What changed in this filing

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Item 1. Financial Statements

2021-05-10 compared with 2020-10-30 · 247 added, 308 removed, 509 unchanged (52% of the section changed)

2 unchanged sentences

(Amounts in thousands, except share and per share data)

September 30, 2020

March 31, 2021

December 31, 2020

2 unchanged sentences

$ 21,087  

Accounts receivable, net of allowance for doubtful accounts of $ 334 and $ 1,967 , respectively

Accounts receivable, net of allowance for doubtful accounts of $268  and $368 , respectively

58,004  

36 unchanged sentences

93,335  

Contingencies (Note 10)  

Contingencies (see Note 10)  

Shareholders' equity:

26 unchanged sentences

(Amounts in thousands, except share and per share data)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

$ 70,170  

$ 78,934  

Costs and expenses:

Cost of revenue (exclusive of depreciation and amortization)

50,990  

56,624  

Sales and marketing

1 unchanged sentence

General and administrative

11,699  

11,076  

Depreciation and amortization

Goodwill impairment

Write-off of long-lived assets

Total costs and expenses

Income (loss) from operations

72,457  

76,994  

(Loss) income from operations

( 2,287 )  

Interest expense, net

Income (loss) before income taxes

Income tax (expense) benefit

Net income (loss)

Basic and diluted income (loss) per share:

( 1,008 )  

Loss on early extinguishment of debt

( 2,964 )  

(Loss) income before income taxes

( 6,259 )  

Income tax benefit

Net (loss) income

$ ( 6,258 )  

Basic and diluted (loss) income per share:

$ ( 0.08 )  

$ 0.01  

$ ( 0.08 )  

$ 0.01  

Weighted average number of shares outstanding:

81,892,593  

78,604,280  

81,892,593  

78,753,770  

See notes to consolidated financial statements

4 unchanged sentences

Total shareholders'

Balance at June 30, 2020

Vesting of restricted stock units and issuance of restricted stock

Increase in treasury stock resulting from shares withheld to cover statutory taxes

Exercise of warrants by certain warrant holders (see note 7)

Share-based compensation

Balance at September 30, 2020

Balance at December 31, 2019

78,642,078  

2,768,399  

$ ( 8,184 )  

$ 406,198  

$ ( 187,116 )  

$ 210,937  

Vesting of restricted stock units and issuance of restricted stock

1,467,339  

Increase in treasury stock resulting from shares withheld to cover statutory taxes

Repurchase of shares into treasury stock

Exercise of warrants by certain warrant holders (see note 7)

175,732  

( 416 )  

Repurchase of shares into treasury stock  

657,673  

( 1,300 )  

Exercise of warrants by certain warrant holders (see Note 7)  

( 300,000 )  

Share-based compensation

Balance at September 30, 2020

Treasury stock

Additional paid-in

Total shareholders'

Balance at June 30, 2019

Vesting of restricted stock units and issuance of restricted stock

Increase in treasury stock resulting from shares withheld to cover statutory taxes

Reclassification of exercisable warrants from liability to equity

Share-based compensation expense

Balance at September 30, 2019

Balance at March 31, 2020

79,809,417  

3,601,804  

$ ( 9,900 )  

$ 408,633  

$ ( 186,708 )  

$ 212,065  

Balance at December 31, 2020

80,295,141  

3,945,867  

$ ( 9,999 )  

$ 411,753  

$ ( 184,909 )  

$ 216,885  

Vesting of restricted stock units and issuance of restricted stock

1,735,682  

Increase in treasury stock resulting from shares withheld to cover statutory taxes

Share-based compensation expense

Balance at September 30, 2019

109,144  

( 624 )  

Exercise of stock options

198,000  

Share-based compensation

( 6,258 )  

Balance at March 31, 2021

82,228,823  

4,055,011  

$ ( 10,623 )  

$ 413,958  

$ ( 191,167 )  

$ 212,209  

See notes to consolidated financial statements

1 unchanged sentence

(Amounts in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss)

Net (loss) income

$ ( 6,258 )  

Adjustments to reconcile net income to net cash provided by operating activities:

Adjustments to reconcile net (loss) income to net cash provided by (used in) by operating activities:

Depreciation and amortization

11,492  

10,265  

Non-cash interest expense

Non-cash loan amortization expense

Share-based compensation expense

Goodwill impairment  

Write-off of long-lived assets  

Non-cash loss on early extinguishment of debt  

Non-cash accrued compensation expense for Put/Call Consideration  

Provision for bad debt

Provision for (benefit from) income taxes

( 99 )  

Changes in assets and liabilities, net of business acquisition:

7 unchanged sentences

Accounts payable

( 14,096 )  

Accrued expenses and other current liabilities

Deferred revenue

( 7,393 )  

Net cash provided by operating activities

12,861  

Deferred revenue

( 32 )  

Net cash provided by (used in) operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

Business acquisition, net of cash acquired  

( 1,426 )  

Capitalized costs included in intangible assets

5 unchanged sentences

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from issuance of long-term debt, net of debt financing costs  

49,624  

Repayments of long-term debt

( 41,736 )  

Repurchase of treasury stock  

Exercise of stock options  

Prepayment penalty on debt extinguishment

( 766 )  

1 unchanged sentence

( 624 )  

Net cash used in financing activities

( 12,715 )  

Net (decrease) increase in cash, cash equivalents and restricted cash

Repurchase of treasury stock  

Net cash provided by (used in) financing activities

Net increase (decrease) in cash, cash equivalents and restricted cash

11,573  

8 unchanged sentences

$ 1,148  

$ 4,170  

Cash paid for income taxes

13 unchanged sentences

The Company consolidates a VIE in its financial statements if the Company is deemed to be the primary beneficiary of the VIE.

The primary beneficiary is the party that has the power to direct activities that most significantly impact the operations of the VIE and has the obligation to absorb losses or the right to benefits from the VIE that could potentially be significant to the VIE. As of April 1, 2020, the Company has included Winopoly, LLC in its consolidated financial statements as a VIE (as further discussed in Note 11,  

Business acquisitions  and Note 12, Variable interest entity ).

The primary beneficiary is the party that has the power to direct activities that most significantly impact the operations of the VIE and has the obligation to absorb losses or the right to benefits from the VIE that could potentially be significant to the VIE. As of April 1, 2020, the Company has included Winopoly, LLC ("Winopoly") in its consolidated financial statements as a VIE (as further discussed in Note 

Business acquisition 

and Note 12 , Variable interest entity ).

The information included in this quarterly report on Form 10 -Q should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company's Annual Report on Form 10 -K for the year ended 

10 unchanged sentences

The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.

In March 2020, the FASB issued ASU 2020 - 04, Reference Rate Reform (Topic 848 ):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting , which provides optional guidance to ease the potential burden in accounting for the discontinuation of a reference rate such as LIBOR, formerly known as the London Interbank Offered Rate, because of reference rate reform.

