Fluent, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS.     FLUENT, INC. CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except share and per share data) (unaudited)       June 30, 2021     December 31, 2020   ASSETS:                 Cash and cash equivalents   $ 25,139     $ 21,087   Accounts receivable, net of allowance for doubtful accounts of $326 and $368 , respectively     65,905       62,669   Prepaid expenses and other current assets     1,672       2,435   Total current assets     92,716       86,191   Restricted cash     1,480       1,480   Property and equipment, net     1,831       2,201   Operating lease right-of-use assets     7,460       8,284   Intangible assets, net     40,478       45,417   Goodwill     165,088       165,088   Other non-current assets     1,817       1,559   Total assets   $ 310,870     $ 310,220   LIABILITIES AND SHAREHOLDERS' EQUITY:                 Accounts payable   $ 16,364     $ 7,692   Accrued expenses and other current liabilities     22,223       31,568   Deferred revenue     1,222       1,373   Current portion of long-term debt     6,250       7,293   Current portion of operating lease liability     2,261       2,291   Total current liabilities     48,320       50,217   Long-term debt, net     42,683       33,283   Operating lease liability     6,405       7,290   Other non-current liabilities     5,108       2,545   Total liabilities     102,516       93,335   Contingencies (see Note 10)                     Shareholders' equity:                 Preferred stock — $0.0001 par value, 10,000,000 Shares authorized; Shares outstanding — 0 shares for both periods     —       —   Common stock — $0.0005 par value, 200,000,000 Shares authorized; Shares issued — 82,440,259 and 80,295,141 , respectively; and Shares outstanding — 78,371,427 and 76,349,274 , respectively     41       40   Treasury stock, at cost — 4,068,832 and 3,945,867 shares, respectively     ( 10,666 )     ( 9,999 ) Additional paid-in capital     415,325       411,753   Accumulated deficit     ( 196,346 )     ( 184,909 ) Total shareholders' equity     208,354       216,885   Total liabilities and shareholders' equity   $ 310,870     $ 310,220     See notes to consolidated financial statements   2 Table of Contents       FLUENT, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands, except share and per share data) (unaudited)       Three Months Ended June 30,     Six Months Ended June 30,       2021     2020     2021     2020   Revenue   $ 73,378     $ 71,509     $ 143,548     $ 150,443   Costs and expenses:                                 Cost of revenue (exclusive of depreciation and amortization)     56,605       49,007       107,595       105,631   Sales and marketing     3,000       2,888       5,961       5,718   Product development     3,433       3,115       6,867       5,846   General and administrative     11,527       10,044       23,226       21,120   Depreciation and amortization     3,366       3,853       6,739       7,586   Goodwill impairment and write-off of intangible assets     199       817       199       817   Total costs and expenses     78,130       69,724       150,587       146,718   (Loss) income from operations     ( 4,752 )     1,785       ( 7,039 )     3,725   Interest expense, net     ( 427 )     ( 1,333 )     ( 1,435 )     ( 2,865 ) Loss on early extinguishment of debt     —       —       ( 2,964 )     —   (Loss) income before income taxes     ( 5,179 )     452       ( 11,438 )     860   Income tax benefit     —       —       1       —   Net (loss) income   $ ( 5,179 )   $ 452     $ ( 11,437 )   $ 860                                     Basic and diluted (loss) income per share:                                 Basic   $ ( 0.06 )   $ 0.01     $ ( 0.14 )   $ 0.01   Diluted   $ ( 0.06 )   $ 0.01     $ ( 0.14 )   $ 0.01                                     Weighted average number of shares outstanding:                                 Basic     79,962,275       78,510,383       79,560,643       78,557,331   Diluted     79,962,275       78,666,776       79,560,643       78,905,792     See notes to consolidated financial statements   3 Table of Contents       FLUENT, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Amounts in thousands, except share data) (unaudited)       Common stock     Treasury stock     Additional paid-in     Accumulated     Total shareholders'       Shares     Amount     Shares     Amount     capital     deficit     equity   Balance at March 31, 2021     82,228,823     $ 41       4,055,011     $ ( 10,623 )   $ 413,958     $ ( 191,167 )   $ 212,209   Vesting of restricted stock units and issuance of stock under incentive plans     211,436       —       —       —       136       —       136   Increase in treasury stock resulting from shares withheld to cover statutory taxes     —       —       13,821       ( 43 )     —       —       ( 43 ) Exercise of stock options     —       —       —       —       —       —       —   Share-based compensation     —       —       —       —       1,231       —       1,231   Net loss     —       —       —       —       —       ( 5,179 )     ( 5,179 ) Balance at June 30, 2021     82,440,259     $ 41       4,068,832     $ ( 10,666 )   $ 415,325     $ ( 196,346 )   $ 208,354                                                             Balance at December 31, 2020     80,295,141     $ 40       3,945,867     $ ( 9,999 )   $ 411,753     $ ( 184,909 )   $ 216,885   Vesting of restricted stock units and issuance of stock under incentive plans     1,947,118       1       —       —       135       —       136   Increase in treasury stock resulting from shares withheld to cover statutory taxes     —       —       122,965       ( 667 )     —       —       ( 667 ) Exercise of stock options     198,000       —       —       —       934       —       934   Share-based compensation     —       —       —       —       2,503       —       2,503   Net loss     —       —       —       —       —       ( 11,437 )     ( 11,437 ) Balance at June 30, 2021     82,440,259     $ 41       4,068,832     $ ( 10,666 )   $ 415,325     $ ( 196,346 )   $ 208,354           Common stock     Treasury stock     Additional paid-in     Accumulated     Total shareholders'       Shares     Amount     Shares     Amount     capital     deficit     equity   Balance at March 31, 2020     79,809,417     $ 40       3,601,804     $ ( 9,900 )   $ 408,633     $ ( 186,708 )   $ 212,065   Vesting of restricted stock units and issuance of restricted stock     99,568       —       —       —       —       —       —   Increase in treasury stock resulting from shares withheld to cover statutory taxes     —       —       14,594       ( 30 )     —       —       ( 30 ) Share-based compensation     —       —       —       —       1,328       —       1,328   Net income     —       —       —       —       —       452       452   Balance at June 30, 2020     79,908,985     $ 40       3,616,398     $ ( 9,930 )   $ 409,961     $ ( 186,256 )   $ 213,815                                                             Balance at December 31, 2019     78,642,078     $ 39       2,768,399     $ ( 8,184 )   $ 406,198     $ ( 187,116 )   $ 210,937   Vesting of restricted stock units and issuance of restricted stock     1,566,907       1       —       —       ( 1 )     —       —   Increase in treasury stock resulting from shares withheld to cover statutory taxes     —       —       190,326       ( 446 )     —       —       ( 446 ) Repurchase of shares into treasury stock     —       —       657,673       ( 1,300 )     —       —       ( 1,300 ) Exercise of warrants by certain warrant holders (see Note 7)     ( 300,000 )     —       —       —       —       —       —   Share-based compensation     —       —       —       —       3,764       —       3,764   Net income     —       —       —       —       —       860       860   Balance at June 30, 2020     79,908,985     $ 40       3,616,398     $ ( 9,930 )   $ 409,961     $ ( 186,256 )   $ 213,815     See notes to consolidated financial statements   4 Table of Contents       FLUENT, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) (unaudited)       Six Months Ended June 30,       2021     2020   CASH FLOWS FROM OPERATING ACTIVITIES:                 Net (loss) income   $ ( 11,437 )   $ 860   Adjustments to reconcile net (loss) income to net cash provided by (used in) by operating activities:                 Depreciation and amortization     6,739       7,586   Non-cash loan amortization expense     287       694   Share-based compensation expense     2,432       3,678   Non-cash loss on early extinguishment of debt     2,198       —   Non-cash accrued compensation expense for Put/Call Consideration     2,627       530   Goodwill impairment     —       817   Write-off of intangible assets     199       —   Provision for bad debt     98       131   Changes in assets and liabilities, net of business acquisition:                 Accounts receivable     ( 3,334 )     5,513   Prepaid expenses and other current assets     763       ( 75 ) Other non-current assets     ( 258 )     ( 599 ) Operating lease assets and liabilities, net     ( 91 )     ( 81 ) Accounts payable     8,672       ( 9,973 ) Accrued expenses and other current liabilities     ( 9,345 )     ( 515 ) Deferred revenue     ( 151 )     1,328   Other     ( 64 )     ( 62 ) Net cash (used in) provided by operating activities     ( 665 )     9,832   CASH FLOWS FROM INVESTING ACTIVITIES:                 Capitalized costs included in intangible assets     ( 1,535 )     ( 1,211 ) Business acquisition, net of cash acquired     —       ( 1,426 ) Acquisition of property and