Vox Pop Is Closed
What Happened
As you probably know by now, Vox Pop suffered from two incidents in the month of August. Our electricity was turned off on August 6 due to unpaid bills. Shortly after on August 24, New York State seized the property due to back taxes owed.
Typically in the summer, the Board slows down its usual monthly meetings and may meet only once or twice (as opposed to monthly). In the month of July, the Board became aware of difficulty Vox Pop was having in paying the electric bill and sought to devise a solution, including postponing certain debt servicing to cover the electric. The Board asked the CEO, Debi, for financials to try to analyze where we could cut back to make the Con Ed payments. A meeting was scheduled for Aug. 9 to review the financials, but by then the electricity had been shut off. At that meeting, Debi indicated that she may be able to get two personal loans, but subsequently was unable to obtain them. The Board has learned that on August 11, representatives of New York State Department of Taxation came to Vox Pop, asking to see financial records. It appears their interest in doing so was to work on a payment agreement. Debi has informed the Board that they were not provided with financials, but that they also did not say that they intended to close Vox Pop. On August 24, the State seized the company for failure to pay back taxes.
Why did this happen?
The short of it is that Vox Pop is not able to generate enough revenue to pay off its back debt in a timely fashion. As explained below in our financial analysis, even in its best month this year (July), Vox Pop would have only made a profit of $439.92 without debt service. That is not enough to make monthly payment plans with the landlord, Con Edison, and New York State.
The following circumstances this summer served to exasperate the problem:
1. Vox Pop had a higher payroll cost his year. Last year Vox Pop usually only had one paid barista working at any time plus Debi (who was working only for equity and cash owed). Such a situation, however, caused Debi to burn out, and Vox Pop had to increase the payroll to bring on additional staff.
2. Vox Pop was only able to raise the minimum amount of money necessary to reopen in May after our April shutdown. Funds quickly had to be diverted to restock and catch up with rent and our back-rent payment plan.
3. Fund-raising efforts died down by the beginning of the summer.
Financial Analysis
The Board has analyzed our most recent financials and has determined that Vox Pop is not a sustainable business in its current form and under its current business model. The decision as to whether or not to close the business permanently, however, lies ultimately with you the shareholders. One may be able to argue that major changes could be made to Vox Pop's business model to turn it into a sustainable business that can manage its substantial debt and eventually turn out regular healthy profits. But as it stands right now, the Board projects that even if Vox Pop had no debt service to pay, Vox Pop would not turn an annual profit.
In analyzing our financials the Board looked at two months out of this year: March and July. We chose March as a typical "bad" month due to cold weather. We chose July as a typical "good" month due to warm weather. We preferred choosing March and July over earlier months to provide some time separation from the December and April closings.
Note that we have modified these numbers to show how the business would fare assuming payment of all expenses and no debt servicing.
In March we had sales of $25,688.64 and expenses of $27,548.49 for a loss of $1,800.25. July showed sales of $34,514.55 and expenses of $34,075.63 for a profit of $439.92. Further breakdown of the numbers is at the end of this email.
If we assume that a year has 6 "bad" months that average out to look like March, and 6 "good" months to look like July, then we would have an average monthly loss of about $680 or a yearly loss of $8,160.
Note that these numbers do not include paying a cash salary to our CEO Debi Ryan. As we do not believe it is sustainable or reasonable to pay any employee solely in equity, we believe the yearly loss to be much higher.
Although we have analyzed the financials assuming no debt service, the fact of the matter is that Vox Pop has a very substantial debt totalling $246,647.08.
Options
The Board has come up with 5 possible courses of action. Shareholders are welcome of course to brainstorm other ideas.
Option 1: Reopen Vox Pop without declaring Bankruptcy
The Board estimates that a total of $103,288 would need to raised in order to reopen Vox Pop. The breakdown is:
Con Edison : $20,408.45 Con Edison Deposit: $1,000 New York State : $60,580.41 Restock supplies : $6,400 Rent due : $9,900 Cash Reserve : $5,000
Total : $103,288.86
The Board has contacted New York State and they want the full amount we owe before they will allow us to reopen.
The Board has also contacted Con Edison. They also want the full amount we owe plus a $1,000 deposit. (Note that it's believed that there is another account with Con Edison. The Board is trying to confirm the total amount owed.)
The Rent due number of $9,900 covers us through September. It includes back rent owed, and August and September rents.