The ASU is effective for all entities as of March 12, 2020 through December 31, 2022.

The Company is currently evaluating the impact of adopting this guidance on its consolidated financial statements.

On January 1, 2021, FASB issued ASU 2019 - 12, Simplifying  

Accounting  

Income  

Taxes , which simplifies the accounting for income taxes by removing certain exceptions and improving the application of existing guidance.

The new guidance is effective for annual and interim periods beginning  after December 15, 2020.The adoption of ASU 2019 - 12  on January 1, 2021 did not have a material effect on our consolidated financial statements.

Revenue is recognized when control of goods or services is transferred to customers, in amounts that reflect the consideration the Company expects to be entitled to in exchange for those goods or services.

The Company's performance obligation is typically to (a) deliver data records, based on predefined qualifying characteristics specified by the customer or (b) generate conversions, based on predefined user actions (for example, a click, a registration or the installation of an app) and subject to certain qualifying characteristics specified by the customer.

The Company's performance obligation is typically to (a) deliver data records, based on predefined qualifying characteristics specified by the customer, (b) generate conversions, based on predefined user actions (for example, a click, a registration or the installation of an app) and subject to certain qualifying characteristics specified by the customer, (c) verify user interest or transfer calls to advertiser clients as a part of the contact center operation, or (d) deliver media spend as a part of the AdParlor business.

If a customer pays consideration before the Company's performance obligations are satisfied, such amounts are classified as deferred revenue on the consolidated balance sheets.

September 30, 2020 and December 31, 2019 , the balance of deferred revenue was $ 2,440 and $ 1,140 , respectively.

March 31, 2021 and December 31, 2020 , the balance of deferred revenue was $ 1,935 and $ 1,373 , respectively.

The majority of the deferred revenue balance as of 

1 unchanged sentence

When there is a delay between the period in which revenue is recognized and when a customer invoice is issued, revenue is recognized and the related amounts are recorded as unbilled revenue within accounts receivable on the consolidated balance sheets.

September 30, 2020 and December 31, 2019 , unbilled revenue included in accounts receivable was $ 27,518 and $ 29,061 , respectively.

March 31, 2021 and December 31, 2020 , unbilled revenue included in accounts receivable was $ 21,437 and $ 28,337 , respectively.

In line with industry practice, the unbilled revenue balance is recorded based on the Company's internally tracked conversions, net of estimated variances between this amount and the amount tracked and subsequently confirmed by customers.

5 unchanged sentences

The preparation of consolidated financial statements in accordance with US GAAP requires the Company’s management to make estimates and assumptions relating to the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods.

Significant items subject to such estimates and assumptions include the allowance for doubtful accounts, useful lives of intangible assets, recoverability of the carrying amounts of goodwill and intangible assets, the portion of revenue subject to estimates for variances between internally-tracked conversions and those confirmed by the customer, purchase accounting, put/call considerations, consolidation of variable interest entity, accruals for contingencies and income tax provision.

These estimates are often based on complex judgments and assumptions that management believes to be reasonable, but are inherently uncertain and unpredictable.

Actual results could differ from these estimates.

Except for the impairment of goodwill related to the Company’s All Other reporting unit, as discussed in Note 4, Goodwill , results of operations for the three and nine months ended September 30, 2020 did not include any adjustments to assets or liabilities due to the impact of COVID- 19.

While the Company has not incurred significant disruptions to its business thus far from the COVID- 19 pandemic, management is unable to accurately predict the impact COVID- 19 may have on its operations due to numerous uncertainties, including the severity of the disease, the duration of the outbreak, actions that may be taken by governmental authorities, the impact to customers' and suppliers' businesses and numerous other factors.

Management will continue to evaluate the nature and extent that COVID- 19 will impact its business, results of operations and financial condition.

Income (loss) per share

Basic income (loss) per share is computed by dividing net income by the weighted average number of common shares outstanding during the period, in addition to restricted stock units ("RSUs") and restricted common stock that are vested but not delivered.

Diluted income (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock are exercised or converted into common stock and is calculated using the treasury stock method for stock options, restricted stock units, restricted stock, warrants and deferred common stock.

(Loss) income per share

Basic (loss) income per share is computed by dividing net income by the weighted average number of common shares outstanding during the period, in addition to restricted stock units ("RSUs") and restricted common stock that are vested but not delivered.

Diluted (loss) income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock are exercised or converted into common stock and is calculated using the treasury stock method for stock options, restricted stock units, restricted stock, warrants and deferred common stock.

Common equivalent shares are excluded from the calculation in loss periods, as their effects would be anti-dilutive.

For the three and 

nine months ended September 30, 2020 and 2019 , basic and diluted income (loss) per share was as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

Net income (loss)

$ 1,169  

$ ( 4,463 )  

$ 2,029  

Weighted average shares outstanding  

76,315,973  

76,769,339  

76,111,405  

76,296,825  

Weighted average restricted shares vested not delivered  

2,262,001  

2,799,871  

2,452,857  

3,092,306  

Total basic weighted average shares outstanding  

78,577,974  

79,569,210  

78,564,262  

79,389,131  

Dilutive effect of assumed conversion of restricted stock units  

594,604  

650,357  

Dilutive effect of assumed conversion of warrants  

Dilutive effect of assumed conversion of stock options  

Total diluted weighted average shares outstanding  

79,172,578  

79,569,210  

For the 

three months ended March 31, 2021 and 2020 , basic and diluted (loss) income per share was as follows:

Three Months Ended March 31,

Net (loss) income

$ ( 6,258 )  

Weighted average shares outstanding

79,608,513  

Basic and diluted income (loss) per share:

75,771,019  

Weighted average restricted shares vested not delivered

2,284,080  

2,833,261  

Diluted  

Total basic weighted average shares outstanding

81,892,593  

78,604,280  

Dilutive effect of assumed conversion of restricted stock units

149,490  

The following potentially dilutive securities were excluded from the calculation of diluted income per share, as their effects would have been anti-dilutive for the periods presented:

Three Months Ended September 30,

Nine Months Ended September 30,

Restricted stock units  

Total diluted weighted average shares outstanding

81,892,593  

78,753,770  

Basic and diluted (loss) income per share:

$ ( 0.08 )  

$ 0.01  

Stock options  

$ ( 0.08 )  

$ 0.01  

The following potentially dilutive securities were excluded from the calculation of diluted (loss) income per share, as their effects would have been anti-dilutive for the periods presented:

Three Months Ended March 31,

Restricted stock units

3,042,873  

3,216,816  

Warrants  

Stock options

2,204,000  

5 unchanged sentences

8,183,592  

4,981,894  

8,313,003  

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3 unchanged sentences

Amortization period (in years)

September 30, 2020

March 31, 2021

December 31, 2020

50 unchanged sentences

Holdings, Inc.

and certain of its affiliates , effective July 1, 2019 ( the "AdParlor Acquisition"), and the acquisition of a 50 % interest in Winopoly, LLC (the "Winopoly Acquisition") , effective April 1, 2020 ( see  Note 11 , 

Business acquisitions ).

