% |
| Other revenue | 379,000 | 15.8% | 794,000 | 16.5% | (415,000) | (52.3)% |
| Total | 2,394,000 | 100.0% | 4,832,000 | 100.0% | (2,438,000) | (50.5)% |

#### Subscription Revenue

The decrease in subscription revenue for the three months ended March 31, 2020 was primarily due to lower average site count and lower average revenue per site when compared to the same period in 2019. 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, after our existing relationships with BWW terminated in November 2019. To date, we have not offset the lost subscription revenue from Buffalo Wild Wings corporate-owned restaurants and its franchisees.

Because shelter-in-place orders and governmental orders for restaurants and bars to shut down or close all on-site dining were generally issued toward the end of the first quarter of 2020, we expect the negative impacts of the COVID-19 pandemic on our subscription revenue to be significantly greater in the second quarter of 2020 compared to the first quarter of 2020. At its peak, approximately 70% of our customers requested that their subscriptions to our services be temporarily suspended. As governmental orders and restrictions impacting restaurants and bars are eased or lifted, we expect the temporary subscription suspensions to end, however, even in jurisdictions in which such orders and restrictions are eased or lifted, our customers could request to continue their subscription suspensions if, for example, such customers choose not to re-open despite being permitted to do so. See “Item 1A. Risk Factors” in Part II of this report for additional information regarding the impact of the pandemic on our business and outlook.

The table below provides a geographic breakdown of our site count as of the date indicated:

|  | Network Subscribers as of March 31, 2020 | 2019 |
| --- | ---: | ---: |
| United States | 1,277 | 2,491 |
| Canada | 119 | 141 |
| Total | 1,396 | 2,632 |

#### Hardware Revenue

The decrease in hardware revenue for the three months ended March 31, 2020 was primarily due to decreased sales-type lease arrangements when compared to the same period in 2019. As previously reported, we did not, and do not, expect to continue recognizing hardware revenue under sales-type lease arrangements during 2020 or thereafter. Unless we license or otherwise dispose of our hardware business, we expect to continue recognizing hardware revenue throughout 2020 under our existing contract from our jail services partner, however, we are uncertain if we will enter into another equipment sale contract with our jail services partner or any other party. We are in early stage discussions to license our hardware business to a third party to help preserve capital as the cost to service this revenue stream is significant relative to our existing cash on hand.

#### Other Revenue

The decrease in other revenue for the three months ended March 31, 2020 was primarily due to a decrease in revenue from our live-hosted trivia events when compared to the same period in 2019 as a result of the sale of all our assets used to conduct the live-hosted knowledge-based trivia events known as Stump! Trivia and OpinioNation in January 2020. We do not expect to recognize revenue from live-hosted trivia events in the future. We also recognized less license revenue and advertising revenue during the three months ended March 31, 2020 when compared to the same period in 2019. We expect our advertising revenue will continue to be materially adversely impacted because of a decrease in advertising sales arising from a slowdown in consumer traffic of the restaurant and bars that subscribe to our service as a result of the COVID-19 pandemic.

### Direct Operating Costs and Gross Margin

A comparison of direct costs and gross margin for the periods indicated is shown in the table below:

|  | For the three months ended March 31, 2020 | 2019 | Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenues | $2,394,000 | $4,832,000 | $(2,438,000) | (50.5)% |
| Direct Costs | 950,000 | 1,484,000 | (534,000) | (36.0)% |
| Gross Margin | $1,444,000 | $3,348,000 | $(1,904,000) | (56.9)% |
| Gross Margin Percentage | 60.3% | 69.3% |  |  |

For the three months ended March 31, 2020, the decrease in direct costs was primarily due to (1) decreases in direct wages of approximately $199,000 as a result of no longer providing live-hosted trivia events after January 2020 due to the sale of all our assets used to conduct the live-hosted knowledge-based trivia events discussed above; (2) decreased depreciation expense of $190,000; and (3) decreased service provider and freight expense of approximately $89,000; (4) decreased license fees of $39,000; and (5) decreased other miscellaneous expenses of $16,000, in each case, when compared to the same period in 2019.

The decrease in gross margin for the three months ended March 31, 2020 was primarily due to revenue mix and writing off approximately $188,000 in older technology equipment for the three months ended March 31, 2020 when compared to the same period in 2019.

