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 as updated and supplemented by our Quarterly Reports on Form 10-Q. The risk factors below supplement or update the risk factors in our periodic reports filed with the SEC.
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 third quarter of 2024, our accounts receivable were insufficient to support the borrowing base needed to fund operations through the end of the third quarter of 2024. We therefore entered into convertible subordinated notes in August 2024, further updated our projections to reflect the continued decline in our operating results, and entered into the Second Amendment with SLR on August 19, 2024.
As of September 30, 2024, we were not in compliance with our financial covenants under the SLR Credit Agreement, which we had to report by October 31, 2024, and which would have resulted in an event of default. However, we entered into a letter agreements pursuant to which SLR extended the deadline for delivery of the compliance certificate required for the fiscal month ended September 30, 2024, and the related notice of event of default, to November 19, 2024.
On November 15, 2024, we entered into the Third Amendment to the SLR Credit Agreement, which, among other things, required us to raise at least $7.5 million of additional capital by November 29, 2024. In addition, the Third Amendment waived non-compliance with the financial covenants as of September 30, 2024, extended the duration of the call protection applicable to the loans, and modified the cash dominion provisions to remain in effect on an indefinite basis. We will seek to raise additional capital through equity, equity-linked, or subordinated debt financings; however, whether and when we can effect such financings and how much capital we can raise depend on a variety of factors, including, among others, market conditions, the trading price of our common stock, and our determination as to the appropriate sources of funding for our operations. There can be no assurance that additional capital will be available by November 29, 2024.
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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. However, we have not met our projections for certain recent quarters, so there can be no assurance that we will meet our projections in the future. I f 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. Additionally, if we fail to raise capital in at least the amount required under the Third Amendment by November 29, 2024, such failure would also result in an event of default. In such case, we would not have sufficient funds to repay the SLR Term Loan and the SLR Revolver. In addition, even if we are able to raise additional capital as required by the Third Amendment, there is no assurance that such capital plus the available cash plus borrowing base on the SLR Revolver will be sufficient to fund operations over the next twelve months. If needed, we will consider implementing other cost-saving measures, but there is no guarantee that such plans would 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.
We require additional capital in the future to pursue our business objectives and respond to business opportunities, challenges, or unforeseen circumstances. If capital is not available to us, the future growth of our business and operations would be severely limited.
We intend to continue to make investments to support our growth and may require additional capital to pursue our business objectives and respond to business opportunities, challenges, or unforeseen circumstances. While the SLR Credit Agreement includes an undrawn revolving credit facility of up to $30 million that we can use subject to certain conditions, we require additional capital to satisfy the requirements of the Third Amendment to SLR Credit Agreement and we may require additional capital not available under the SLR Credit Agreement due to limitations in the borrowing base.
In addition to revenue from business operations and proceeds from the SLR Credit Agreement, the Company's primary source of working capital to date has been through the sale of equity and subordinated debt securities to officers, directors and a principal stockholder. We may seek to raise additional capital through equity, equity-linked, or subordinated debt financings; however, when we can effect such financings and how much capital we can raise depends on a variety of factors, including, among others, market conditions, the trading price of our common stock and our determination as to the appropriate sources of funding for our operations. The SLR Credit Agreement generally prohibits debt financings without SLR's consent and requires proceeds from equity financings to be used to prepay indebtedness to SLR. Accordingly, we will not be able to raise capital for uses other than prepayment of SLR indebtedness without SLR's consent. In addition, the SLR Credit Agreement contains various financial and other covenants, and any non-compliance with those covenants could result in an acceleration of the repayment of the amounts outstanding thereunder. Furthermore, equity or debt financings may have a dilutive effect on the holdings of our existing stockholders, and debt financings may subject us to restrictive covenants, operational restrictions and security interests in our assets.
There can be no assurance that other capital will be available when needed or that, if available, it will be obtained on terms favorable to us and our stockholders. Disruptions in the global equity and credit markets may also limit our ability to access capital. If we are unable to raise additional capital when required or on acceptable terms, we may have to significantly delay, scale back or discontinue certain operations. Any of these events could significantly harm our business and results of operations.
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