The Company determined that the effects of the macroeconomic conditions arising during the three months ended June 30, 2020 from the global COVID- 19 pandemic and the social unrest throughout the United States, which changed the media buying patterns of certain customers directly impacting the All Other reporting unit, constituted an impairment triggering event. As such, the Company conducted an interim test of the recoverability of its long-lived assets as of June 30, 2020. 

Based on the results of this recoverability test, which measured the Company's projected undiscounted cash flows as compared to the carrying value of the asset group, the Company determined that, as of 

June 30, 2020, its long-lived assets were not impaired.

Management believes that the assumptions utilized in this interim impairment testing, including the determination of estimated future cash flows, were reasonable.

The Company completed its quarterly trigger event assessment for the three months ended September 30, 2020 and determined that 

no  triggering event had occurred requiring further interim impairment assessments for its long-lived assets. 

and certain of its affiliates , effective July 1, 2019 ( the "AdParlor Acquisition"), and the acquisition of a 50 % interest in Winopoly (the "Winopoly Acquisition") , effective April 1, 2020 ( see Note  

Business acquisition ).

During the three months ended 

March 31, 2021, the Company determined that the reduction in operating results of the Fluent reporting unit, along with a decline in the market value of its publicly-traded stock, collectively constituted a triggering event. As such, the Company conducted an interim test of the recoverability of its long-lived assets. Based on the results of this recoverability test, which measured the Company's projected undiscounted cash flows as compared to the carrying value of the asset group, the Company determined that, as of 

March 31, 2021, its long-lived assets were not impaired.

Management believes that the assumptions utilized in this interim impairment testing, including the determination of estimated future cash flows, were reasonable. 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands, except share data)

Amortization expense of $ 3,711 and $ 3,456 for the three months ended September 30, 2020 and 2019 , respectively, and $ 10,917  and $ 9,708 , for the 

nine months ended September 30, 2020 and 2019 , respectively, is included in depreciation and amortization expenses in the consolidated statements of operations.

As of September 30, 2020 , intangible assets with a carrying amount of $ 693 , included in the gross amount of software developed for internal use, have not commenced amortization, as they are not ready for their intended use.

As of September 30, 2020 , estimated amortization expense related to the Company's intangible assets for the remainder of 2020  and through 2025 and thereafter are as follows:

September 30, 2020

Amortization expense of $ 3,177 and $ 3,547 for the three months ended March 31, 2021 and 2020 , respectively, is included in depreciation and amortization expenses in the consolidated statements of operations.

As of March 31, 2021 , intangible assets with a carrying amount of $ 948 , included in the gross amount of software developed for internal use, have not commenced amortization, as they are not ready for their intended use.

As of March 31, 2021 , estimated amortization expense related to the Company's intangible assets for the remainder of 2021  and through 2026 and thereafter are as follows:

March 31, 2021

Remainder of 2021  

1 unchanged sentence

11,542  

10,492  

2026 and thereafter

$ 43,097  

$ 48,149  

Goodwill represents the cost in excess of fair value of net assets acquired in a business combination.

As of September 30, 2020 , the total balance of goodwill was $ 165,088 , and relates to the acquisition of Interactive Data, LLC, the Fluent LLC Acquisition, the Q Interactive Acquisition, the AdParlor Acquisition, and the Winopoly Acquisition 

As of March 31, 2021 , the total balance of goodwill was $ 165,088 , and relates to the acquisition of Interactive Data, LLC, the Fluent LLC Acquisition, the Q Interactive Acquisition, the AdParlor Acquisition, and the Winopoly Acquisition 

(see Note 

Business acquisitions ).

Business acquisition ).

In accordance with ASC 350, Intangibles - Goodwill and Other, goodwill is tested at least annually for impairment, or when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable, by assessing qualitative factors or performing a quantitative analysis in determining whether it is more likely than not that its fair value exceeds the carrying value.

The measurement date of the Company's annual goodwill impairment test is October 1.

The Company determined that the effects of the macroeconomic conditions arising during the three months ended June 30, 2020 from the global COVID- 19 pandemic and the social unrest throughout the United States, which changed the media buying patterns of certain customers directly impacting the All Other reporting unit, constituted an impairment triggering event.

As such, the Company conducted an interim test of the fair value of its goodwill for potential impairment as of June 30, 2020. 

The results of this interim impairment test, which used a combination of the income and market approaches to determine the fair value of the All Other reporting unit, indicated that its carrying value exceeded its estimated fair value by 8.9 %.

The Company thereby concluded that All Other's goodwill of $ 4,983 was impaired by $ 817 at June 30, 2020.

The Company believes that the assumptions utilized in its interim impairment testing, including the determination of an appropriate discount rate of 16 %, long-term profitability growth projections, and estimated future cash flows, were reasonable. The interim goodwill impairment test reflected management's best estimate of the economic impact to its business, end-market conditions and recovery timelines.

The Company completed its quarterly trigger event assessment for the three months ended September 30, 2020 

and determined that 

no  triggering event had occurred requiring further interim impairment assessments for its remaining goodwill.

However, if the ongoing economic uncertainty proves to be more severe than estimated, or if the economic recovery takes longer to materialize or does not materialize as strongly as anticipated, this could result in future impairment charges. 

As of September 30, 2020 and December 31, 2019, the change in the carrying value of goodwill for the Company's operating segments are listed below: 

Balance as of December 31, 2019

$ 159,791  

$ 4,983  

$ 164,774  

Winopoly Acquisition

Goodwill impairment

( 817 )  

Balance as of September 30, 2020

$ 160,922  

$ 4,166  

$ 165,088  

During the three months ended 

March 31, 2021, the Company determined that the reduction in operating results of the Fluent reporting unit, along with a decline in the market value of its publicly-traded stock, collectively constituted a triggering event. As such, the Company conducted an interim test of the fair value of its goodwill for potential impairment. Based on the results as of March 31, 2021, which used a combination of the income and market approaches to determine the fair value of the Fluent reporting unit, the Company concluded its goodwill of $ 160,922 was not impaired since the results of the interim test indicated that the estimated fair value exceeded its carrying value by approximately 17 %.

The Company believes that the assumptions utilized in its interim impairment testing, including the determination of an appropriate discount rate of 14.5 %, long-term profitability growth projections, and estimated future cash flows, are reasonable. The risk of future impairment of goodwill exists if actual results, such as lower than expected revenue, profitability, cash flows, market multiples, discount rates and control premiums, differ from the assumptions used in the Company's interim impairment test.