### Operating Expenses

|  | For the three months ended March 31, 2020 | 2019 | Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Selling, general and administrative | $3,080,000 | $3,468,000 | $(388,000) | (11.2)% |
| Impairment of capitalized software | $138,000 | $1,000 | $137,000 | 13,700.0% |
| Impairment of goodwill | $662,000 | $- | $662,000 | 100.0% |
| Depreciation and amortization (non-direct) | $85 | $96 | $(11) | (11.5)% |

#### Selling, General and Administrative Expenses

The decrease in selling, general and administrative expenses for the three months ended March 31, 2020 was primarily due to decreased (1) payroll and related expense of $283,000, (2) marketing fees of $198,000 and (3) professional fees of $60,000 due to fewer consulting expenses. These decreases were partially offset by increased bad debt expense of $159,000. In light of the recent measures we implemented to reduce operating expenses and to preserve capital, we expect our selling, general and administrative expenses to decrease in 2020. However, such actions, and any similar actions we may implement in the future, could adversely affect our business and we may not realize the operation or financial benefits of such actions.

#### Impairment of Capitalized Software

Impairment of capitalized software increased for the three months ended March 31, 2020 as a result of abandoning certain capitalized software development projects that we concluded were no longer a current strategic fit or for which we determined that the marketability of the content had decreased due to obtaining additional information regarding the specific purpose for which the content was intended.

#### Impairment of Goodwill

We have goodwill resulting from the excess of costs over the fair value of assets we acquired in 2003 related to our Canadian business (the “Reporting Unit”). Goodwill and intangible assets acquired in a purchase combination that are determined to have an indefinite useful life are not amortized, but instead are assessed annually, or at interim periods, for impairment based on qualitative factors, such as macroeconomic conditions, industry and market considerations, cost factors, overall financial performance and other relevant events, to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of the Reporting Unit is less than its carrying amount. If there are indications of impairment, then we perform a quantitative impairment test.

During the Company’s evaluation of impairment indicators as of March 31, 2020, we determined that the uncertainty relating to COVID-19’s impact on the Reporting Unit’s future operating results represented an indicator of impairment. Accordingly, we 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. There was no goodwill impairment recorded for the three months ended March 31, 2019.

#### Depreciation and Amortization

The decrease in depreciation and amortization expense for the three months ended March 31, 2020 was primarily due to various equipment becoming fully depreciated and not replacing with new assets.

### Other Income (Expense), Net

|  | For the three months ended March 31, 2020 | 2019 | Increase in other income, net |
| --- | ---: | ---: | ---: |
| Total other income (expense), net | $1,284,000 | $(85,000) | $1,369,000 |

25

For the three months ended March 31, 2020, the increase in other income (expense), net, was primarily due to a $1,265,000 gain related to the asset sale of all our assets used to conduct the live-hosted knowledge-based trivia events, increased foreign currency gains related to our Canadian subsidiary, and decreased interest expense due to lower long-term debt balances when compared to the same period in 2019.

### Income Taxes

|  | For the three months ended March 31, 2020 | 2019 | Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Benefit (provision) for income taxes | $19,000 | $(11,000) | $30,000 | (273)% |

We expect to incur state income tax liability in 2020 related to our U.S. operations. For the three months ended March 31, 2020, an impairment to goodwill resulted in a in a net tax benefit in Canada. We have established a full valuation allowance for substantially all of our deferred tax assets, including the NOL carryforwards, since we do not believe we are likely to generate future taxable income to realize these assets

### EBITDA—Consolidated Operations

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

The tables below shows a reconciliation of our consolidated net loss calculated in accordance with GAAP to EBITDA for the periods indicated. EBITDA should not be considered a substitute for, or superior to, net loss calculated in accordance with GAAP.

|  | For the three months ended March 31, 2020 | 2019 |
| --- | ---: | ---: |
| Net loss per GAAP | $(1,218,000) | $(313,000) |
| Interest expense, net | 45,000 | 67,000 |
| Income tax (benefit) provision | (19,000) | 11,000 |
| Depreciation and amortization | 546,000 | 747,000 |
| EBITDA | $(646,000) | $512,000 |

### LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2020, we had cash, cash equivalents and restricted cash of approximately $2.4 million (including the approximately $1.4 million in cash we received in January 2020 from the sale of all our assets used to conduct our live-hosted knowledge-based trivia events) compared to cash, cash equivalents and restricted cash of approximately $3.4 million as of December 31, 2019. As discussed further below, subsequent to March 31, 2020, we received a loan of approximately $1.6 million under the Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) administered by the U.S. Small Business Administration.