equipment     ( 23 )     ( 37 ) Net cash used in investing activities     ( 1,558 )     ( 2,674 ) CASH FLOWS FROM FINANCING ACTIVITIES:                 Proceeds from issuance of long-term debt, net of debt financing costs     49,624       —   Repayments of long-term debt     ( 42,986 )     ( 3,873 ) Exercise of stock options     934       —   Prepayment penalty on debt extinguishment     ( 766 )     —   Taxes paid related to net share settlement of vesting of restricted stock units     ( 667 )     ( 446 ) Proceeds from the issuance of stock     136       —   Repurchase of treasury stock     —       ( 1,300 ) Net cash provided by (used in) financing activities     6,275       ( 5,619 ) Net increase in cash, cash equivalents and restricted cash     4,052       1,539   Cash, cash equivalents and restricted cash at beginning of period     22,567       20,159   Cash, cash equivalents and restricted cash at end of period   $ 26,619     $ 21,698   SUPPLEMENTAL DISCLOSURE INFORMATION                 Cash paid for interest   $ 1,097     $ 2,100   Cash paid for income taxes   $ 340     $ —   Share-based compensation capitalized in intangible assets   $ 71     $ 86     See notes to consolidated financial statements   5 Table of Contents   FLUENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands, except share data) (unaudited)       1. Summary of significant accounting policies   (a) Basis of preparation    The accompanying unaudited consolidated financial statements have been prepared by Fluent, Inc., a Delaware corporation (the "Company" or "Fluent"), in accordance with accounting principles generally accepted in the United States ("US GAAP") and applicable rules and regulations of the Securities and Exchange Commission (the "SEC") regarding interim financial reporting. Certain information and note disclosures normally included in annual financial statements prepared in accordance with US GAAP have been condensed or omitted pursuant to those rules and regulations.   The accompanying unaudited consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for any future interim periods or for the full year ending December 31, 2021 .   From time to time, the Company may enter into relationships or investments with other entities, and, in certain instances, the entity in which the Company has a relationship or investment may qualify as a  variable   interest   entity  (“VIE”). 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 ("Winopoly") in its consolidated financial statements as a VIE (as further discussed in Note  11 ,  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  December 31, 2020 (" 2020 Form 10 -K") filed with the SEC on March 16, 2021. The consolidated balance sheet as of  December 31, 2020 included herein was derived from the audited financial statements as of that date included in the 2020 Form 10 -K.   Principles of consolidation   The consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant transactions among the Company and its subsidiaries have been eliminated upon consolidation.   (b) Recently issued and adopted accounting standards   In January 2016, FASB issued ASU No. 2016 - 13, Financial Instruments—Credit Losses, and additional changes, modifications, clarifications or interpretations thereafter, which require a reporting entity to estimate credit losses on certain types of financial instruments, and present assets held at amortized cost and available-for-sale debt securities at the amounts expected to be collected. The new guidance is effective for annual and interim periods beginning after December 15, 2022 , and early adoption is permitted. 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   the   Accounting   for   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.   (c) Revenue recognition   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, (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. As of  June 30, 2021 and December 31, 2020 , the balance of deferred revenue was $ 1,222 and $ 1,373 , respectively. The majority of the deferred revenue balance as of  December 31, 2020 was recognized into revenue during the first quarter of 2021 .   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. As of  June 30, 2021 and December 31, 2020 , unbilled revenue included in accounts receivable was $ 25,581 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. Substantially all amounts included within the unbilled revenue balance are invoiced to customers within the month directly following the period of service. Historical estimates related to unbilled revenue have not been materially different from actual revenue billed.   6 Table of Contents   FLUENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Amounts in thousands, except share data) (unaudited)     (d) Use of estimates   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 allowance for deferred tax assets. 