Long-term debt, net

Long-term debt, net, related to the Refinanced Term Loan and Note Payable (as defined below) consisted of the following:

September 30, 2020

Long-term debt, net, related to the Refinanced Term Loan, the New Credit Facility Term Loan, and Note Payable (each as defined below) consisted of the following:

March 31, 2021

December 31, 2020

1 unchanged sentence

$ 39,350  

New Credit Facility Term Loan due 2026 (less unamortized discount and financing costs of $ 1,142 and $0 , respectively)  

48,858  

11 unchanged sentences

Refinanced Term Loan

On March 26, 2018, Fluent, LLC refinanced and fully repaid its existing term loans and certain promissory notes, which had been entered into on December 8, 2015, with a new term loan in the amount of $ 70.0 million ("Refinanced Term Loan"), pursuant to a Limited Consent and Amendment No.

6 ("Amendment No.

6" ) to its Credit Agreement (the "Credit Agreement").

The Refinanced Term Loan is guaranteed by the Company and its direct and indirect subsidiaries, and is secured by substantially all of the assets of the Company and its direct and indirect subsidiaries, including Fluent, LLC, in each case, on an equal and ratable basis.

The Refinanced Term Loan accrues interest at the rate of either, at Fluent's option, (a) LIBOR (subject to a floor of 0.50 %) plus 7.00 % per annum, or (b) the base rate (generally equivalent to the U.S.

prime rate) plus 6.0 % per annum, payable in cash.

The Refinanced Term Loan matures on March 

On March 31, 2021, Fluent, LLC redeemed $ 38,318  aggregate principal amount of our term loan entered into on December 8, 2015 and due March 26, 2023 ( the "Refinanced Term Loan"), prior to maturity, resulting in a loss of $ 2,964  as a cost of early extinguishment of debt.

New Credit Facility

On March 31, 2021, Fluent, LLC entered into a credit agreement (the “Credit Agreement”) by and among, Fluent, LLC, certain subsidiaries of Fluent, LLC as guarantors, Citizens Bank, N.A., as administrative agent, lead arranger and bookrunner, and BankUnited, N.A.

and Silicon Valley Bank.

The Credit Agreement provides for a term loan in the aggregate principal amount of $ 50.0 million funded on the Closing Date (the “Term Loan”), along with an undrawn revolving credit facility of up to $ 15.0 million (the "Revolving Loans," and together with the Term Loan, the "New Credit Facility").

The proceeds of the Term Loan were used to repay all outstanding amounts under the Refinanced Term Loan, including transaction fees and expenses, and for working capital and other general corporate purposes.

Borrowings under the Credit Agreement bear interest at a rate per annum equal to an applicable margin, plus, at the Company's option, either a base rate or a London Inter-bank Offered Rate (“LIBOR”) rate (subject to a floor of 0.25 %).

The applicable margin is between 0.75 % and 

1.75 % for base rate borrowings and 1.75 % and 2.75 % for LIBOR rate borrowings, depending upon the Company's consolidated leverage ratio. The opening interest rate of the New Credit Facility is 2.50 % (LIBOR + 2.25 %). 

Borrowings under the Credit Agreement are secured by substantially all of the assets of Fluent, LLC and, subject to certain exclusions, each of its existing and future U.S.

subsidiaries.

Such assets include, subject to certain limitations, the equity interests of each of the existing and future direct and indirect U.S.

subsidiaries of Fluent, LLC.

The Credit Agreement contains negative covenants that, among other things, limit the Borrower's 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).

Each of these limitations are subject to various conditions.

The Credit Agreement matures on March 

31, 2026 and interest is payable monthly.

Scheduled principal amortization of the Refinanced Term Loan is $ 875 per quarter, which commenced with the fiscal quarter ended June 30, 2018.

The Credit Agreement, as amended, requires the Company to maintain and comply with certain financial and other covenants and includes certain prepayment provisions, including mandatory quarterly principal prepayments with a portion of the Company's excess cash flow.

For the three months ended September 30, 2020 , there was no quarterly prepayment resulting from excess cash flow.

At September 30, 2020 , the Company was in compliance with all of the financial and other covenants under the Credit Agreement.

On July 1, 2019, in connection with the AdParlor Acquisition (as defined in Note 11 , 

Business acquisitions ), the Company issued a promissory note (the "Note Payable") in the principal amount of $ 2,350 , net of discount of $ 150 from imputing interest on the non-interest bearing note using a 4.28 % rate. The promissory note is guaranteed by the Company's subsidiary, Fluent, LLC, does 

Scheduled principal amortization of the Term Loan is $ 1,250  per quarter, which will commence with the fiscal quarter ended June 30, 2021. 

At March 31, 2021 , the Company was in compliance with all of the financial and other covenants under the Credit Agreement.

On July 1, 2019, in connection with the AdParlor Acquisition , the Company issued a promissory note (the "Note Payable") in the principal amount of $ 2,350 , net of discount of $ 150 from imputing interest on the non-interest bearing note using a 4.28 % rate. The promissory note is guaranteed by the Company's subsidiary, Fluent, LLC, does 

not accrue interest except in the case of default, is payable in two equal installments on the first and second anniversaries of the date of closing of the acquisition and is subject to setoff in respect of certain indemnity and other matters. 

The first installment payment of $ 1,250 was made on July 1, 2020, using cash on hand.

As of September 30, 2020 , scheduled future maturities of the Refinanced Term Loan and Note Payable are as follows:

September 30, 2020  

As of March 31, 2021 , scheduled future maturities of the Credit Agreement and Note Payable are as follows:

March 31, 2021  

Remainder of 2021

$ 5,000  

31,250  

Total maturities

$ 51,250  

As of September 30, 2020 , the fair value of long-term debt is considered to approximate its carrying value.

As of March 31, 2021 , the fair value of long-term debt is considered to approximate its carrying value.

The fair value assessment represents a Level 2 measurement.

2 unchanged sentences

The Company updates its estimated annual effective tax rate on a quarterly basis and, if the estimate changes, makes a cumulative adjustment. 

September 30, 2020 and December 31, 2019 , the Company has recorded a full valuation allowance against net deferred tax assets, and intends to continue maintaining a full valuation allowance on these net deferred tax assets until there is sufficient evidence to support the release of all or a portion of these allowances.

March 31, 2021 and December 31, 2020 , the Company has recorded a full valuation allowance against net deferred tax assets, and intends to continue maintaining a full valuation allowance on these net deferred tax assets until there is sufficient evidence to support the release of all or a portion of these allowances.

Based on current income and anticipated future earnings, the Company believes there is a reasonable possibility that within the next twelve months sufficient positive evidence may become available to allow a conclusion to be reached that a significant portion, if not all, of the valuation allowance will be released.

2 unchanged sentences

(Amounts in thousands, except share data)

For the nine months ended September 30, 2020 and 2019 , the Company's effective income tax rate of 3 % and income tax benefit rate of 

1 %, respectively, differed from the statutory federal income tax rate of 21 %, with such differences resulting primarily from the application of the full valuation allowance against the Company's deferred tax assets.