In connection with preparing our financial statements as of and for the three months ended March 31, 2020, our management evaluated whether there are conditions or events, considered in the aggregate, that are known and reasonably knowable that would raise substantial doubt about our ability to continue as a going concern through twelve months after the date that such financial statements are issued. During the three months ended March 31, 2020, we incurred a net loss of $1,281,000, and our current liabilities exceeded our current assets at March 31, 2020 by $87,000. Since January 1, 2020, Avidbank required us to pay $750,000 of the principal balance of our term loan, thereby reducing it to $2,000,000 as of March 19, 2020. Under the terms of the amendment to our loan and security agreement that we entered into with Avidbank in March 2020, during 2020 we will be required to make monthly payments that, if made in accordance with their terms, will result in us paying off our term loan by December 31, 2020.

The negative impact of the COVID-19 pandemic on the restaurant and bar industry was abrupt and substantial, and our business, cash flows from operations and liquidity suffered, and continues to suffer, materially 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. At its peak, approximately 70% of our customers requested that their subscriptions to our services be temporarily suspended. As governmental orders and restrictions impacting restaurants and bars are eased or lifted, we expect the temporary subscription suspensions to end, however, even in jurisdictions in which such orders and restrictions are eased or lifted, our customers could request to continue their subscription suspensions if, for example, such customers choose not to re-open despite being permitted to do so. We have experienced material decreases in subscription revenue, advertising revenue and cash flows from operations, which we expect 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 states are eased or lifted.

In response to the substantial negative impact of the pandemic on our business, we implemented measures to reduce our operating expenses and preserve capital. We reduced our headcount (as of May 20, 2020, we have 17 employees compared to 74 at December 31, 2019) and our chief executive officer agreed to defer payment of 45% of all of his annual base salary payments between May 1, 2020 and October 31, 2020 until the earlier of October 31, 2020 or such time as our board of directors determines in good faith that we are in the financial position to pay his accumulated deferred salary. We eliminated all capital projects and are aggressively managing our payables and rent payments to limit further cash outlays and manage our working capital. We are continuing to carefully monitor our liquidity and our current focus is on maintaining operations. We are prioritizing payments to mission critical vendors and deferring all non-essential payables. We may implement additional measures designed to reduce operating expenses and/or preserve capital. We began discussions with Avidbank to modify our payment obligations under our term loan, to modify our financial covenants under our loan and security agreement and/or to obtain covenant relief. We also began discussions with our landlord to reduce or defer our rent payments, including vacating the space for an early termination of the lease. We are also in discussions with vendors to extend payment terms. We are unable to predict the outcome of these discussions or the extent to which we will be able to successfully modify our payment obligations or our financial covenants (or obtain covenant relief) related to our term loan, reduce or defer our rent payments, and/or extend vendor payment terms.

While we expect to meet our near term debt service obligations on our term loan with Avidbank and we satisfied our financial covenants under our related loan and security agreement as of March 31, 2020, unless in the very near term our subscription revenue, advertising revenue and cash flow from operations return to pre-pandemic levels and/or we raise substantial capital, we do not expect that we will be able to satisfy our asset coverage ratio covenant at the end of June 2020, which may result in Avidbank declaring a default under our loan and security agreement. As a result of the impact of the COVID-19 pandemic on our business and taking into account our current financial condition and our existing sources of revenue, unless in the very near term our subscription revenue, advertising revenue and cash flow from operations return to pre-pandemic levels and/or we raise substantial capital, we believe we will have sufficient cash resources to pay forecasted cash outlays through October 2020, assuming we deliver a significant hardware order as scheduled during the second quarter of 2020, Avidbank does not take actions to foreclose on our assets in the event we are out of compliance with our financial covenants, and we are able to continue to successfully manage our working capital deficit by managing the timing of payments to our vendors and other third parties.

