Item 1A. Risk Factors
ITEM 1A. RISK FACTORS
We operate in a highly competitive industry that involves numerous known and unknown risks and uncertainties that could impact our operations. The risks described in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2024 are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our financial condition and/or operating results.
Our debt obligations could impair our liquidity and financial condition, and in the event we are unable to meet our debt obligations, we could lose ownership of our trademarks and/or other assets.
On December 12, 2024, we and certain of our subsidiaries entered into a loan and security agreement with FEAC Agent, LLC, as administrative agent and collateral agent, pursuant to which the lenders made term loans to the Company and agreed to make additional term loans to the Company upon the satisfaction of a condition precedent described in the loan agreement. The current outstanding loan balances are as follows: (1) Term Loan A in the amount of $3.75 million and (2) Term Loan B in the amount of $9.66 million.
These term loans are guaranteed by certain direct and indirect subsidiaries of the Company, and are secured by all of the assets of the Company and such subsidiaries. The April 21, 2025 amendment also contains various financial covenants, including minimum liquid asset, minimum revenues, and minimum unrestricted cash covenants, and reporting requirements, as specified and defined therein.
As a result of our failure to satisfy the minimum revenues covenant for the three month periods ended June 30, 2025 and September 30, 2025, on November 18, 2025, we entered into a further amendment to the loan and security agreement to (i) amend certain financial covenants, (ii) waive our failure to satisfy the minimum revenues covenant for the three months ended June 30, 2025 and September 30, 2025, (iii) require a payment of $3.25 million of principal amount of Term Loan A by February 20, 2026, (iv) after such payment of Term Loan A, defer the quarterly installment payments of Term Loan A until December 31, 2026 and require a $500,000 principal payment of Term Loan A on that date, and (v) require us to pay an amendment fee of $450,000 (of which $125,000 is payable on December 5, 2025 and the remaining $325,000 will be due if the $3.25 million principal amount of Term Loan A is not repaid on or prior to February 20, 2026). Upon the payment of $3.25 million of principal of Term Loan A, $1.0 million of restricted cash shall be released from the blocked account, which would result in the Company funding a net amount of $2.25 million, together with the release of the $1.0 million from the restricted cash account to satisfy the repayment. The Company would also be required to fund all other obligations to FEAC Agent, LLC, including accrued interest, fees, and out-of-pocket costs.
Principal on the Term Loan B is payable on the maturity date of December 12, 2028.
Our debt obligations:
● could impair our liquidity;
● could make it more difficult for us to satisfy our other obligations;
41
Table of Contents
● require us to dedicate a substantial portion of our cash flow to payments on our debt obligations, which reduces the availability of our cash flow to fund working capital, capital expenditures, and other corporate requirements;
● could impede us from obtaining additional financing in the future;
● impose restrictions on us with respect to the use of our available cash, including in connection with future transactions;
● could limit our ability to execute on any potential acquisitions in the future; and
● make us more vulnerable in the event of a downturn in our business prospects and could limit our flexibility to plan for, or react to, changes in our sales and licensing channels.
In the event that we fail in the future to satisfy other obligations under the agreements governing our indebtedness, including meeting milestone obligations towards selling a portion of our assets or completing an alternative transaction to repay $3.25 million principal amount of Term Loan A (collectively, a “Refinancing Event”) by February 20, 2026, or complying with the minimum revenue covenant, the minimum liquid asset covenant, or the minimum unrestricted cash covenants, or if we have additional failures to comply with other covenants contained in those agreements, we would be in default with respect to that indebtedness and the lenders could declare such indebtedness to be immediately due and payable. Certain of the milestone obligations, such as entering into an engagement letter with an investment banker and receiving a letter of intent and completing a Refinancing Event are not within our control and there can be no assurance that we will be able to satisfy such milestone obligations. Moreover, the revenue targets for 2026 and thereafter will be significantly in excess of our current revenues if we do not make the $3.25 million Term Loan A repayment and we cannot assure you the lenders will amend or grant waivers to the loan agreement to adjust or eliminate covenants or waive our future non-compliance or breach of a financial or other covenant in the future. Failure to maintain our listing on Nasdaq would also result in a default under our term loan debt agreements. A debt default could significantly diminish the market value and marketability of our common stock and could result in the acceleration of the payment obligations under all or a portion of our indebtedness, or a renegotiation of our loan agreement with more onerous terms and/or additional equity dilution.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.