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Note 5 - Long-term Debt, Net
 9 Months Ended
Sep. 30, 2024
Notes to Financial Statements  
Debt Disclosure [Text Block]

5. Long-term debt, net

 

Long-term debt, net of unamortized discount and financing costs, related to the Citizens Credit Facility, the New Credit Facility, Note Payable, and Convertible Notes with related parties (as set forth herein) consisted of the following:

 

  

September 30, 2024

  

December 31, 2023

 

Citizens Credit Facility due 2025 (less unamortized discount and financing costs of $0 and $762, respectively)

 $—  $30,488 

New Credit Facility due 2029 (less unamortized discount and financing costs of $1,154 and $0, respectively)

  31,332   — 

Note Payable due 2026

  1,750   — 

Convertible Notes, with related parties

  4,860   — 

Long-term debt, net

  37,942   30,488 

Less: Current portion of long-term debt

  (32,582)  (5,000)

Long-term debt, net (non-current)

 $5,360  $25,488 

 

Citizens Credit Facility

 

On April 2, 2024, the Company repaid the $30,000 aggregate principal amount of the term loan ("Citizens Term Loan") due on September 30, 2025, resulting in a loss due to the early extinguishment of debt of $1,009, which was recognized in the second quarter of 2024.

 

New Credit Facility

 

On April 2, 2024, Fluent, LLC entered into the SLR Credit Agreement with certain of its subsidiaries and the Company, as guarantors, and SLR, as administrative agent, lead arranger and bookrunner, and each other lender from time to time party thereto.

 

The SLR Credit Agreement provides for a $20,000 term loan (the "SLR Term Loan") and a revolving credit facility of up to $30,000 (the "SLR Revolver" and together with the SLR Term Loan, the "SLR Credit Facility"). As of September 30, 2024, the SLR Credit Facility had an outstanding principal balance of $32,486 (of which $12,486 relates to the SLR Revolver) and matures on April 2, 2029.

 

The Borrower used a portion of the net proceeds of the SLR Credit Facility to repay the outstanding Citizens Term Loan under the credit agreement dated March 31, 2021 (the "Citizens Credit Agreement"), by and among the Borrower, certain subsidiaries of the Borrower as guarantors, the lenders thereto, and Citizens Bank, N.A. ("Citizens Bank"). 

 

 

There is no principal amortization prior to maturity under the SLR Credit Agreement except for certain mandatory prepayments to be made with the net cash proceeds of certain asset sales, casualty events, and other extraordinary receipts and upon the occurrence of certain other events, in each case subject to certain reinvestment rights, thresholds and other exceptions. Unfunded commitments will be subject to an unused facility fee, which will be payable monthly in arrears, as of the month following the closing, at a rate of 0.50% per annum. All amounts owed under the SLR Credit Facility are due and payable on the five-year anniversary of the closing date (the "Maturity Date"), or earlier following a change in control or an event of default, unless otherwise extended in accordance with the terms of the SLR Credit Agreement. Borrowings under the SLR Credit Agreement bear interest at a rate per annum equal to a 3-month term SOFR plus 0.26161%, subject to a 1.50% floor, plus a margin (the "Applicable Margin") of 5.25% which was increased to 5.75% pursuant to the Second Amendment to the SLR Credit Agreement (the "Second Amendment"). The Applicable Margin will be reduced to 5.0% when the Borrower's fixed charge coverage ratio is greater than 1.10 to 1. The opening interest rate of the SLR Credit Facility was 10.81% (SOFR + CSA + 5.25%), which increased to 11.03% (SOFR + CSA+5.75%) as of  September 30, 2024.

 

The SLR Credit Agreement contains restrictive covenants which impose limitations on the way the Credit Parties conducts business, including limitations on the amount of additional debt the Credit Parties are able to incur and their ability to make certain investments or other restricted payments. The SLR Credit Agreement is guaranteed by the Company and certain of its direct and indirect subsidiaries and is secured by substantially all of the Company's assets and those of its direct and indirect subsidiaries, including the Borrower.

 

The Borrower's ability to draw on the SLR Revolver depends on its weekly borrowing base, which is calculated by applying specified percentages established by SLR to the Borrower's eligible accounts receivable and cash, less reserves, subject to certain limitations.

 

Debt issuance costs and debt discount costs, net of accumulated amortization, related to the issuance and amendments of the SLR Revolver was $903 and $827, respectively, as of September 30, 2024. The amounts are included in other non-current assets in the Company's consolidated balance sheets. The Company amortizes these costs over the life of the related debt.