We need in the very near term our subscription revenue, advertising revenue and cash flow from operations return to pre-pandemic levels, and/or we need to raise substantial capital in the very near-term to maintain operations. We continue to explore and evaluate opportunities to raise capital, including through equity financings, alternative sources of debt, and strategic transactions, which may include a business combination transaction and/or selling a portion or all of our assets. We currently have no arrangements for capital or for a strategic transaction, and no assurances can be given that we will be able to raise sufficient capital when needed, on acceptable terms, or at all, or that we will be able to complete a strategic transaction. 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 and Avidbank has a first-priority security interest in all our existing and future personal property. 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, assignment for the benefit of creditors, 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, assignment for the benefit of creditors, liquidation, dissolution or winding up.

See the risk factors titled, “*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, assignment for the benefit of creditors, or a dissolution, liquidation and/or winding up”* and “*If we fail to comply with our financial covenants to Avidbank, it 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,”* in Item 1A. Risk Factors in Part II of this report, below.

Based on the factors described above, management concluded that there is substantial doubt regarding our 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 we will be able to raise sufficient capital when needed, on acceptable terms, or at all.

The accompanying 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 our ability to continue as a going concern.

#### Avidbank Term Loan

Under a loan and security agreement we entered into with Avidbank in September 2018, or the Original LSA, we borrowed $4,000,000 in the form of a 48-month term loan, all of which we used to pay-off the $4,050,000 of principal borrowed from our then-existing lender. In February 2020, we made a pre-payment on the term loan of approximately $150,000 following the sale of all our assets used to conduct the live-hosted knowledge-based trivia events known as Stump! Trivia and OpinioNation in January 2020. On March 12, 2020, we entered into an amendment to the Original LSA. We refer to the Original LSA, as amended, as the Avidbank LSA. In connection with entering into the amendment, we made a $433,000 payment on our 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 our term loan to $2,000,000 as of March 31, 2020.

We incurred approximately $26,000 of debt issuance costs related to the Original LSA and the amendment to the LSA. 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 March 31, 2020 was $10,000 and is recorded as a reduction of long-term debt.

Under the terms of the Avidbank LSA, our financial covenants were changed, the maturity date of our term loan was changed from September 28, 2022 to December 31, 2020, and commencing on April 30, 2020, we were required to make principal plus accrued interest payments on the last day of each month, such that our term loan will be repaid by December 31, 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.

Under the Avidbank LSA, we have a monthly minimum asset coverage ratio covenant, which we refer to as the ACR covenant, and a minimum liquidity covenant. Under the ACR covenant, the ratio of (i) our unrestricted cash at Avidbank as of the last day of a calendar month plus 75% of our outstanding accounts receivable accounts that are within 90 days of invoice date to (ii) the outstanding principal balance of our term loan on such day must be no less than 1.25 to 1.00. As of March 31, 2020, we were in compliance with both of those covenants. Under the minimum liquidity covenant, the aggregate amount of unrestricted cash we have in deposit accounts or securities accounts maintained with Avidbank must be at all times not less than the principal balance outstanding under our term loan.

Under the Avidbank LSA, subject to customary exceptions, we are prohibited from borrowing additional indebtedness. We granted and pledged to Avidbank a first-priority security interest in all our existing and future personal property.

The Avidbank LSA includes customary representations, warranties and covenants (affirmative and negative), including restrictive covenants that, subject to specified exceptions, limit our ability to: dispose of our business or property; merge or consolidate with or into any other business organization; incur or prepay additional indebtedness; create or incur any liens on its property; declare or pay any dividend or make a distribution on any class of our stock; or enter specified material transactions with our affiliates. The Avidbank LSA also includes customary events of default, including: payment defaults; breaches of covenants following any applicable cure period; material breaches of representations or warranties; the occurrence of a material adverse effect; events relating to bankruptcy or insolvency; and the occurrence of an unsatisfied material judgment against us. Upon the occurrence of an event of default, Avidbank may declare all outstanding obligations immediately due and payable, do such acts as it considers necessary or reasonable to protect its security interest in the collateral, and take such other actions as are set forth in the Avidbank LSA.