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.     2. (Loss) income per share   Basic (loss) income per share is computed by dividing net (loss) 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  six months ended June 30, 2021 and 2020 , basic and diluted (loss) income per share was as follows:       Three Months Ended June 30,     Six Months Ended June 30,       2021     2020     2021     2020   Numerator:                                 Net (loss) income   $ ( 5,179 )   $ 452     $ ( 11,437 )   $ 860   Denominator:                                 Weighted average shares outstanding     78,270,386       76,244,975       77,574,295       76,007,997   Weighted average restricted shares vested not delivered     1,691,889       2,265,408       1,986,348       2,549,334   Total basic weighted average shares outstanding     79,962,275       78,510,383       79,560,643       78,557,331   Dilutive effect of assumed conversion of restricted stock units     —       156,393       —       348,461   Total diluted weighted average shares outstanding     79,962,275       78,666,776       79,560,643       78,905,792   Basic and diluted (loss) income per share:                                 Basic   $ ( 0.06 )   $ 0.01     $ ( 0.14 )   $ 0.01   Diluted   $ ( 0.06 )   $ 0.01     $ ( 0.14 )   $ 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 June 30,     Six Months Ended June 30,       2021     2020     2021     2020   Restricted stock units     2,843,570       3,412,390       2,843,570       2,288,573   Stock options     2,204,000       2,568,000       2,204,000       2,568,000   Warrants     833,333       2,183,333       833,333       2,183,333   Total anti-dilutive securities     5,880,903       8,163,723       5,880,903       7,039,906     7 Table of Contents   FLUENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Amounts in thousands, except share data) (unaudited)       3. Intangible assets, net   Intangible assets, net, other than goodwill, consist of the following:        Amortization period (in years)     June 30, 2021     December 31, 2020   Gross amount:                         Software developed for internal use     3     $ 8,381     $ 7,376   Acquired proprietary technology     3 - 5       14,845       14,788   Customer relationships     5 - 10       37,886       37,886   Trade names     4 - 20       16,657       16,657   Domain names     20       191       191   Databases     5 - 10       31,292       31,292   Non-competition agreements     2 - 5       1,768       1,768   Total gross amount             111,020       109,958   Accumulated amortization:                         Software developed for internal use             ( 4,249 )     ( 3,551 ) Acquired proprietary technology             ( 12,936 )     ( 12,474 ) Customer relationships             ( 27,303 )     ( 24,657 ) Trade names             ( 4,699 )     ( 4,252 ) Domain names             ( 53 )     ( 48 ) Databases             ( 19,534 )     ( 17,791 ) Non-competition agreements             ( 1,768 )     ( 1,768 ) Total accumulated amortization             ( 70,542 )     ( 64,541 ) Net intangible assets:                         Software developed for internal use             4,132       3,825   Acquired proprietary technology             1,909       2,314   Customer relationships             10,583       13,229   Trade names             11,958       12,405   Domain names             138       143   Databases             11,758       13,501   Total intangible assets, net           $ 40,478     $ 45,417     The amounts relating to acquired proprietary technology, customer relationships, trade names, domain names, databases and non-competition agreements primarily represent the fair values of intangible assets acquired as a result of the acquisition of Fluent, LLC, effective December 8, 2015 ( the "Fluent LLC Acquisition"), the acquisition of Q Interactive, LLC, effective June 8, 2016 ( the "Q Interactive Acquisition"), the acquisition of substantially all the assets of AdParlor  Holdings, Inc. 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   11 ,  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.  The Company completed its quarterly triggering event assessment for the three months ended June 30, 2021 and determined that no triggering event had occurred requiring further impairment assessments for its long lived assets.   