For the three months ended March 31, 2021 and 2020 , the Company's effective income tax benefit rate of 0 % differed from the statutory federal income tax rate of 21 %, with such differences resulting primarily from the application of the full valuation allowance against the Company's deferred tax assets.

The Company assesses its income tax positions and records tax benefits for all years subject to examination based upon its evaluation of the facts, circumstances and information available as of the reporting dates.

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For those income tax positions where it is not more-likely-than- not that a tax benefit will be sustained, no tax benefit has been recognized in the Company's financial statements.

September 30, 2020 and December 31, 2019 , the balance of unrecognized tax benefits was $ 1,480 .

March 31, 2021 and December 31, 2020 , the balance of unrecognized tax benefits was $ 1,480 .

The unrecognized tax benefits, if recognized, would result in an increase to net operating losses that would be subject to a valuation allowance and, accordingly, result in no impact to the Company’s annual effective tax rate.

As of September 30, 2020 , the Company has not accrued any interest or penalties with respect to its uncertain tax positions.

As of March 31, 2021 , the Company has not accrued any interest or penalties with respect to its uncertain tax positions.

The Company does not anticipate a significant increase or reduction in unrecognized tax benefits within the next twelve months.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted and signed into law. The CARES Act includes several provisions for corporations, including increasing the amount of deductible interest, allowing companies to carryback certain Net Operating Losses (“NOLs”) and increasing the amount of NOLs that corporations can use to offset income.

Management is currently assessing the future implications of these provisions pursuant to the CARES Act, but does not anticipate the impact to be material to the Company's consolidated financial statements.

Common stock, treasury stock and warrants

September 30, 2020 and December 31, 2019 , the number of issued shares of common stock was 

March 31, 2021 and December 31, 2020 , the number of issued shares of common stock was 

82,228,823 and 80,295,141 , respectively, which included shares of treasury stock of 

4,055,011 and 3,945,867 , respectively.

For the nine months ended September 30, 2020 , the change in the number of issued shares of common stock was the result of an aggregate 

For the three months ended March 31, 2021 , the change in the number of issued shares of common stock was the result of an aggregate 

1,735,682 shares of common stock issued upon vesting of RSUs, including 

210,683 shares of common stock withheld to cover statutory taxes upon such vesting, which are reflected in treasury stock, as discussed below. Additionally, as discussed and defined below, the holders of the Amended Whitehorse Warrants exercised the Put Right to require the Company to purchase from the warrant holders the 300,000 Warrant Shares for an aggregate of $ 1,150 .

The Company funded such purchase with cash on hand.

109,144 shares of common stock withheld to cover statutory taxes upon such vesting, which are reflected in treasury stock, as discussed below.

The change also included the exercise of 198,000 stock options by a former key executive. 

Treasury stock

September 30, 2020 and December 31, 2019 , the Company held shares of treasury stock of 3,936,755  and 2,768,399 , with a cost of $ 9,974 and $ 8,184 , respectively.

March 31, 2021 and December 31, 2020 , the Company held shares of treasury stock of 4,055,011  and 3,945,867 , with a cost of $ 10,623 and $ 9,999 , respectively.

The Company's share-based incentive plans allow employees the option to either make cash payment or forfeit shares of common stock upon vesting to satisfy federal and state statutory tax withholding obligations associated with equity awards.

The forfeited shares of common stock may be taken into treasury stock by the Company or sold on the open market.

For the nine months ended September 30, 2020 , 210,683  shares of common stock were withheld to cover statutory taxes owed by certain employees for this purpose, all of which were taken into treasury stock. See Note 8 , Share-based compensation.

During the nine months ended September 30, 2020 , the Company repurchased 657,673 of its own shares as part of a stock repurchase program authorized by the Company's Board of Directors on November 19, 2019, and 300,000 shares of common stock upon exercise of the Put Right (see Warrants , below). 

September 30, 2020 and December 31, 2019 , warrants to purchase an aggregate of 

833,333 and 

2,398,776 shares, respectively, of common stock were outstanding with exercise prices ranging from $ 3.75 to $ 6.00 per share.

For the three months ended March 31, 2021 , 109,144  shares of common stock were withheld to cover statutory taxes owed by certain employees for this purpose, all of which were taken into treasury stock. See Note 8 , Share-based compensation. 

March 31, 2021 and December 31, 2020 , warrants to purchase an aggregate of 

833,333 of common stock were outstanding with exercise prices ranging from $ 3.75 to $ 6.00 per share.

On July 9, 2018 the Company entered into First Amendments (the "First Amendments") to the Amendments to Warrants and Agreements to Exercise ("Amended Whitehorse Warrants") with (i) H.I.G. Whitehorse SMA ABF, L.P.

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Share-based compensation

As of September 30, 2020 , the Company maintains two share-based incentive plans:

As of March 31, 2021 , the Company maintains two share-based incentive plans:

the Cogint, Inc.

2015 Stock Incentive Plan (the "2015 Plan") and the Fluent, Inc.

2015 Stock Incentive Plan and the Fluent, Inc.

2018  Stock Incentive Plan (the "2018  Plan") which, combined, authorize the issuance of 

21,317,381 shares of common stock.

As of September 30, 2020 , there were 

As of March 31, 2021 , there were 

1,496,440 shares of common stock reserved for issuance under the 2018  Plan.

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Stock options

The Compensation Committee of the Company's Board of Directors approved the grant of stock options to certain Company officers, which were issued on February 1, 2019, December 20, 2019 and March 1, 2020, respectively, under the 2018 Plan.

Subject to continuing service, 50 % of the shares subject to these stock options will vest if the Company's stock price remains above 125.00 %, 133.33 % and 133.33 %, respectively, of the exercise price for twenty consecutive trading days, and the remaining 50 % of the shares subject to these stock options will vest if the Company's stock price remains above 156.25 %, 177.78 % and 177.78 %, respectively, of the exercise price for twenty  consecutive trading days;

The Compensation Committee of the Company's Board of Directors approved the grant of stock options to certain Company executives, which were issued on February 1, 2019, December 20, 2019, 

March 1, 2020 and March 1, 2021 respectively, under the 2018 Plan.

Subject to continuing service, 50 % of the shares subject to these stock options will vest if the Company's stock price remains above 125.00 %, 133.33 %, 133.33 % and 133.33 %, respectively, of the exercise price for twenty consecutive trading days, and the remaining 50 % of the shares subject to these stock options will vest if the Company's stock price remains above 156.25 %, 177.78 %, 

177.78 % and 

177.78 %, respectively, of the exercise price for twenty  consecutive trading days;

provided, that no shares will vest prior to the first anniversary of the grant date.