#### Paycheck Protection Program Loan

On April 18, 2020, we issued a note in the principal amount of $1,625,100 evidencing a loan (the “PPP Loan”) we received under the PPP of the CARES Act administered by the U.S. Small Business Administration. The PPP Loan matures on April 18, 2022 and bears interest at a rate of 1.0% per annum. We 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, we may prepay the PPP Loan at any time with no prepayment penalties. We 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. We intend 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 we will obtain forgiveness of the loan in whole or in part. Avidbank consented to us borrowing the PPP Loan.

#### Working Capital

As of March 31, 2020, we had negative working capital (current liabilities in excess of current assets) of $87,000 compared to negative working capital of $25,000 as of December 31, 2019. The following table shows our change in working capital from December 31, 2019 to March 31, 2020.

|  | Increase (Decrease) |
| --- | ---: |
| Working capital as of December 31, 2019 | $(25,000) |
| Changes in current assets: |  |
| Cash and cash equivalents | (988,000) |
| Accounts receivable, net of allowance | (812,000) |
| Site equipment to be installed | (234,000) |
| Prepaid expenses and other current assets | 229,000 |
| Net decrease in current assets | (1,805,000) |
| Changes in current liabilities: |  |
| Accounts payable | (48,000) |
| Accrued compensation | (352,000) |
| Accrued expenses | (253,000) |
| Sales taxes payable | (112,000) |
| Income taxes payable | 5,000 |
| Current portion of long-term debt | (749,000) |
| Current portion of obligations under capital leases | (24,000) |
| Deferred rent | (77,000) |
| Other current liabilities | (133,000) |
| Net decrease in current liabilities | (1,743,000) |
| Net decrease in working capital | (62,000) |
| Working capital as of March 31, 2020 | $(87,000) |

#### Cash Flows

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

| Cash (used in) provided by: | For the three months ended March 31, 2020 | 2019 | Change |
| --- | ---: | ---: | ---: |
| Operating activities | $(1,165,000) | $780,000 | $(1,945,000) |
| Investing activities | (140,000) | (396,000) | 256,000 |
| Financing activities | 388,000 | (273,000) | 661,000 |
| Effect of exchange rates | (71,000) | 19,000 | (90,000) |
| Net (decrease) increase in cash, cash equivalents and restricted cash | $(988,000) | $130,000 | $(1,118,000) |

*Net cash provided by operations.* The decrease in cash provided by operating activities was due to an increase in net loss of $1,192,000, after giving effect to adjustments made for non-cash transactions and an increase in cash used for operating assets and liabilities of $753,000, during the three months ended March 31, 2020 when compared to the same period in 2019.

Our largest use of cash is payroll and related costs. Cash used for payroll and related costs decreased $285,000 to $2,265,000 for the three months ended March 31, 2020 from $2,550,000 for the same period in 2019, primarily due to reduced headcount. In light of the recent measures we implemented to reduce operating expenses and to preserve capital, we expect our selling, general and administrative expenses to decrease in 2020. See “—Results of Operations—Operating Expenses,” above.

Our primary source of cash is cash we generate from customers. Cash received from customers decreased $2,001,000 to $3,163,000 for the three months ended March 31, 2020 from $5,164,000 for the same period in 2019. This decrease was primarily related to decreased subscription revenue, hardware revenue and revenue from live-hosted trivia events. The negative impact of the COVID-19 pandemic on the restaurant and bar industry was abrupt, and our business suffered materially as a result. We cannot predict whether, when or the manner in which the impact of the pandemic will improve, including when the shut down or close of on-site dining restrictions will be eased or lifted or to what degree, when our customers will re-open, or if they will subscribe to our service if and when they do. See “—Results of Operations—Revenue,” above.

*Net cash used in investing activities.* The $256,000 decrease in cash used in investing activities was primarily due to decreased capital expenditures and capitalized software development expenses.

*Net cash used in financing activities.* During the three months ended March 31, 2020, we received $1,166,000 in net proceeds from the sale of all our assets used to conduct the live-hosted knowledge-based trivia events known as Stump! Trivia and OpinioNation. There was no similar transaction during the same period in 2019. During the three months ended March 31, 2020, we made $750,000 more in principal payments on long-term debt when compared to the same period in 2019.

