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 2024 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 2024 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 the number of users registering on our owned and operated digital media properties ("O&O Sites") starting in 2020, following our implementation of the TQI, which eliminated a large portion of our third-party affiliate traffic. In 2023, the FTC Consent Order resulting from an investigation by the FTC imposed more rigorous standards and vetting of our third-party publishers, some of whom elected not to work with us, which negatively impacted our registration volume on our O&O Sites. These issues, coupled with intermittent difficulties sourcing traffic from social media sites, have resulted in declining revenue and profitability. Borrowings under the SLR Revolver of up to $30.0 million pursuant to the April 2, 2024 SLR Credit Agreement are limited to a borrowing base that fluctuates weekly, based on eligible accounts receivable. As a result of the borrowing base limit and the above performance issues, the available borrowing capacity has the potential to be insufficient to fund operations and meet the Company's needs.
Given the continued challenges we have faced achieving profitability, we have made reductions in workforce, including during the first quarter of 2025, and restructured certain long-term contracts to better align with our results and cash flow requirements. We will continue to monitor the performance of our business units to determine the impact of potential divestments and consider further cost reduction measures and reallocation of resources that will enable us to meet our projected budget and cash flow requirements.
As of June 30, 2025, we were not in compliance with our financial covenants under the SLR Credit Agreement, which would have resulted in an event of default. 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 would not have sufficient funds to repay the SLR Term Loan of $20.0 million under the SLR Credit Agreement and any outstanding balance on the SLR Revolver. However, on August 15, 2025, the Credit Parties and SLR entered into the Fifth Amendment to the SLR Credit Agreement, (the "Fifth Amendment") which, among other things, required that the Company raise at least $8.5 million of additional capital by August 19, 2025. On August 19, 2025, the Company entered into securities purchase agreements for approximately $10.3 million in equity capital, expected to close on August 19, 2025. See Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Private Placement of Securities for additional information on this capital raise. In addition, the Fifth Amendment waived non-compliance with the financial covenants as of June 30, 2025 and modified the financial covenants for the periods through August 31, 2026.
Although the financial covenants under the SLR Credit Agreement were reset based on the Company’s twelve month projections, the Company has not met its projection for certain recent quarters and if during any future quarter, the Company does not comply with any of its financial covenants, such non-compliance would result in default and therefore give SLR the right to accelerate maturities. In such case, the Company would not have sufficient funds to repay the borrowings under the SLR Credit Agreement. As a result of the foregoing, management has concluded that there is substantial doubt about the Company's ability to continue as a going concern for one year after the date of issuance of this Quarterly Report on Form 10-Q.
Even with the proceeds from the August 19, 2025 capital raise, there is no assurance that the available cash, plus availability under the borrowing base on the SLR Revolver will be sufficient to fund operations over the next twelve months, and, if needed, we would seek to raise additional capital. If we are not able to raise sufficient capital to fund operations at their current levels, we will consider implementing cost-saving measures, but there is no guarantee that such plans will be successfully executed or have the expected benefits.
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. The reaction of investors to the inclusion of a going concern statement in the accompanying financial statement, and our potential inability to continue as a going concern, could materially adversely affect our share price, which could negatively impact our ability to obtain stock-based financing or enter into strategic transactions.
Our investment in growing our Commerce Media Solutions business may continue to compress margins, and our ability to improve profitability over time is uncertain.
As we expand our Commerce Media Solutions business, we expect increased competition, particularly as we enter new verticals and pursue long-term partnerships. In the second quarter, Commerce Media Solutions margins declined as we adopted flexible pricing to onboard new partners. While we expect margins to normalize as we scale and grow our media partner network, there is no guarantee these effects will offset additional pricing incentives and lead to margin improvement.
Additionally, as we reallocate resources from our owned and operated business to Commerce Media Solutions, owned and operated revenue has declined. If Commerce Media Solutions growth does not meet expectations, our overall revenue and profitability may be adversely affected.
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