As of September 30, 2020 , the first condition for the stock options issued on February 1, 2019 

has been met;

therefore, 

50% of the shares subject to these stock options vested on February 1, 2020.

As of March 31, 2021, the first condition for the stock options issued on February 1, 2019, December 20, 2019 and March 1, 2020 have been met and the second condition for the stock options issued on December 20, 2019 and March 1, 2020 have been met.

Any shares that remain unvested as of the fifth anniversary of the grant date will vest in full on such date.

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March 1, 2020

March 1, 2021

Fair value lower range

2 unchanged sentences

$ 1.46  

$ 4.34  

Fair value higher range

2 unchanged sentences

$ 1.49  

$ 4.43  

Exercise price

2 unchanged sentences

$ 2.33  

$ 6.33  

Expected term (in years)

2 unchanged sentences

1.0 - 1.5  

1.0 - 1.3  

Expected volatility

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1.85 %  

For the nine months ended September 30, 2020 , details of stock option activity were as follows:

1.05 %  

For the three months ended March 31, 2021 , details of stock option activity were as follows:

Number of options

6 unchanged sentences

$ 2,256  

Granted  

108,000  

Forfeited  

$ 6.33  

Expired  

Exercised  

( 198,000 )  

Outstanding as of September 30, 2020

Outstanding as of March 31, 2021

2,204,000  

$ 4.41  

Options exercisable as of September 30, 2020

Options exercisable as of March 31, 2021

1,307,000  

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For the 

nine months ended September 30, 2020 , the unvested balance of options was as follows:

three months ended March 31, 2021 , the unvested balance of options was as follows:

Number of options

6 unchanged sentences

$ 6.33  

Forfeited  

( 59,000 )  

( 1,004,000 )  

Vested  

( 436,000 )  

Unvested as of September 30, 2020

Unvested as of March 31, 2021

897,000  

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Compensation expense recognized for stock options of $ 167 and $ 1,199  for the 

three months ended September 30, 2020 and 2019 , respectively, and $ 1,424  and $ 3,353  for the 

nine months ended September 30, 2020 and 2019 , respectively, was recorded in sales and marketing, product development and general and administrative expenses in the consolidated statements of operations. As of September 30, 2020 , there was $ 289 of unrecognized share-based compensation with respect to outstanding stock options.

three months ended March 31, 2021 and 2020 , respectively, was recorded in sales and marketing, product development and general and administrative expenses in the consolidated statements of operations. As of March 31, 2021 , there was $ 457 of unrecognized share-based compensation with respect to outstanding stock options.

Restricted stock units and restricted stock

For the nine months ended September 30, 2020 , details of unvested RSU and restricted stock activity were as follows:

For the three months ended March 31, 2021 , details of unvested RSU and restricted stock activity were as follows:

Number of units

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$ 2.88  

Unvested as of September 30, 2020

Unvested as of March 31, 2021

3,042,873  

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the increase in treasury stock was due to shares withheld to cover statutory withholding taxes upon the delivery of shares following vesting of RSUs.

As of September 30, 2020 , there were 

As of March 31, 2021 , there were 

4,055,011  outstanding shares of treasury stock.

Vested not delivered represents vested RSUs with delivery deferred to a future time.

For the nine months ended September 30, 2020 , there was a net decrease of 

For the three months ended March 31, 2021 , there was a net decrease of 

565,255 shares included in the vested not delivered balance as a result of the delivery of 

650,333 shares, partially offset by the vesting of 85,078 shares with deferred delivery election.

As of September 30, 2020 , 

As of March 31, 2021 , 

1,696,746 outstanding RSUs were vested not delivered.

Compensation expense recognized for RSUs and restricted stock of $ 1,131  and $ 1,562  for the three months ended September 30, 2020 and 2019 , respectively, and $ 3,544  and $ 4,733 for the nine months ended September 30, 2020 and 2019 , respectively, was recorded in sales and marketing, product development and general and administrative in the consolidated statements of operations, and intangible assets in the consolidated balance sheets.

Compensation expense recognized for RSUs and restricted stock of $ 1,105  and $ 1,237  for the three months ended March 31, 2021 and 2020 , respectively, was recorded in sales and marketing, product development and general and administrative in the consolidated statements of operations, and intangible assets in the consolidated balance sheets.

The fair value of the RSUs and restricted stock was estimated using the closing prices of the Company's common stock on the dates of grant.

As of September 30, 2020 , unrecognized share-based compensation expense associated with the granted RSUs and stock options amounted to $ 8,770 , which is expected to be recognized over a weighted average period of 

For the three and 

nine months ended September 30, 2020 and 2019 , share-based compensation for the Company's stock option, RSU, common stock and restricted stock awards were allocated to the following accounts in the consolidated financial statements:

Three Months Ended September 30,

Nine Months Ended September 30,

As of March 31, 2021 , unrecognized share-based compensation expense associated with the granted RSUs and stock options amounted to $ 11,605 , which is expected to be recognized over a weighted average period of 

For the 

three months ended March 31, 2021 and 2020 , share-based compensation for the Company's stock option, RSU, common stock and restricted stock awards were allocated to the following accounts in the consolidated financial statements:

Three Months Ended March 31,

Sales and marketing

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$ 2,436  

$ 4,968  

$ 8,086  

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2 unchanged sentences

The Company identifies operating segments as components of an entity for which discrete financial information is available and is regularly reviewed by the chief operating decision maker (“CODM”) in making decisions regarding resource allocation and performance assessment.

The profitability measure employed by CODM is segment income (loss) from operations.

As of September 30, 2020 , the Company has two operating segments and two corresponding reporting units, “Fluent”

The profitability measure employed by CODM is EBITDA.

As of March 31, 2021 , the Company has two operating segments and two corresponding reporting units, “Fluent”

and “All Other,”

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“All Other”

represents the operating results for the three and nine months ended September 30, 2020 of AdParlor, LLC (see Note 11 , 

Business acquisitions ), and is included for purposes of reconciliation of the respective balances below to the consolidated financial statements.

represents the operating results of AdParlor, LLC, and is included for purposes of reconciliation of the respective balances below to the consolidated financial statements.

“Fluent,”

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Summarized financial information concerning the Company's segments is shown in the following tables below:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Fluent segment revenue:

2 unchanged sentences

$ 68,151  

$ 189,507  

$ 177,080  

International

12,832  

35,178  

22,953  

Fluent segment revenue

1 unchanged sentence

$ 77,562  

$ 224,685  

$ 200,033  

All Other segment revenue:

2 unchanged sentences

$ 1,185  

$ 3,745  

$ 1,339  

International

2 unchanged sentences

$ 1,372  

$ 4,038  

$ 1,640  

Segment income (loss) from operations:

$ 4,062  

$ ( 2,581 )  

$ 8,910  

$ 2,689  

( 1,511 )  

( 163 )  

( 2,634 )  

Total income from operations

( 2,744 )  

Interest expense, net

( 1,317 )  

Segment EBITDA

Fluent segment EBITDA

$ 1,410  

$ 5,889  

Income (loss) before income taxes

All Other segment EBITDA

( 324 )  

Depreciation and amortization

Total (loss) income from operations

$ ( 2,287 )  

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In determining whether a loss should be accrued, the Company evaluates, among other factors, the degree of probability and the ability to reasonably estimate the amount of any such loss.