### RECENT ACCOUNTING PRONOUNCEMENTS

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 aspects 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 us); early adoption is permitted. We are currently assessing the impact of this pronouncement to our consolidated financial statements.

In November 2019, the FASB issued ASU No. 2019-08, *Compensation – Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606) (“*ASU No. 2019-08”). This ASU requires that an entity measure and classify share-based payment awards granted to a customer by applying the guidance in Topic 718. The amount recorded as a reduction of the transaction price is required to be measured on the basis of the grant-date fair value of the share-based payment award in accordance with Topic 718. The grant date is the date at which a grantor (supplier) and a grantee (customer) reach a mutual understanding of the key terms and conditions of a share-based payment award. The classification and subsequent measurement of the award are subject to the guidance in Topic 718 unless the share-based payment award is subsequently modified and the grantee is no longer a customer. The standard is effective for fiscal years beginning after December 15, 2019 (which was January 1, 2020 for us). The adoption of this standard did not have a material impact on our consolidated financial statements.

In November 2018, the FASB issued ASU No. 2018-18, *Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606.* This ASU requires certain transactions between participants in a collaborative arrangement to be accounted for as revenue under the new revenue standard when the participant is a customer. The standard is effective for fiscal years beginning after December 15, 2019 (which will be January 1, 2020 for us). The adoption of this standard did not have a material impact on our consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-15, *Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract*. This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The standard is effective for fiscal years beginning after December 15, 2019 (which was January 1, 2020 for us) and can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The adoption of this ASU did not have a material impact on our consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, *Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement*. This ASU modifies certain disclosure requirements on fair value measurements. The standard is effective for fiscal years beginning after December 15, 2019 (which was January 1, 2020 for us). The adoption of this ASU did not have a significant impact on our 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 us). We are evaluating the impact that the adoption of this standard will have on our consolidated financial statements.

### OFF-BALANCE SHEET ARRANGEMENTS

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

## Market risk

As filed, 183 characters.

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

## Controls and procedures

As filed, 1,962 characters.

#### Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, or the Exchange Act, designed to ensure that information required to be disclosed, in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosures.

In designing and evaluating the disclosure controls and procedures, we recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and we were required to apply our judgment in evaluating the cost-benefit relationship of possible controls and procedures. We have carried out an evaluation as of the end of the period covered by this report under the supervision and with the participation of our management, including our Chief Executive Officer and Senior Vice President of Finance, of the effectiveness of the design and operation of our disclosure controls and procedures.

Based on our evaluation and subject to the foregoing, our Chief Executive Officer and Senior Vice President of Finance concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report in providing reasonable assurance of achieving the desired control objectives.

#### Changes in Internal Control Over Financial Reporting

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

## Risk factors

As filed, 15,692 characters.

An investment in our common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described under Item 1A of Part I of our 2019 10-K and in our other filings with the SEC subsequent to December 31, 2019, together with all other information contained or incorporated by reference in this report before you invest in our common stock. If any of the risks described in this report, in our 2019 10-K or in our other filings with the SEC subsequent to December 31, 2019 occur, our business, financial condition, results of operations and our future growth prospects could be materially and adversely affected. Under these circumstances, the trading price of our common stock could decline, and you may lose all or part of your investment. As of the date of this report, we do not believe there have been any material changes to the risk factors disclosed in our 2019 10-K except as described below.

***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, assignment for the benefit of creditors, or a dissolution, liquidation and/or winding up.***

The negative impact of the COVID-19 pandemic on the restaurant and bar industry was abrupt and substantial, and our business, cash flows from operations and liquidity suffered, and continues to suffer, materially 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 since the latter half of March 2020. At its peak, approximately 70% of our customers requested that their subscriptions to our services be temporarily suspended. As governmental orders and restrictions impacting restaurants and bars are eased or lifted, we expect the temporary subscription suspensions to end, however, even in jurisdictions in which such orders and restrictions are eased or lifted, our customers could request to continue their subscription suspensions if, for example, such customers choose not to re-open despite being permitted to do so. We have experienced material decreases in subscription revenue, advertising revenue and cash flows from operations, which we expect 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 states are eased or lifted. We cannot predict with certainty whether, when or the manner in which the impact of the pandemic will improve, including when restaurants will be permitted to offer on-site dining or when bars will be permitted to re-open or to what degree, when our customers will re-open, or if they will subscribe to our service if and when they do, or if and when there will be a resurgence in COVID-19 transmission or infection after the easing and lifting of stay-at-home orders, and if there is, the impact of such resurgence on our business. Similarly, we cannot predict with certainty the duration of the negative effects of the pandemic on our business and liquidity, however, unless in the very near term our subscription revenue, advertising revenue and cash flows from operations return to pre-pandemic levels and/or we raise substantial capital, the amount of time and the amount of cash we have to maintain operations and sustain the negative effects of the pandemic is very limited.