 

On May 15, 2024, the Credit Parties and SLR entered into the First Amendment to the SLR Credit Agreement (the "First Amendment"), pursuant to which SLR, among other things, (1) waived any required prepayments on the SLR Revolver from the proceeds from the Company's Private Placement, (2) required that the Credit Parties (as defined in the SLR Credit Agreement) retain a financial advisor to assist in preparing the Company's projections, (3) increased the minimum excess availability covenant following the Private Placement (as defined herein) (see Note 8, Equity) (4) amended the definition of borrowing base (as defined in the SLR Credit Agreement), and (5) amended certain post-closing obligations.

 

On August 19, 2024, the Credit Parties and SLR entered into the Second Amendment, which, among other things, required that the Company raise $2,000 in additional capital. To raise the capital, the Company entered into convertible subordinated notes, as described below, raising an aggregate $2,050. In addition, SLR waived non-compliance with the financial covenants as of June 30, 2024, modified the financial covenants through December 31, 2025, ended a requirement to engage a financial advisor, increased the Applicable Margin from 5.25% to 5.75%, and waived any required prepayments from the proceeds from the convertible subordinated notes financing.

 

As of  September 30, 2024, the Credit Parties were not in compliance with their financial covenants under the SLR Credit Agreement, which the Borrower had to report by October 31, 2024, and which would have resulted in an event of default; however, on October 30, 2024, the Credit Parties and SLR entered into a letter agreement pursuant to which SLR extended the deadline for delivery of the compliance certificate required for the fiscal month ended September 30, 2024, and the related notice of event of default, to November 19, 2024.

 

On November 15, 2024, the Credit Parties and SLR entered into the Third Amendment to the SLR Credit Agreement, which, among other things, required that the Company raise at least $7,500 of additional capital by November 29, 2024. In addition, the Third Amendment waived non-compliance with the financial covenants as of  September 30, 2024, extended the duration of the call protection applicable to the loans, and modified the cash dominion provisions to remain in effect on an indefinite basis.

 

 

Based on current projections, the Company expects to be in compliance with the new financial covenants during the next twelve months. However, the Company has not met its projections for certain recent quarters, so there can be no assurance that the Company will meet its projections in the future. If during any fiscal quarter, the Credit Parties do not comply with any of their financial covenants, such non-compliance would result in an event of default that would give SLR the right to accelerate maturities. Additionally, if the Company fails to raise capital in at least the amount required under the Third Amendment by November 29, 2024, such failure would also result in an event of default that would give SLR the right to accelerate maturities. Accordingly, all borrowings under the Credit Agreement have been classified as current as of  September 30, 2024.

 

Note Payable

 

On March 17, 2024, Fluent, LLC entered into a junior secured promissory note (the "Note Payable") with Freedom Debt Relief, LLC ("FDR") in the principal amount of $2,000 in connection with the Berman Settlement Agreement (see Note 11, Contingencies). The Note Payable bears interest equal to one-month CME Term SOFR (defined as the rate published by the CME Group Benchmark Administration Limited) plus 11.0% per annum, compounded quarterly. The opening interest rate of the Note Payable was 16.32% (SOFR +11%), which decreased to 16.17% (SOFR + 11%) as of  September 30, 2024.

 

A maximum of $1,000 of the borrowings under the Note Payable are secured by substantially all of the assets of Fluent, LLC. This security interest is subordinate to the security interest under the SLR Credit Agreement.

 

The Note Payable matures on March 31, 2026 and interest is payable quarterly. Scheduled principal amortization of the Note Payable is $250 per quarter, which commenced with the fiscal quarter ended June 30, 2024, but was subsequently paid upon receipt of the invoice from FDR and applied as of July 17, 2024.

 

Convertible Notes, with related parties

 

On August 19, 2024, the Company entered into a Securities Purchase Agreement (the "Securities Purchase Agreement") with certain of the Company's officers and directors and the largest stockholder (the "Purchasers") to sell convertible subordinated promissory notes (the "Convertible Notes") in aggregate principal amount of $2,050. The Convertible Notes mature on April 2, 2029, and bear interest at 13% per annum payable quarterly in kind or may be paid in cash (subject to payment conditions in the Subordination Agreement (as defined below)) beginning December 31, 2024. Subject to certain payment conditions in the Subordination Agreement, the Company may prepay the Convertible Notes in whole or in part at any time upon ten days’ written notice, provided that no prepayment will be permitted prior to stockholder approval without the consent of the applicable holder.