8 Table of Contents   FLUENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Amounts in thousands, except share data) (unaudited)     Amortization expense of $ 3,169 and $ 3,659 for the three months ended June 30, 2021 and 2020 , respectively, and $ 6,346 and $ 7,206 , for the six months ended  June 30, 2021 and 2020 , respectively, is included in depreciation and amortization expenses in the consolidated statements of operations. As of June 30, 2021 , intangible assets with a carrying amount of $ 790 , 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 June 30, 2021 , estimated amortization expense related to the Company's intangible assets for the remainder of 2021  and through 2026 and thereafter are as follows:   Year   June 30, 2021   Remainder of 2021   $ 6,059   2022     11,852   2023     5,504   2024     4,602   2025     4,024   2026 and thereafter     8,437   Total   $ 40,478       4. Goodwill   Goodwill represents the cost in excess of fair value of net assets acquired in a business combination. As of June 30, 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  11 ,  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.   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.   The Company completed its quarterly triggering event assessment for the three months ended June 30, 2021 and determined no triggering event had occurred requiring further interim impairment assessments for its remaining goodwill. However, if additional reduction in operating results or a decline in the market value of its publicly-traded stock occurs, this could result in future impairment charges.     5. Long-term debt, net   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:       June 30, 2021     December 31, 2020   Refinanced Term Loan due 2023 (less unamortized discount and financing costs of $0 and $2,386 , respectively)   $ —     $ 39,350   New Credit Facility Term Loan due 2026 (less unamortized discount and financing costs of $1,067 and $0 , respectively)     47,683       —   Note Payable due 2021 (less unamortized discount of $0 and $24 , respectively)     1,250       1,226   Long-term debt, net     48,933       40,576   Less: Current portion of long-term debt     ( 6,250 )     ( 7,293 ) Long-term debt, net (non-current)   $ 42,683     $ 33,283     9 Table of Contents   FLUENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Amounts in thousands, except share data) (unaudited)     Refinanced Term Loan   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, 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 Fluent, LLC'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 Term Loan is $ 1,250  per quarter, which commenced with the fiscal quarter ended June 30, 2021.  At June 30, 2021 , the Company was in compliance with all of the financial and other covenants under the Credit Agreement.   Note Payable   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, and the second installment payment of $ 1,250 was made on July 1, 2021, in each case using cash on hand.   Maturities   As of June 30, 2021 , scheduled future maturities of the Credit Agreement and Note Payable are as follows:   Year     June 30, 2021   Remainder of 2021   $ 3,750   2022     5,000   2023     5,000   2024     5,000   2025     31,250   Total maturities   $ 50,000     Fair value   As of June 30, 2021 , the fair value of long-term debt is considered to approximate its carrying value. The fair value assessment represents a Level 2 measurement.     6. Income taxes   The Company is subject to federal and state income taxes in the United States. The tax provision for interim periods is determined using an estimate of the Company's annual effective tax rate. The Company updates its estimated annual effective tax rate on a quarterly basis and, if the estimate changes, makes a cumulative adjustment.    As of  June 30, 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. Release of some or all of the valuation allowance would result in the recognition of certain deferred tax assets and an increase in deferred tax benefit for any period in which such a release may be recorded, however, the exact timing and amount of any valuation allowance release are subject to change, depending upon the level of profitability the Company is able to achieve and the net deferred tax assets available.   10 Table of Contents   FLUENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Amounts in thousands, except share data) (unaudited)     For the six months ended June 30, 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. For those tax positions where it is more-likely-than- not that a tax benefit will be sustained, the Company has recorded the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. 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.   As of  June 30, 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 June 30, 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.     7. Common stock, treasury stock and warrants   Common stock   As of  June 30, 2021 and December 31, 2020 , the number of issued shares of common stock was  82,440,259 and 80,295,141 , respectively, which included shares of treasury stock of  4,068,832 and 3,945,867 , respectively.   