In response to the substantial negative impact of the pandemic on our business, we implemented measures to reduce our operating expenses and preserve capital. We reduced our headcount (as of May 20, 2020, we have 17 employees compared to 74 at December 31, 2019) and our chief executive officer agreed to defer payment of 45% of all of his annual base salary payments between May 1, 2020 and October 31, 2020 until the earlier of October 31, 2020 or such time as our board of directors determines in good faith that we are in the financial position to pay his accumulated deferred salary. We eliminated all capital projects and are aggressively managing our payables and rent payments to limit further cash outlays and manage our working capital. We are continuing to carefully monitor our liquidity and our current focus is on maintaining operations. We are prioritizing payments to mission critical vendors and deferring all non-essential payables. We may implement additional measures designed to reduce operating expenses and/or preserve capital. We began discussions with Avidbank to modify our payment obligations under our term loan, to modify our financial covenants under our loan and security agreement and/or to obtain covenant relief. We also began discussions with our landlord to reduce or defer our rent payments, including vacating the space for an early termination of the lease. We are also in discussions with vendors to extend payment terms. We are unable to predict the outcome of these discussions or the extent to which we will be able to successfully modify our payment obligations or our financial covenants (or obtain covenant relief) related to our term loan, reduce or defer our rent payments, and/or extend vendor payment terms.

As of March 31, 2020, we had cash, cash equivalents and restricted cash of approximately $2,421,000. As of that date $2.0 million of principal was outstanding under our term loan with Avidbank. While we expect to meet our near term debt service obligations on our term loan and we satisfied our financial covenants under our loan and security agreement with Avidbank as of March 31, 2020, unless in the very near term our subscription revenue, advertising revenue and cash flows from operations return to pre-pandemic levels and/or we raise substantial capital, we do not expect that we will be able to satisfy our asset coverage ratio covenant at the end of June 2020, which may result in Avidbank declaring a default under our loan and security agreement. See, “*If we fail to comply with our financial covenants to Avidbank, it 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,”* below.

In our 2019 10-K, we included a statement regarding a substantial doubt about our ability to continue as a going concern through March 19, 2021. As a result of the impact of the COVID-19 pandemic on our business and taking into account our current financial condition and our existing sources of revenue, in the very near term our subscription revenue, advertising revenue and cash flows from operations return to pre-pandemic levels and/or we raise substantial capital, we believe we will have sufficient cash resources to pay forecasted cash outlays through October 2020, assuming we deliver a significant hardware order as scheduled during the second quarter of 2020, Avidbank does not take actions to foreclose on our assets in the event we are out of compliance with our financial covenants, and we are able to continue to successfully manage our working capital deficit by managing the timing of payments to our vendors and third parties.

We need a substantial portion of our customers to be removed from billing suspension, and/or we need to raise substantial capital in the very near-term to maintain operations. We continue to explore and evaluate opportunities to raise capital, including through equity financings, alternative sources of debt, and strategic transactions, which may include a business combination transaction and/or selling a portion or all of our assets. We currently have no arrangements for capital or for a strategic transaction, and no assurances can be given that we will be able to raise sufficient capital when needed, on acceptable terms, or at all, or that we will be able to complete a strategic transaction. The effects of the COVID-19 pandemic on macroeconomic conditions and the capital markets make it more challenging to raise capital and to complete a strategic transaction. 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. See, “*If we fail to comply with our financial covenants to Avidbank, it 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,”* below. 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, assignment for the benefit of creditors, 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, assignment for the benefit of creditors, liquidation, dissolution or winding up.

