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Purveyor, Fine Asian Porn
Industry Role:
Join Date: Jul 2004
Location: San Francisco Bay Area
Posts: 38,323
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From AFFs SEC Filing last month:
Quote:
The report of our independent registered public accounting firm includes an explanatory paragraph concerning conditions that raise substantial doubt about our ability to continue as a going concern, and there is no guarantee that we will be able to continue to operate our business or generate revenue.
Our ability to continue as a going concern is dependent on our ability to raise additional capital, including from this offering. As of March 31, 2009, we had approximately $28.5 million in cash and restricted cash and $410.6 million in short-term debt, net of unamortized discount, $374.1 million of which had been reclassified from long-term debt, due to our failure to comply with certain covenants and restrictions in the agreements governing our 2006 Notes and 2005 Notes and our subsidiary?s First Lien Senior Secured Notes, Second Lien Subordinated Secured Notes and Subordinated Convertible Notes and for which waivers had not been obtained.
We have unsuccessfully sought to obtain waivers from all of our noteholders, except such waivers that have been obtained from an affiliate of Messrs. Bell and Staton relating to our Subordinated Term Loan Notes, for our failure to comply with certain covenants and restrictions contained in these agreements.
If we are unable to cure such defaults and/or obtain waivers, we could trigger the acceleration of payment provisions in such agreements which would require
us to immediately repay up to approximately $455.6 million to our noteholders.
We do not currently have sufficient cash to repay this indebtedness if our debt is accelerated and if the noteholders instituted foreclosure proceedings against our assets, the proceeds of the assets could be insufficient to repay such indebtedness in full. Under these circumstances, we may be unable to continue operating as a going concern.
In their report dated March 20, 2009, which is also included in this prospectus, our independent registered public accounting firm stated that events of default have occurred under certain of our debt agreements allowing noteholders to demand payment of our 2006 Notes and 2005 Notes, and our subsidiary?s First Lien Senior Secured Notes, Second Lien Subordinated Secured Notes and Subordinated Convertible Notes and that these conditions raise substantial doubt about our ability to continue as a going concern.
If doubts are raised about our ability to continue as a going concern following this offering, our stock price could drop and our ability to raise additional funds may be adversely affected. Any of these outcomes would be detrimental to our operations.
We have breached certain non-monetary covenants contained in agreements governing our 2006 Notes and 2005 Notes and our subsidiary, INI, has breached certain non-monetary covenants contained in its agreements governing the First Lien Senior Secured Notes, Second Lien Subordinated Secured Notes and Subordinated Convertible Notes.
We cannot assure you that we will be able to cure such defaults or events of default, obtain waivers and consents, amend the covenants, and/or remain in compliance with these covenants in the future.
Our debt agreements require us to maintain certain financial ratios as well as comply with other financial covenants relating to minimum consolidated EBITDA and minimum consolidated coverage ratio and negative covenants relating to restricted payments from INI to us and permitted investments. Certain of these ratios and covenants have not been maintained or satisfied primarily due to the unexpected VAT liability that was discovered after we acquired Various.
Furthermore, we and INI have failed to comply with certain non-monetary covenants contained within some of our debt agreements including the timely delivery of quarterly financial statements and officer?s certificates and the holding of quarterly meetings of our board of directors. We also failed to obtain the consent of the noteholders prior to taking certain corporate actions such as seeking their consent prior to changing our name from Penthouse Media Group Inc. to FriendFinder Networks Inc. and our subsidiary?s name from FriendFinder Network, Inc. to FriendFinder California Inc.
In addition, in connection with the Various acquisition, we failed to meet certain operating targets and timely deliver certain agreed-upon documents and take certain actions with respect to the granting and perfection of security interests after the acquisition of Various was completed, although such documents and actions were subsequently completed.
If our efforts to cure and/or obtain waivers for such events of default from our noteholders are unsuccessful in the future it could result in the acceleration of $455.6 million in debt. If all of our indebtedness was accelerated, we would not have sufficient funds at the time of acceleration to repay most of our indebtedness, which could have a material adverse effect on our ability to continue as a going concern.
We have a history of significant operating losses and we may incur additional net losses in the future, which have had and may continue to have material consequences to our business.
We have historically generated significant net losses. As of March 31, 2009, we had an accumulated deficit of approximately $149.4 million. For the three months ended March 31, 2009, we had a net loss of $3.1 million. For the years ended December 31, 2008, 2007 and 2006, we had net losses of approximately $46.0 million, $29.9 million and $49.9 million, respectively. We also had negative operating cash flows in 2006.
We expect our operating expenses will continue to increase during the next several years as a result of the promotion of our services and the expansion of our operations, including the launch of new websites and entering into acquisitions, strategic alliances and joint ventures. If our revenue does not grow at a substantially faster rate than these expected increases in our expenses or if our operating expenses are higher than we anticipate, we may not be profitable and we may incur additional losses, which could be significant.
Our net losses cause us to be more highly leveraged, increase our cost of debt and make us subject to certain covenants which limit our ability to grow our business organically or through acquisitions. For more information with respect to the covenants to which we are currently subject, see ??Any remaining indebtedness after this offering could make obtaining additional capital reserves difficult and could materially adversely affect our business, financial condition, results of operations and our growth strategy.?
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