For the six months ended June 30, 2021 , the change in the number of issued shares of common stock was the result of an aggregate  1,947,118 shares of common stock issued upon vesting of RSUs, including  122,965 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   As of  June 30, 2021 and December 31, 2020 , the Company held shares of treasury stock of 4,068,832  and 3,945,867 , with a cost of $ 10,666 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 six months ended June 30, 2021 , 122,965  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.    Warrants   As of  June 30, 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. regarding  46,667  warrants to purchase common stock of the Company, par value $ 0.0005  per share, at an exercise price of $ 3.00  per share; (ii) H.I.G. Whitehorse SMA Holdings I, LLC regarding  66,666  warrants to purchase common stock of the Company at an exercise price of $ 3.00  per share; and (iii) Whitehorse Finance, Inc. regarding  186,667  warrants to purchase common stock of the Company at an exercise price of $ 3.00 per share. In November 2017, the Amended Whitehorse Warrants were exercised and the Company issued an aggregate of 300,000 shares of common stock of the Company (the "Warrant Shares") to the warrant holders. Pursuant to the First Amendments, the warrant holders had the right, but not the obligation, to require the Company to purchase from these warrant holders the 300,000 Warrant Shares at $ 3.8334 per share (the "Put Right"), which could be exercised during the period commencing January 1, 2019 and ending December 15, 2019.  On December 6, 2019, the Company entered into the Second Amendments to the Amended Whitehorse Warrants, pursuant to which the expiration of the Put Right was extended from December 15, 2019 to January 31, 2020. On January 31, 2020, the holders of the Amended Whitehorse Warrants exercised the Put Right, requiring 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.   11 Table of Contents   FLUENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Amounts in thousands, except share data) (unaudited)       8. Share-based compensation   As of June 30, 2021 , the Company maintains two share-based incentive plans: the Cogint, Inc. 2015 Stock Incentive Plan and the Fluent, Inc. 2018  Stock Incentive Plan (the "2018  Plan") which, combined, authorize the issuance of  21,337,143 shares of common stock. As of June 30, 2021 , there were  1,509,149 shares of common stock reserved for issuance under the 2018  Plan. The primary purpose of the plans is to attract, retain, reward and motivate certain individuals by providing them with opportunities to acquire or increase their ownership interests in the Company.   Stock options   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 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. The fair value of the stock options granted was estimated at the trading day before the date of grant using a Monte Carlo simulation model. The key assumptions utilized to calculate the grant-date fair values for these awards are summarized below:   Issuance Date   February 1, 2019     December 20, 2019     March 1, 2020     March 1, 2021   Fair value lower range   $ 2.81     $ 1.58     $ 1.46     $ 4.34   Fair value higher range   $ 2.86     $ 1.61     $ 1.49     $ 4.43   Exercise price   $ 4.72     $ 2.56     $ 2.33     $ 6.33   Expected term (in years)     1.0 - 1.3       1.0 - 1.6       1.0 - 1.5       1.0 - 1.3   Expected volatility     65 %     70 %     70 %     80 % Dividend yield     — %     — %     — %     — % Risk-free rate     2.61 %     1.85 %     1.05 %     1.18 %   For the six months ended June 30, 2021 , details of stock option activity were as follows:       Number of options     Weighted average exercise price per share     Weighted average remaining contractual term (in years)     Aggregate intrinsic value   Outstanding as of December 31, 2020     2,294,000     $ 4.34       8.0     $ 2,256   Granted     108,000     $ 6.33       9.7       —   Exercised     ( 198,000 )                         Outstanding as of June 30, 2021     2,204,000     $ 4.41       7.6     $ 190   Options exercisable as of June 30, 2021     1,307,000     $ 4.06       7.5     $ 190     The aggregate intrinsic value amounts in the table above represent the difference between the closing price of the Company's common stock at the end of the reporting period and the corresponding exercise prices, multiplied by the number of in-the-money stock options as of the same date.   