***If we fail to comply with our financial covenants to Avidbank, it 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.***

We must comply with financial covenants our loan and security agreement with Avidbank: our unrestricted cash we have in deposit accounts or securities accounts maintained with Avidbank must be not less than $2,000,000 at all times and our asset coverage ratio must be no less than 1.25 to 1.00 at each month-end. As of March 31, 2020, we were in compliance with these covenants. However, there can be no assurance we will be in compliance with these covenants in the future. See “*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, assignment for the benefit of creditors, or a dissolution, liquidation and/or winding up,”* above.

If we fail to comply with our covenants, Avidbank 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. Avidbank has a first-priority security interest in all our existing and future personal property. Accordingly, in an event of a default, Avidbank could dispose of such property to satisfy our payment obligations.

***Our common stock could be delisted or suspended from trading on the NYSE American if we do not regain compliance with continued listing criteria with which we are currently not compliant or if we fail to meet any other continued listing criteria.***

As previously reported, in March 2020, we received a letter from NYSE Regulation Inc. stating that we are not in compliance with NYSE American LLC continued listing standards. Specifically, we are not in compliance with Section 1003(a)(iii) of the Company Guide because we reported stockholders’ equity of less than $6 million as of December 31, 2019 and had net losses in five of our most recent fiscal years ended December 31, 2019. Our stockholders’ equity was $5.1 million as of December 31, 2019. As a result, we are now subject to the procedures and requirements of Section 1009 of the Company Guide.

On April 26, 2020, we submitted a plan to NYSE Regulation advising of actions we have taken or will take to regain compliance with Section 1003(a)(iii) by September 27, 2021. As of the date of this report, the NYSE Regulation has not informed us whether it has accepted our plan. If NYSE Regulation determines to accept the plan, we will be subject to periodic reviews, including quarterly monitoring, for compliance with the plan. If the plan is not accepted, delisting proceedings will commence. Furthermore, if the plan is accepted but we are not in compliance with the continued listing standards by September 27, 2021, or if we do not make progress consistent with the plan during the plan period, the NYSE American staff will initiate delisting proceedings as appropriate.

We can give no assurances that NYSE Regulation will accept our plan or that we will be able to address our non-compliance with the NYSE American continued listing standards or, even if we do, that we will be able to maintain the listing of our common stock on the NYSE American. Our common stock could be delisted because NYSE Regulation does not accept our plan, because we do not make progress consistent with our plan, if it is accepted, during the plan period, because we do not regain compliance by September 27, 2021, or because we fall below compliance with other NYSE American listing standards. In addition, we may determine to pursue business opportunities that reduces our stockholders’ equity below the level required to maintain compliance with NYSE American continued listing standards. The delisting of our common stock for whatever reason could, among other things, substantially impair our ability to raise additional capital; result in a loss of institutional investor interest and fewer financing opportunities for us; and/or result in potential breaches of representations or covenants in agreements pursuant to which we made representations or covenants relating to our compliance with applicable listing requirements. Claims related to any such breaches, with or without merit, could result in costly litigation, significant liabilities and diversion of our management’s time and attention and could have a material adverse effect on our financial condition, business and results of operations. In addition, the delisting of our common stock for whatever reason may materially impair our stockholders’ ability to buy and sell shares of our common stock and could have an adverse effect on the market price of, and the efficiency of the trading market for, our common stock.

***If our common stock were delisted and determined to be a “penny stock,” a broker-dealer may find it more difficult to trade our common stock and an investor may find it more difficult to acquire or dispose of our common stock in the secondary market.***

If our common stock were delisted or suspended from trading on the NYSE American, it may be subject to the so-called “penny stock” rules. The SEC has adopted regulations that define a “penny stock” to be any equity security that has a market price per share of less than $5.00, subject to certain exceptions, such as any securities listed on a national securities exchange. For any transaction involving a “penny stock,” unless exempt, the rules impose additional sales practice requirements on broker-dealers, subject to certain exceptions. If our common stock were delisted and determined to be a “penny stock,” a broker-dealer may find it more difficult to trade our common stock and an investor may find it more difficult to acquire or dispose of our common stock.

Filed May 20, 2020.
Source: SEC EDGAR, the filing index for accession 0001493152-20-009524. Last ingested by Listed: Nov 6, 2026, 17:52 ET. No prices; not investment advice.