 

Each holder of the Convertible Notes is entitled to convert the Conversion Amount (as defined below) into shares of the Company’s common stock at a conversion price equal to the lesser of (i) $3.01 and (ii) the greater of (A) the consolidated closing bid price of the Company's Common Stock as reported on Nasdaq on the applicable conversion date and (B) $1.00, in each case subject to adjustments for stock splits, recapitalizations and the like. However, the applicable conversion price will in no event be lower than the price established by clause (ii) above unless and until the Company's stockholders have approved matters related to the issuance of common stock upon conversion of the Convertible Notes. The "Conversion Amount" is the sum of all or any portion of the outstanding principal amount of the Convertible Note, as designated by the holder upon exercise of its right of conversion, plus all accrued and unpaid interest. The Convertible Notes are subject to additional limits on conversion until stockholder approval is obtained, including an aggregate limit on the number of shares that may be issued upon conversion to 19.99% of the Company’s outstanding shares of common stock and provisions to prevent a change of control as defined in the rules of the Nasdaq Stock Market. The Company has agreed to use its reasonable efforts to secure stockholder approval at such meeting, including providing a recommendation for approval by the Company’s board of directors. Holders of the Convertible Notes will be permitted to vote on such stockholder approval, but may not vote any shares obtained from conversion of the Convertible Notes prior to such vote. No underwriting discounts or commissions were paid with respect to the Convertible Notes.

 

In connection with the Second Amendment and the Securities Purchase Agreement, the Company and SLR entered into a Second Amendment Subordination Agreement with each purchaser of the Convertible Notes on August 19, 2024 (the "Subordination Agreements"). The Subordination Agreements confirm the subordinated nature of the Convertible Notes and restrict payments to and remedies of the holders of the Convertible Notes for so long as the SLR Credit Agreement has indebtedness outstanding. The Subordination Agreements provide that the Company may not make any payment of principal or interest on the Convertible Notes unless certain conditions are met.

 

 

The Convertible Notes are accounted for at fair value due to the election of the fair value option ("FVO") in accordance with ASC 825, Financial Instruments ("ASC 825"). Within ASC 825, the FVO can be elected for debt host financial instruments containing embedded features which would otherwise be required to be bifurcated from the debt-host and recognized as separate derivative liabilities subject to initial and subsequent periodic estimated fair value measurements under ASC 815. Notwithstanding, ASC 825-10-15-4 provides for the FVO election, to the extent not otherwise prohibited by ASC 825-10-15-5, to be afforded to financial instruments, wherein bifurcation of an embedded derivative is not necessary, and the financial instrument is initially measured at its issue-date estimated fair value and then subsequently remeasured at estimated fair value on a recurring basis at each reporting period date.

 

Within ASC 825-10-45-5, the estimated fair value adjustments are recognized as a component of other comprehensive income with respect to the portion of the fair value adjustment attributed to a change in the instrument-specific credit risk, with the remaining amount of the fair value adjustment recognized as other income (expense) within the consolidated statement of operations. As then provided by ASC 825-10-50-30(b), the estimated fair value adjustment is presented in a respective single line item within other income (expense) in the consolidated statements of operations, as the Company concluded that the change in fair value of the Convertible Notes was not attributable to instrument specific credit risk. The Company then elected to not present the interest expense for the Convertible Notes separately.

 

The initial fair value was determined to be greater than the principal balance of the Convertible Notes. The Company noted that the transaction was entered into with certain of the Company's officers and directors and the largest stockholder and was required under the Second Amendment for liquidity needs. Further, the Company reviewed the valuation and determined it was appropriate. As a result, based on ASC 825-10, the Company recorded a day one unrealized loss on the Convertible Notes of $2,110.

 

As of September 30, 2024, the principal balance of the Convertible Notes was $2,050, with a fair value of $4,860. The Company recognized an additional increase in fair value of $700 for the three and nine months ended September 30, 2024, which was recognized as after current period other income (loss) from operations. For the three and nine months ended September 30, 2024, accrued interest was paid in kind.

 

Maturities

 

As of September 30, 2024, scheduled future maturities of the Company's debt are as follows, not reflective of the debt being accelerated as noted in Note 1:

 

Year

  September 30, 2024 

Remainder of 2024

 $5,420 

2025

  1,000 

2026

  250 

2027

  — 

2028

  — 

2029

  29,616 

Total maturities

 $36,286