For the  six months ended June 30, 2021 , the unvested balance of options was as follows:       Number of options     Weighted average exercise price per share     Weighted average remaining contractual term (in years)   Unvested as of December 31, 2020     1,225,000     $ 3.93       8.4   Granted     108,000     $ 6.33       9.7   Vested     ( 436,000 )               Unvested as of June 30, 2021     897,000     $ 4.91       7.8     12 Table of Contents   FLUENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Amounts in thousands, except share data) (unaudited)     Compensation expense recognized for stock options of $ 123 and $ 152  for the  three months ended June 30, 2021 and 2020 , respectively, and $ 290 and $ 1,351 for the six months ended June 30, 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 June 30, 2021 , there was $ 334 of unrecognized share-based compensation with respect to outstanding stock options.   Restricted stock units and restricted stock   For the six months ended June 30, 2021 , details of unvested RSU and restricted stock activity were as follows:       Number of units     Weighted average grant-date fair value   Unvested as of December 31, 2020     3,377,097     $ 7.09   Granted     1,043,660     $ 5.88   Vested and delivered     ( 1,824,153 )   $ 2.98   Withheld as treasury stock (1)     ( 122,965 )   $ 4.91   Vested not delivered (2)     570,335     $ 2.70   Forfeited     ( 200,404 )   $ 4.20   Unvested as of June 30, 2021     2,843,570     $ 8.69     ( 1 ) As discussed in Note 7 , Common stock, treasury stock and warrants,  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 June 30, 2021 , there were  4,068,832  outstanding shares of treasury stock. ( 2 ) Vested not delivered represents vested RSUs with delivery deferred to a future time. For the six months ended June 30, 2021 , there was a net decrease of  570,335 shares included in the vested not delivered balance as a result of the delivery of  650,333 shares, partially offset by the vesting of 79,998 shares with deferred delivery election. As of June 30, 2021 ,  1,691,666 outstanding RSUs were vested not delivered.   Compensation expense recognized for RSUs and restricted stock of $ 1,108  and $ 1,176  for the three months ended June 30, 2021 and 2020 , respectively, and $ 2,213  and $ 2,413 for the six months ended June 30, 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 June 30, 2021 , unrecognized share-based compensation expense associated with the granted RSUs and stock options amounted to $ 9,998 , which is expected to be recognized over a weighted average period of  2.3 years.   For the three and  six months ended June 30, 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 June 30,     Six Months Ended June 30,       2021     2020     2021     2020   Sales and marketing   $ 209     $ 269     $ 372     $ 487   Product development     233       286       501       523   General and administrative     759       726       1,559       2,668   Share-based compensation expense     1,201       1,281       2,432       3,678   Capitalized in intangible assets     30       47       71       86   Total share-based compensation   $ 1,231     $ 1,328     $ 2,503     $ 3,764     On May 13, 2021, the Company's then-CEO and then-President purchased a total of 50,000 shares from the Company for cash under the 2018 Stock Incentive Plan. The per share purchase price for each transaction was the closing price reported on Nasdaq on the date of purchase.   13 Table of Contents   FLUENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Amounts in thousands, except share data) (unaudited)       9. Segment information   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 EBITDA. As of June 30, 2021 , the Company has two operating segments and two corresponding reporting units, “Fluent” and “All Other,” and one reportable segment. “All Other” 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,” for the purposes of segment reporting, represents the consolidated operating results of the Company excluding “All Other.”   Summarized financial information concerning the Company's segments is shown in the following tables below:       Three Months Ended June 30,     Six Months Ended June 30,       2021     2020     2021     2020   Fluent segment revenue:                                 United States   $ 59,306     $ 57,462     $ 117,558     $ 125,613   International     10,693       12,935       19,983       22,346   Fluent segment revenue   $ 69,999     $ 70,397     $ 137,541     $ 147,959   All Other segment revenue:                                 United States   $ 3,338     $ 1,012     $ 5,935     $ 2,197   International     41       100       72       287   All Other segment revenue   $ 3,379     $ 1,112     $ 6,007     $ 2,484   Segment EBITDA                                 Fluent segment EBITDA   $ ( 1,582 )   $ 6,809     $ ( 172 )   $ 12,698   All Other segment EBITDA     196       ( 1,171 )     ( 128 )     ( 1,387 ) Total EBITDA     ( 1,386 )     5,638       ( 300 )     11,311   Depreciation and amortization     3,366       3,853       6,739       7,586   Total (loss) income from operations   $ ( 4,752 )   $ 1,785     $ ( 7,039 )   $ 3,725         June 30,     December 31,       2021     2020   Total assets:             Fluent   $ 290,717     $ 292,616   All Other     20,153       17,604   Total assets   $ 310,870     $ 310,220     14 Table of Contents   FLUENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Amounts in thousands, except share data) (unaudited)       10. Contingencies   In the ordinary course of business, the Company is subject to loss contingencies that cover a range of matters. An estimated loss from a loss contingency, such as a legal proceeding or claim, is accrued if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. 