Fluent, Inc. 10-Q

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 and Quarterly Report on Form 10-Q for the quarter ended June, 30, 2023. The risk factors below update all risk factors in our 2022 Form 10-K related to the matters discussed in the risk factors below.   There can be no assurance that our common stock will continue to be listed on The Nasdaq Stock Market , 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.   The Company was notified on May 1, 2023, by The Nasdaq Stock Market LLC (“Nasdaq”) that the Company was not in compliance with the minimum bid price requirement set forth in Nasdaq Listing Rule 5450(a)(1) (the “Minimum Bid Price Requirement”). The closing bid price for the Company’s common stock, par value $0.0005 per share, had been less than $1.00 per share for the previous 30 consecutive business days.  In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company was provided an initial period of 180 calendar days, or until October 30, 2023 (the “Initial Compliance Period”), to regain compliance with the Minimum Bid Price Requirement. On October 18, 2023, the Company transferred the listing of its common stock from The Nasdaq Global Market to The Nasdaq Capital Market, at which time it was afforded the remainder of the Initial Compliance Period.   On October 31, 2023, the Company received a letter from Nasdaq notifying the Company that the Nasdaq Listing Qualifications Staff (the “Nasdaq staff”) had determined that the Company was eligible for an additional 180 calendar day period, or until April 29, 2024 (the “Additional Compliance Period”), to regain compliance with the Minimum Bid Price Requirement.  The Company was afforded the Additional Compliance Period under Nasdaq Listing Rule 5810(c)(3)(A)(ii) based on the Company meeting the continued listing requirement for market value of publicly held shares and all other applicable requirements for initial listing on The Nasdaq Capital Market, with the exception of the Minimum Bid Price Requirement, and the Company’s written notice to Nasdaq of its intention to cure the deficiency during the Additional Compliance Period by effecting a reverse stock split, if necessary.   If at any time during the Additional Compliance Period, the closing bid price of the Company’s common stock is at least $1.00 per share for a minimum of ten consecutive business days, the Nasdaq staff will provide written confirmation of compliance with the Minimum Bid Price Requirement and the matter will be closed, unless the Nasdaq staff exercises its discretion to require the Company to satisfy the Minimum Bid Price Requirement for a period in excess of ten consecutive business days as described in Nasdaq Listing Rule 5810(c)(3)(H).  If the Company does not demonstrate compliance with the Minimum Bid Price Requirement by April 29, 2024, it will receive written notification from the Nasdaq staff that the Company’s common stock will be delisted.  At that time, the Company may appeal the delisting determination to an independent hearings panel by submitting a hearing request within seven calendar days of the date of the delisting determination notice.  If timely requested, the Company expects the hearing to take place within 45 days of the hearing request.  A timely request for a hearing will ordinarily stay Nasdaq’s suspension and delisting action pending the issuance of a written panel decision.   There can be no assurance that we will be able to regain compliance with the Minimum Bid Price Requirement 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.   38 Table of Contents   The Hamas-Israel and Russia-Ukraine conflicts, other areas of geopolitical tension around the world or the worsening of those conflicts or tensions, and any related challenging macroeconomic conditions globally and in various countries in which we and our customers operate may materially adversely affect our customers, vendors, or partners, and the duration and extent to which these factors may impact our future business and operations, results of operations, financial condition and cash flows remain uncertain.   The Hamas-Israel and Russia-Ukraine conflicts, other areas of geopolitical tension around the world or the worsening of those conflicts or geopolitical tensions, and any related challenging macroeconomic conditions globally, could decrease the spending of our existing and potential new customers, adversely affect demand for our products, cause one or more of our customers, vendors, and partners to file for bankruptcy protection or go out of business, impact expected spending and pricing levels from existing and potential new customers, and negatively impact collections of accounts receivable, all of which could adversely affect our business, results of operations and financial condition.  A significant portion of our customers in the Media & Entertainment industry is located in Israel, and we are therefore particularly exposed to these risks.   Any of the negative impacts of geopolitical tension around the world and any related challenging macroeconomic conditions may have a material adverse effect on our business and operations, results of operations, financial condition and cash flows. Any of these negative impacts, alone or in combination with others, also could exacerbate many of the other risk factors discussed in  Part II, Item 1A. Risk Factors in the 2022 Form 10-K or this Quarterly Report on Form 10-Q, including volatility in the trading prices of our common stock. The full extent to which these factors may negatively affect our business and operations, results of operations, financial condition and cash flows will depend on future developments that are highly uncertain and cannot be predicted, including the scope, severity and duration of the Hamas-Israel and Russia-Ukraine conflicts, other areas of geopolitical tension around the world and any economic downturns and the actions taken by governmental authorities and other third parties in response.   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 our 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 our fiscal year, enter into certain restrictive agreements, and make certain restricted payments (including dividends and stock repurchases, which are generally prohibited except in a few circumstances and/or up to specified amounts). The Credit Agreement also contains customary events of default provisions, including for payment default, covenant default, cross default to other material indebtedness, and judgment default. Each of these limitations are subject to various conditions, thresholds, or grace periods.   In addition, the Credit Agreement contains affirmative covenants, including certain 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 rising.  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.   39 Table of Contents   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. 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 or waive breaches of certain financial covenants.  Based on projections, we do not expect to be in compliance with all financial covenants for the next twelve months.  Under the most recent Waiver discussed in this report, we must provide a 2024 budget that has been reviewed by the business consultant retained by counsel to the lead arranger.  We intend for that budget to inform modified financial covenant levels and other provisions, as needed, for the quarters ending December 31, 2023 through December 31, 2024, which would be accomplished with an amendment to the Credit Agreement. There is no assurance that such an amendment will provide for modified financial covenant levels that we will satisfy, or that we will be able to obtain an amendment or waiver to the Credit Agreement in the case of future events of default (including but not limited to those related to financial covenants). 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.   There is substantial doubt about our ability to continue as a going concern   In light of the potential for acceleration of the maturities under the Credit Agreement and other factors discussed in this report, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern through the one-year period after the date of issuance of the financial statements included in this Quarterly Report on Form 10-Q. For more information see Note 1(a), “ Basis of preparation – Going concern uncertainty ,” in the Notes to Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q. Our ability to continue as a going concern is contingent upon effective implementation of management’s plans intended to alleviate the substantial doubt; in particular, our ability to enter into a new amendment to the Credit Agreement that provides for financial covenant levels we can satisfy, as well as our ability to reduce costs and grow our business over the next twelve months. However, there is no assurance that we will be successful in entering into such amendment to the Credit Agreement or that our planned cost reductions and resources focused on new growth opportunities will be successfully executed or have the expected benefits.   If our current plans are not successful, we may need to consider all 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. In addition, the perception that we may not be able to continue as a going concern may cause publishers, vendors, advertisers and other clients (or potential clients), and others, to review their business relationships and terms with us. If we seek additional financing to fund our operations and there remains substantial doubt about our ability to continue as a going concern, financing sources may be unwilling to provide such funding to us on commercially reasonable terms, or at all. Uncertainty regarding our ability to continue as a going concern could also have a material and adverse impact on the price of our common stock, which could negatively impact our ability to obtain stock-based financing or enter into strategic transactions. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.   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.