Item 1A. Risk Factors
Item 1A. Risk Factors.
Our business, financial condition, results of operations, and cash flows may be impacted by a number of factors, many of which are beyond our control, including those set forth in our 2023 Form 10-K, the occurrence of any one of which could have a material adverse effect on our actual results.
Except as set forth below, there have been no material changes to the risk factors previously disclosed in our 2023 Form 10-K and Quarterly Report on Form 10-Q for the quarter ended March 31, 2024. The risk factors below supplement or update the risk factors in our 2023 Form 10-K.
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There is substantial doubt about our ability to continue as a going concern
We have experienced a continued decline in our operating results, driven primarily by the continued impact of the imposed regulatory requirements on our owned and operated digital media properties.
The SLR Credit Agreement requires us to maintain and comply with certain financial covenants. Moreover, the borrowings under the SLR Revolver under the SLR Credit Agreement are limited to a borrowing base that fluctuates as regularly as weekly based on our eligible accounts receivable. As a result of the continued decline in financial performance of our owned and operated digital media properties throughout the second quarter of 2024, our accounts receivable were insufficient to support the borrowing base needed to fund operations through the end of the second quarter of 2024. We therefore raised equity capital in May 2024, further updated our projections to reflect the continued decline in our operating results, and entered into the First Amendment with SLR on May 15, 2024.
As of June 30, 2024, we were not in compliance with our financial covenants under the SLR Credit Agreement, which we had to report by July 31, 2024, and which would have resulted in an event of default. However, we entered into two letter agreements pursuant to which SLR extended the deadline for delivery of the compliance certificate required for the fiscal month ended June 30, 2024, and the related notice of event of default, to August 21, 2024.
On August 19, 2024, we entered into the Second Amendment to the SLR Credit Agreement, which, among other things, required that we raise $2.0 million in additional capital. To raise the capital, we entered into convertible subordinated notes r aising an aggregate of $2.1 million . In addition, among other things, the Second Amendment waived non-compliance with the financial covenant as of June 30, 2024, modified the financial covenant through December 31, 2025, ended the requirement to engage a financial advisor, and increased the interest rate margin from 5.25% to 5.75%.
While based on current projections, we expect to be in compliance with the new financial covenants for each of the quarters in the twelve months following the issuance date of this Quarterly Report on Form 10-Q, if during any fiscal quarter, we do not comply with any of our financial covenants, such non-compliance would result in an event of default that would give SLR the right to accelerate maturities. In such case, we likely would not have sufficient funds to repay the SLR Term Loan and the SLR Revolver. In addition, while we believe the proceeds from the sale of the Convertible Notes will provide sufficient liquidity for any anticipated cash needs, there is no assurance that our available cash plus borrowing base will be sufficient to fund operations over the next twelve months. Further, if needed, we will consider implementing other cost saving measures, but there is no guarantee that the plans will be successfully executed or have the expected benefits. As a result, management concluded that there is substantial doubt about our ability to continue as a going concern for one year after the date of this Quarterly Report on Form 10-Q.
If our current plans are not successful, we may need to consider other strategic alternatives, including restructuring or refinancing our debt, seeking additional equity or debt financing, reducing or delaying our business activities and strategic initiatives, selling assets, and other strategic transactions and/or other measures. We have relied upon financing provided by our officers, directors and largest stockholders, and such holders may be unwilling or unable to continue providing financing should additional financing be required. Other financing sources may be unwilling to provide such funding to us on commercially reasonable terms, or at all. If we seek additional financing to fund our operations and there remains substantial doubt about our ability to continue as a going concern, we may find it especially difficult to raise funds on commercially reasonable terms, or at all. Furthermore, the perception that we may not be able to continue as a going concern may cause publishers, vendors, advertisers and other clients (current and potential) to review their business relationships and terms with us. Uncertainty regarding our ability to continue as a going concern could also have a material and adverse impact on the price of our common stock, which could negatively impact our ability to obtain stock-based financing or enter into strategic transactions.
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