Reopening will also require increasing revenue substantially so that Vox Pop can afford to address the rest of its debt service such as taxes owed to the IRS. This will most likely require major changes to Vox Pop's business plan.
Option 2: Declare Chapter 11 bankruptcy and try to reopen.
Chapter 11 bankruptcy is a restructuring of debt. It is likely that a Chapter 11 would require the existing shareholders to cede their shares. Furthermore, a creditor may force us into Chapter 7 bankruptcy at any time if they believe and can show we will not be able to pay back the restructured debt.
Option 3: Declare Chapter 7 bankruptcy and close permanently
In Chapter 7 bankruptcy, all assets are liquidated and our creditors are paid out pennies on the dollar.We anticipate that filing fees alone for a bankruptcy (Chapter 7 or Chapter 11) would not amount to more than $5,000. That figure, however, does not include the cost of lawyer which would be substantial unless we procured one pro-bono (which may be difficult).
Option 4: Do nothing and allow the State to seize and auction off all assets.
Compared with option 3 (chapter 7), doing nothing has the advantage that there are no legal costs but has the disadvantage that our non-government creditors see none of our debt repaid.
Option 5: Sell the Company
There may exist shareholders who believe they can turn Vox Pop's business around and would like to purchase the company. This option has the advantage that it avoids the legal costs of options 2 & 3. In addition, it provides the opportunity for existing shareholders to end their involvement with the company (if they want to), and for those shareholders who want to stay involved to continue. This would require, of course, that the interested shareholders raise enough money to open the doors.Options 2 - 5 also have the advantage that investors may be able to claim a loss on their taxes.
Recommendation
The Board is holding off on making a recommendation on these options. However, the Board wants to emphasize that under the current way Vox Pop does business, Vox Pop is not sustainable. If money is raised to reopen Vox Pop but no major changes are made to the business to increase revenue substantially, then it is likely that Vox Pop will not only have trouble paying back the IRS, but may also become indebted again to Con Edison or other creditors that may have the power to substantially affect Vox Pop's ability to conduct business.
Shareholder Meeting
Vox Pop will hold an emergency shareholder meeting on Tuesday September 7th at 7pm at the All Souls Bethlehem Church located at 566 East 7th St between Cortelyou Rd and Ditmas Ave. At this meeting, Vox Pop's shareholders will discuss and vote on which course of action to take.
In the meantime, shareholders should take the time to discuss the above options and maybe brainstorm other ideas. If you have any questions please feel free to contact the Board at vox-pop-board@googlegroups.com.
-- Vox Pop Board of DirectorsDetailed Financials (without debt service) for March and July 2010
March 2010
Income
Sales $25,688.64
Expenses
Commissions & Fees 194.85
Disposal Fees 176.80
Food Supplies 1,924.66
Alcohol Drinks 1,844.59
Baked Goods 2,425.64
Coffee/Tea Drinks 2,709.47
Food 1,097.50
Non Alcohol Bottle Drinks 268.00
Total Food Supplies 10,269.86
Payroll 10,204.14
Performer Stipend 99.00
Raw Food 209.15
Rent or Lease 2,919
Repair & Maintenance 201.64
Supplies 1,519.80
Utilities 1,694.65
Total Expenses $27,548.49
Net Income $ -1,800.25
July 2010
Income
Sales $34,514.55
Expenses
Commissions & Fees 576.23
Disposal Fees 221.00
Food Supplies 3,540.33
Alcohol Drinks 3,226.46
Baked Goods 2,734.85
Coffee/Tea Drinks 2,630.89
Food 385.99
Non Alcohol Bottle Drinks 522.04
Total Food Supplies 13,040.56
Office Expenses 32.21
Payroll 12,174.00
Performer Stipend 95.00
Promotional 10.00
Raw Food 194.84
Rent or Lease 2,919
Repair & Maintenance 420.83
Supplies 1,042.46
Travel 25.00
Utilities 3,324.50
Total Expenses $34,075.63
Net Income $439.92
Debt
Back Rent for 1022 Cortelyou : $3,877.88
Back Rent for 368 Stratford (Vox Pop Publishing) : $8,000
Deferred Salary for Debi Ryan : $33,336
Loans : $29,933
IRS Back Taxes (Assessed) : $73,415.93
NY State Back Taxes : $60,580.41
Con Edison : $20,408.45
Owed payroll to former employees : $12,188.75
Vendors : $4,401.63
Professionals (lawyers, etc.) : $505.03
Total Debt : $246,647.08