On October 26, 2018, the Company received a subpoena from the New York Attorney General’s Office (“NY AG”) regarding compliance with New York Executive Law § 

63 ( 12 ) and New York General Business Law §

On October 26, 2018, 

the Company received a subpoena from the New York Attorney General’s Office (“NY AG”) regarding compliance with New York Executive Law § 

63 ( 12 ) and New York General Business Law § 

349,  as they relate to the collection, use, or disclosure of information from or about consumers or individuals, as such information was submitted to the Federal Communication Commission (“FCC”) in connection with the FCC’s rulemaking proceeding captioned “Restoring Internet Freedom,”

WC Docket No.

 The Company has been fully cooperating with the NY AG and has been engaged in settlement discussions with the NY AG concerning the resolution of this matter.

As of September 30, 2020, the Company accrued $ 1.45 million in connection with this matter, which the Company believes is the minimum amount of loss to be incurred.

The ultimate amount of this loss may be greater depending on the results of settlement discussions with the NY AG, including any failure of the parties to agree on the terms of a settlement, at which point the matter may proceed to litigation. 

The Company is unable to estimate the amount or range of any additional loss at the current stage of this matter.

In the event of an unfavorable outcome, the actual loss associated with this matter could have a material adverse effect on the Company’s business, results of operations or financial position.

WC Docket 

 On May 6, 2021, the Company and the NY AG executed an Assurance of Discontinuance (the “AOD”) to resolve this matter. The AOD imposed injunctive provisions on the Company’s practices with regard to political advocacy campaigns, most of which the Company had already implemented, and imposed a $ 3.7 million penalty, in line with the Company's accrual as of March 31, 2021.

On December 13, 2018, the Company received a subpoena from the United States Department of Justice (“DOJ”) regarding the same issue. On March 12, 2020, the Company received a subpoena from the Office of the Attorney General of the District of Columbia ("DC AG") regarding the same issue.

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§45 or the Telemarketing Sales Rule, 16 C.F.R.

Part 310, as they relate to the advertising, marketing, promotion, offering for sale, or sale of rewards and other products, the transmission of commercial text messages, and/or consumer privacy or data security. The Company has been fully cooperating with the FTC and is responding to the CID. At this time, it is not possible to predict the ultimate outcome of this matter or the significance, if any, to the Company’s business, results of operations or financial position. 

Business acquisitions

Business acquisition

Winopoly acquisition

On April 1, 2020, the Company acquired, through a wholly owned subsidiary, a 50 % membership interest in Winopoly, LLC (the "Winopoly Acquisition") for a deemed purchase price of $ 2,553 , which consisted of $ 1,553 in cash and contingent consideration with a fair value of $ 1,000 payable based upon the achievement of specified revenue targets over the eighteen -month period following the completion of the acquisition. Winopoly, LLC is a contact center operation, which serves as a marketplace that matches consumers sourced by Fluent with advertiser clients. 

On April 1, 2020, the Company acquired, through a wholly owned subsidiary, a 50 % membership interest in Winopoly (the "Winopoly Acquisition") for a deemed purchase price of $ 2,553 , which consisted of $ 1,553 in cash and contingent consideration with a fair value of $ 1,000 payable based upon the achievement of specified revenue targets over the eighteen -month period following the completion of the acquisition. Winopoly is a contact center operation, which serves as a marketplace that matches consumers sourced by Fluent with advertiser clients. 

In accordance with ASC 805, the Company determined that the Winopoly Acquisition constituted the purchase of a business. 

For the nine months ended September 30, 2020, 

the Company incurred transaction-related expenses of $ 126 in connection with the acquisition, which are recorded in general and administrative expenses in the consolidated statements of operations. 

Assets and revenues of Winopoly, LLC totaled 

0.9 %  and 1.0 % , respectively, of the Company's consolidated financial statements at and for the 

nine months ended September 30, 2020 , and are included in the Fluent operating segment. 

The preliminary fair value of the acquired customer relationships of $ 600 , to be amortized over a period of five  years, was determined using the excess earnings method, a variation of the income approach, while the preliminary fair value of the acquired developed technology of $ 800 , to be amortized over a period of three years, was determined using the cost approach. The amount of the purchase price in excess of the fair value of the net assets acquired was recorded as goodwill in the amount of $ 1,131 and primarily relates to intangible assets that do not qualify for separate recognition, including assembled workforce and synergies.

The purchase accounting process has not yet been completed, primarily because the valuation of acquired assets and liabilities assumed has not been finalized.

The Company expects to complete the purchase accounting as soon as practicable, but no later than one year from the acquisition date.

The Company does not anticipate material adjustments.

The fair value of the acquired customer relationships of $ 600 , to be amortized over a period of five  years, was determined using the excess earnings method, a variation of the income approach, while the fair value of the acquired developed technology of $ 800 , to be amortized over a period of three years, was determined using the cost approach. The amount of the purchase price in excess of the fair value of the net assets acquired was recorded as goodwill in the amount of $ 1,131 and primarily relates to intangible assets that do not qualify for separate recognition, including assembled workforce and synergies. 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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At any time between the fourth and sixth anniversary of the Winopoly Acquisition, the sellers 

may exercise a put option whereby the Company is required to acquire the remaining 50 % membership interests in Winopoly, LLC.

During this period, the Company also has the ability to exercise a call option whereby the sellers must sell the remaining 50% membership interests in Winopoly, LLC to the Company.

The purchase price paid for the remaining 50% membership interests would be calculated based on a multiple of 4.0 x  EBITDA (as such term is defined in the agreement between the parties), applied to a twelve -month period spanning the five months prior to month of put/call closing extending through six months following the month of put/call closing. In connection with the exercise of the put/call option, certain of the seller parties must enter into employment agreements with the Company in order to receive their respective shares of the consideration for the remaining 50% of the membership interests (the "Put/Call Consideration").

Although the sellers maintain an equity interest in Winopoly, LLC, the Company has deemed this equity interest to be non-substantive in nature, as the sellers will primarily benefit from the Winopoly Acquisition based on periodic distributions of the earnings of Winopoly, LLC and the Put/Call Consideration, both of which are dependent on the sellers' continued service.

Without providing service, the sellers could benefit from their pro rata share of the proceeds upon a third -party sale or liquidation of Winopoly, LLC;

may exercise a put option whereby the Company is required to acquire the remaining 50 % membership interests in Winopoly.

