Six days after it was required to provide audited financial statements to its lender System 1, Inc. (SST), an acquisition marketing platform, warned it may not be able to continue operating. The failure to timely deliver audited financial statements is an event of default under System1’s credit agreement with Bank of America:

“We do not have sufficient liquidity to settle the outstanding principal balances should they be called, nor has the Company identified sufficient alternative sources of capital. As a result, this matter raises substantial doubt about our ability to continue as a going concern.”

Though it appears Bank of America let the matter slide— the bank had not yet called System1’s outstanding balance— the company suggested it may need to secure additional waivers or forbearance in the future.

Even if Bank of America ultimately receives System1’s financials, the bank may not be able to trust them.

In the same filing, System1 revealed multiple control deficiencies, including:

—A lack of accounting professional with expertise to record and disclose accounting matters timely and accurately
—A lack of oversight and ongoing recording of the financial statement results of acquired businesses
—A lack of formal accounting policies, procedures and controls to achieve complete, accurate and timely financial accounting, including the presentation of the cash flow statement

The company also acknowledged additional control deficiencies related to accuracy in accounting for stock based compensation (SBC), accrued liabilities, and goodwill.

On the same day of the above disclosures, in return for delaying certain Executive incentive payments, System1 awarded its Executive leaders additional cash bonuses, to be paid monthly beginning in October 2023 and running through February 2024.