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Going Concern Uncertainty

9 Months Ended

12 Months Ended

Sep. 30, 2020

Dec. 31, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Going Concern Uncertainty

4.	going concern uncertainty

In connection with preparing its financial statements as of and for the three and nine months ended September 30, 2020, the Company’s management evaluated whether there are conditions or events, considered in the aggregate, that are known and reasonably knowable that would raise substantial doubt about the Company’s ability to continue as a going concern through twelve months after the date that such financial statements are issued. During the three and nine months ended September 30, 2020, the Company incurred a net loss of $1,481,000 and $4,722,000, respectively. As of September 30, 2020, the Company had $1,710,000 of unrestricted cash, total debt outstanding of $3,350,100, which is gross of approximately $1,000 in unamortized debt issuance costs, and negative working capital of $137,000. The total debt outstanding consists of $725,000 of principal outstanding under the Company’s term loan with Avidbank, $1,625,100 of principal outstanding under the loan the Company received in April 2020 under the Paycheck Protection Program, and $1,000,000 of principal outstanding under the loan the Company received in connection with entering into the Asset Purchase Agreement, which, if the closing of the Asset Sale occurs, will be applied toward the $2.0 million purchase price eGames.com will owe the Company at the closing of the Asset Sale. See Note 2 for more information on the Asset Sale. In November 2020, the Company was informed that approximately $1,093,000 of the $1,625,100 loan under the Paycheck Protection Program would be forgiven, leaving a principal balance of approximately $532,000. The Company is in discussions with the affiliate of eGames.com regarding the possibility of borrowing an additional $500,000 on approximately December 1, 2020, which, if received, would also be applied toward the purchase price at the closing of the Asset Sale. No assurances can be given that the Company will obtain such $500,000 loan from such affiliate or from any other party.

As a result of the impact of the COVID-19 pandemic on the Company’s business and taking into account its current financial condition and its existing sources of projected revenue and cash flows from operations, if the Company is able to borrow an additional $500,000 from the affiliate of eGames.com discussed above, the Company believes it will have sufficient cash resources to pay forecasted cash outlays only through mid-January 2021, but if the Company does not borrow such amount from the affiliate of eGames.com or any other party, the Company believes it will have sufficient cash resources to pay forecasted cash outlays only through mid-December 2020, in each case, assuming Avidbank does not take actions to foreclose on the Company’s assets in the event the Company becomes out of compliance with its financial covenants, and the Company is able to continue to successfully manage its working capital deficit by managing the timing of payments to its vendors and other third parties.

Based on the factors described above, management concluded that there is substantial doubt regarding the Company’s ability to continue as a going concern through the twelve-month period subsequent to the issuance date of these financial statements. The Company needs to complete the Merger or the Asset Sale or raise capital to meet its debt service obligations to Avidbank and fund its working capital needs. The Company currently has no arrangements for such capital and no assurances can be given that it will be able to raise such capital when needed, on acceptable terms, or at all.

The accompanying condensed consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to the Company’s ability to continue as a going concern.

2.	Going Concern Uncertainty

In connection with preparing its financial statements as of and for the year ended December 31, 2019, the Company’s management evaluated whether there are conditions or events, considered in the aggregate, that are known and reasonably knowable that would raise substantial doubt about the Company’s ability to continue as a going concern through twelve months after the date that such financial statements are issued. During the year ended December 31, 2019, the Company incurred a net loss of $2,047,000, and as a result of the debt reclassification described below, the Company’s current liabilities exceeded its current assets at December 31, 2019 by $25,000. As of December 31, 2019, the Company had $3,209,000 of unrestricted cash and total debt outstanding of $2,750,000, which was the outstanding principal balance of the Company’s term loan with Avidbank. Under the terms of the amendment to the Company’s loan and security agreement that the Company entered into with Avidbank on March 12, 2020, during 2020 the Company will be required to make monthly payments that, if made in accordance with their terms, will result in the Company paying off the term loan by December 31, 2020. Based on this amendment, $1,750,000 of debt outstanding has been reclassified as a current liability in the accompanying balance sheet at December 31, 2019. As a result of the foregoing, and taking into account the Company’s current financial condition, the Company’s management concluded there is substantial doubt about the Company’s ability to continue as a going concern through March 19, 2021.

Since January 1, 2020, the Company has reduced headcount by approximately $2.2 million in annualized salaries and implemented measures to preserve capital. The Company may implement additional measures designed to reduce operating expenses and/or preserve capital. The Company needs to raise capital to meet its debt service obligations to Avidbank and to fund its working capital needs. The Company continues to explore and evaluate opportunities to raise capital, including through equity financings, alternative sources of debt, or strategic transactions, which may include selling a portion or all of the Company’s assets. However, none of these potential sources of capital are currently assured, and the actions to reduce operating expenses the Company has implemented may not sufficiently mitigate the conditions and events that raise substantial doubt about the Company’s ability to continue as a going concern through March 19, 2021. See ITEM 1A. “Risk Factors” in Part I of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (the “2019 10K”).

In addition, any actions the Company took or may take to reduce planned capital expenses or operational cash uses may not cover shortfalls in available funds and may negatively impact the Company’s ability to effectively manage, operate and grow its business, to introduce new offerings to its customers, to increase market awareness and encourage the adoption of the Buzztime brand and the Buzztime network, to retain customers, and to generate revenue. See ITEM 1A. “Risk Factors” in Part I of the 2019 10-K.

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 the Company’s ability to continue as a going concern.