During this period, the Company also has the ability to exercise a call option whereby the sellers must sell the remaining 50% membership interests in Winopoly to the Company.

The purchase price paid for the remaining 50% membership interests would be calculated based on a multiple of 4.0 x  EBITDA (as such term is defined in the agreement between the parties), applied to a twelve -month period spanning the five months prior to the month of the put/call closing extending through six months following the month of the put/call closing (the "Put/Call Consideration"). In connection with the exercise of the put/call option, certain of the seller parties must enter into employment agreements with the Company in order to receive their respective shares of the Put/Call Consideration.

Although the sellers maintain an equity interest in Winopoly, the Company has deemed this equity interest to be non-substantive in nature, as the sellers will primarily benefit from the Winopoly Acquisition based on periodic distributions of the earnings of Winopoly and the Put/Call Consideration, both of which are dependent on the sellers' continued service.

Without providing service, the sellers could benefit from their pro rata share of the proceeds upon a third -party sale or liquidation of Winopoly;

however, such a liquidity event is considered unlikely.

1 unchanged sentence

Periodic distributions for services rendered will be recorded as compensation expense.

In addition, the Company will estimate the amount of the Put/Call Consideration, which will be accreted over the six year estimated service period, consisting of the estimated four years until the put/call can be exercised and the additional two -year service requirement.

For the three and nine months ended September 30, 2020 , compensation expense of $ 654 and $ 1,184 , respectively, related to the Put/Call Consideration was recorded in general and administrative on the consolidated statement of operations, with a corresponding liability in other non-current liabilities on the consolidated balance sheet.

AdParlor acquisition

On July 1, 2019, two wholly owned subsidiaries of the Company, AdParlor, LLC (formerly known as AdParlor Acquisition, LLC), a Delaware limited liability company, and Fluent Media Canada, Inc., a British Columbia company (together with AdParlor, LLC, each a "Buyer" and collectively "Buyers"), completed the acquisition of substantially all of the assets of AdParlor Holdings, Inc., a Delaware corporation ("AdParlor Holdings"), AdParlor International, Inc., a Delaware corporation ("AdParlor International"), AdParlor Media, Inc., a Delaware corporation ("AdParlor Media US"), and AdParlor Media ULC, a British Columbia unlimited liability company (together with AdParlor Holdings, AdParlor International and AdParlor Media US, each a "Seller" and collectively "Sellers"), pursuant to an Asset Purchase Agreement (the "Purchase Agreement") dated June 17, 2019, by and among Buyers, Sellers and the parent of the Sellers, v2 Ventures Group LLC, a Delaware limited liability company (the "AdParlor Acquisition"). 

The purpose of the acquisition was to expand the Company's performance-based marketing capabilities.

In accordance with ASC 805,  the Company determined that the AdParlor Acquisition constituted the purchase of a business. 

At closing, the Buyers paid to Sellers cash consideration of $ 7,302 , net of adjustments for working capital and indebtedness, and issued a promissory note to Sellers with a present value of $ 2,350  in exchange for substantially all of the assets of Sellers.

This promissory note is guaranteed by Fluent, LLC, and will not accrue interest except in the case of default, is payable in two equal installments on the first and second anniversaries of the date of closing and is subject to setoff in respect of certain indemnity and other matters.

See Note 5 , Long-term debt, net for further detail.

For the year ended December 31, 2019, 

the Company incurred transaction-related expenses of $ 483 in connection with the AdParlor Acquisition, which it recorded in general and administrative expenses in the consolidated statements of operations.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands, except share data)

The following table summarizes the fair values of the assets acquired and the liabilities assumed at the closing date:

Cash and cash equivalents

Accounts receivable  

Prepaid expenses and other current assets  

Property and equipment

Intangible assets

Other non-current assets

Accounts payable  

Accrued expenses and other current liabilities  

Deferred revenue  

Total net assets acquired

$ 9,652  

The fair values of the identifiable intangible assets and goodwill acquired at the closing date are as follows:

Weighted Average Amortization Period (Years)  

Trade name & trademarks  

Developed technology

Customer relationships

Goodwill  

Total intangible assets, net

$ 9,683  

With the assistance of a third -party valuation firm, the fair value of the acquired customer relationships was determined using the excess earnings method, a variation of the income approach, while the fair values of the acquired developed technology, and trade names & trademarks were determined using the relief from royalty method of the income approach. 

T he amount of the purchase price in excess of the fair value of the net assets acquired was recorded as goodwill and primarily relates to intangible assets that do not qualify for separate recognition, including assembled workforce and synergies.

For tax purposes, the goodwill is deductible over fifteen years. 

In addition, the Company estimates the amount of the Put/Call Consideration, which is accreted over the six -year estimated service period, consisting of the estimated four years until the put/call can be exercised and the additional two -year service requirement.

For the 

three months ended March 31, 2021 , compensation expense of $ 1,746 related to the Put/Call Consideration was recorded in general and administrative on the consolidated statement of operations, with a corresponding liability in other non-current liabilities on the consolidated balance sheet.

Variable Interest Entity

The Company has determined that Winopoly, LLC (as discussed in Note 11, Business acquisitions ) qualifies as a VIE, for which the Company is the primary beneficiary.

The Company has determined that Winopoly (as discussed in Note 11 , Business acquisition ) qualifies as a VIE, for which the Company is the primary beneficiary.

A VIE is an entity that either (i) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support, or (ii) has equity investors who lack the characteristics of a controlling financial interest. The primary beneficiary is the party that has the power to direct activities that most significantly impact the operations of the VIE and has the obligation to absorb losses or the right to benefits from the VIE that could potentially be significant to the VIE.

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Winopoly is a VIE, and the Company is its primary beneficiary, as contractual arrangements provide the Company with control over certain activities that most significantly impact its economic performance.

These significant activities include the compliance practices of Winopoly, LLC and the Company's provisions of leads that Winopoly, LLC uses to generate its revenue, which ultimately give the Company its controlling interest.

The Company therefore consolidates Winopoly, LLC in its consolidated financial statements, inclusive of deemed compensation expense to the sellers for services rendered.

These significant activities include the compliance practices of Winopoly and the Company's provisions of leads that Winopoly uses to generate its revenue, which ultimately give the Company its controlling interest.

The Company therefore consolidates Winopoly in its consolidated financial statements, inclusive of deemed compensation expense to the sellers for services rendered.

 Related party transactions

The Company earns revenue and incurs expenses from a client in which the Company's Chief Executive Officer holds a significant ownership interest.

For the three and nine months ended September 30, 2020 , the Company recognized revenue from this client of $ 69  and $ 214 , respectively. For the three and nine months ended September 30, 2020 , the Company incurred expenses from this client of $ 0  and $ 1 , respectively.

For the 

three months ended March 31, 2021 , the Company recognized revenue from this client of $ 33  and incurred expenses from this client of $ 0 .

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements