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 2022 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 2022 Form 10-K. The risk factors below update all risk factors in our 2022 Form 10-K related to the matters discussed in the risk factors below.
 
The FTC and the PAAG have concluded their investigations involving the Company. The terms of resolution of these actions, or similar actions by other regulators, will affect our business and results of operations.
 
As a result of the FTC Consent Order and the PAAG settlement, we have made additional changes to our employment opportunities marketplace and programmatic advertising businesses and have implemented industry-leading compliance measures across the entire business which will have at least a short-term negative impact on our revenues and media margin. While in the medium term, we expect that the increased industry-wide scrutiny and compliance demands of partners will eliminate the competitive advantage that less compliance-focused platforms currently enjoy as a result of the changes we have implemented, and that our industry-leading compliance protocols will be a competitive advantage enabling us to recapture market share from our competitors, we cannot assure you that the adverse impact on our revenues and media margin will not continue longer than expected.
 
Despite resolving the FTC and PAAG matters, we could be subject to additional regulatory actions from other state attorneys general. Moreover, the TCPA plaintiffs’ bar and individual claimants may file claims and lawsuits against us. Such actions could have a substantial adverse impact on our reputation and ability to continue to buy media cost effectively and the willingness of our advertiser clients to continue to do business with us, which could in turn materially and adversely affect our results of operations and financial position. Such claims may also require significant expenditures for legal fees.
 
Increasing regulatory scrutiny of the digital marketing industry could adversely impact our business and results of operations.
 
Increasing awareness and concern among the general public, privacy advocates, mainstream media and governmental bodies has led to increasing regulatory scrutiny of the digital marketing industry. Fluent, LLC recently agreed to the FTC Consent Order and PAAG settlement and implemented industry-leading compliance measures across the entire business, and particularly in the employment opportunities and programmatic advertising businesses. These changes will have a negative impact on our revenues and media margin in the short term and potentially longer. We may become subject to additional regulatory actions and/or requirements, which could in turn materially and adversely affect our results of operations and financial position. See risk factor entitled "The FTC and the PAAG have concluded their investigations involving the Company . . ." above. In addition, additional regulatory actions may require significant expenditures for legal fees.
 
There can be no assurance that our common stock will continue to be listed on The Nasdaq Global Market ( " Nasdaq " ), which could limit investors ’ ability to make transactions in our common stock and the price of our common stock and our ability to access the capital markets could be negatively impacted.
 
Our common stock is traded on Nasdaq under the symbol "FLNT." To maintain our listing we are required to satisfy continued listing requirements, including the requirement commonly referred to as the minimum bid price rule. The minimum bid price rule requires that the closing bid price of our common stock be at least $1.00 per share. On May 1, 2023, we received a letter from the Staff of the Listing Qualifications Department of The Nasdaq Stock Market LLC indicating that based upon the Company's closing bid price during the previous 31 consecutive business days, we no longer met the minimum bid price rule. The notice had no immediate effect on the listing of our common stock on Nasdaq, and we have until October 30, 2023 to regain compliance. If at any time during such 180-calendar day period the closing bid price of our common stock is at least $1.00 for a minimum of 10 consecutive business days, Nasdaq will provide us written confirmation of compliance and the matter will be closed.  If we do not regain compliance by October 30, 2023, and we request to transfer the listing of our common stock from The Nasdaq Global Market to The Nasdaq Capital Market, we may be eligible for an additional 180-calendar day compliance period, subject to satisfying the conditions in the applicable Nasdaq Listing Rules. However, there can be no assurance that we will be able to regain compliance with the minimum bid price rule or continue to satisfy other continued listing standards and maintain the listing of our common stock on Nasdaq. The suspension or delisting of our common stock, or the commencement of delisting proceedings, could, among other things, materially impair our stockholders’ ability to buy and sell shares of our common stock and could have an adverse effect on the market price of, and the efficiency of the trading market for, our common stock. Although we may effect a reverse stock split of our issued and outstanding common stock in the future, there can be no assurance that such reverse stock split will enable us to regain compliance with the Nasdaq minimum bid price requirement.
 
36
Table of Contents
 
Covenants in our Credit Agreement impose restrictions that may limit our operating and financial flexibility .
 
The Credit Agreement contains negative covenants that, among other things, limit our ability to: incur indebtedness; grant liens on its assets; enter into certain investments; consummate fundamental change transactions; engage in mergers or acquisitions or dispose of assets; enter into certain transactions with affiliates; make changes to its fiscal year; enter into certain restrictive agreements; and make certain restricted payments (including for dividends and stock repurchases, which are generally prohibited except in a few circumstances and/or up to specified amounts). The Credit Agreement contains certain affirmative covenants and customary events of default provisions, including, subject to thresholds and grace periods, among others, payment default, covenant default, cross default to other material indebtedness, and judgment default. Each of these limitations are subject to various conditions.
 
In addition, the Credit Agreement contains financial covenants that require us to maintain minimum total leverage ratios and fixed charge coverage ratios. The applicable interest rate on the facility may increase if our total leverage ratio increases to specified amounts that would result in our interest expenses going up.  Subject to the terms and conditions set forth in the Credit Agreement, we are required to make annual mandatory prepayments of 10% of the original principal amount of the facility and make other prepayments in certain circumstances prior to March 31, 2026, the Maturity Date of the facility.
 
These covenants could materially adversely affect our ability to finance our future operations or capital needs. Furthermore, they may restrict our ability to expand and pursue our business strategies and otherwise conduct our business. Our ability to comply with these covenants may be affected by circumstances and events beyond our control, such as prevailing economic conditions and changes in regulations, and we cannot provide any assurance that we will be able to comply with such covenants. The restrictions also limit our ability to obtain future financings or to withstand a future downturn in our business or the economy in general. In addition, complying with these covenants may also cause us to take actions that may make it more difficult for us to successfully execute our business strategy and compete against companies that are not subject to such restrictions.
 
A breach of any covenant in the Credit Agreement would result in a default under the Credit Agreement after the expiration of any applicable grace periods a default, if not cured or waived, could result in the acceleration of the debt outstanding under the Credit Agreement. In the second and third quarters of 2023, we entered into amendments to the Credit Agreement to prevent breaches of certain covenants.  There is no assurance we will be able to obtain an amendment or waiver to the Credit Agreement to prevent future defaults.  Any amendment or waiver will likely require concessions from the Company, such as prepayments, the imposition of other covenants or restrictions, limitations on future borrowing, or the payment of lender expenses. If the debt is accelerated, we may not be able to make all of the required payments or borrow sufficient funds to refinance such debt. Even if new financing were available at such time, it may not be on terms that are acceptable to us or as favorable to us as our current agreements. If our debt is in default for any reason, our business, financial condition, and results of operations could be materially and adversely affected.
 
Our management has   identified a material weakness in our internal controls over financial reporting, and we may be unable to develop, implement and maintain appropriate controls in future periods, which may lead to errors or omissions in our financial statements.
 
The Sarbanes-Oxley Act and related rules and regulations require that management report annually on the effectiveness of our internal control over financial reporting and assess the effectiveness of our disclosure controls and procedures on a quarterly basis. Maintaining and adapting our internal controls is expensive and requires significant management attention. Moreover, as we continue to grow, our internal controls may become more complex and require additional resources to ensure they remain effective amid dynamic regulatory and other guidance. 
 
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements would not be prevented or detected on a timely basis. As of June 30, 2023, our management concluded that our disclosure controls and procedures were not effective and that we had, as of such date, a material weakness relating to our ability to timely account for non-routine, non-recurring, unusual or complex financial transactions. As a result, we performed additional analysis as deemed necessary to ensure that our financial statements were prepared in accordance with U.S. generally accepted accounting principles. 
 
With the oversight of the Audit Committee of the Board of Directors, we are developing a remediation plan that will enhance our processes for timely identifying and determining the proper accounting for non-routine, non-recurring, unusual or complex transactions . We cannot currently provide an estimate of how long such plan will take to remediate the material weakness or assure you that the remediation plan will remediate the material weakness.
 
Although we review and evaluate internal control systems to allow management to report on the sufficiency of our internal controls, there can be no assurance that we will not discover additional weaknesses in our internal control over financial reporting in the future. Any such additional weakness or failure to remediate the existing weakness could materially adversely affect our financial condition or ability to comply with applicable financial reporting requirements, which could result in violations of applicable securities laws and NASDAQ listing requirements, subject us to litigation and investigations, negatively affect investor confidence in our financial statements, and adversely impact our stock price and ability to access capital markets.
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 
None.
 
Item 3. Defaults Upon Senior Securities.
 
None.
 
Item 4. Mine Safety Disclosures.
 
Not Applicable.