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 §  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.   17 - 108.  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, which was in line with the Company's accrual in the prior quarter and paid in full as of June 30, 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. The Company was responsive and fully cooperated with each of the DOJ and the DC AG.   On June 27, 2019, as a part of two  sales and use tax audits covering the period from December 1, 2010 to November 30, 2019, the New York State Department of Taxation and Finance (the “Tax Department”) issued a letter stating its position that revenue derived from certain of the Company’s customer acquisition and list management services are subject to sales tax, as a result of being deemed information services. The Company disputed the Tax Department's position on several grounds, but on January 14  and 15,   2020, the Tax Department issued Statements of Proposed Audit Adjustment totaling $ 8.2 million, including $ 2.0 million of interest. The Company formally disagreed with the amount of the Proposed Audit Adjustments and met with the Tax Department on March 4, 2020.  During that meeting, the Company informed the Tax Department that a majority of the Proposed Audit Adjustments was attributable to revenue derived from transfers which were either excluded resales or sourced outside of New York, and renewed its challenge as to the taxability of its customer acquisition revenue. On July 22 and 31, 2020, the Company received Notices of Determination from the Tax Department totaling $ 3.0  million, including $ 0.7 million of interest. On October 16, 2020, the Company filed challenges to the Notices of Determination. On June 21, 2021, the Company and the Tax Department participated in a conciliation conference, but the audits were not resolved. Based on the foregoing, the Company believes it is probable that a sales tax liability may result from this matter, and has estimated the range of any such liability to be between $ 0.7  million and $ 3.0 million. The Company has accrued a liability associated with these sales and use tax audits at the low end of this range.   On January 28, 2020, the Company received a Civil Investigative Demand (“CID”) from the Federal Trade Commission (“FTC”) regarding compliance with the Federal Trade Commission Act, 15 U.S.C. §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 responsive and is fully cooperating with the FTC. 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.     11. Business acquisition   Winopoly acquisition   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. As of the first quarter of 2021, the initial contingent consideration of $ 1,000 had been paid based on specific revenue targets having been met. On May 17, 2021, additional contingent consideration that was not previously deemed to be probable of payment in the amount of $ 500 was paid based on a specific revenue target having been met. Winopoly is a contact center operation, which serves as a marketplace that matches consumers sourced by Fluent and other third parties with advertiser clients.  In accordance with ASC 805, the Company determined that the Winopoly Acquisition constituted the purchase of a business.    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.    15 Table of Contents   FLUENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Amounts in thousands, except share data) (unaudited)     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. 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. Therefore, no non-controlling interest has been recognized. Periodic distributions for services rendered will be recorded as compensation expense. 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 and  six months ended June 30, 2021 , compensation expense of $ 881  and $ 2,627 , respectively, and for the three and  six months ended June 30, 2020  compensation expense of $ 530  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.     12. Variable Interest Entity   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. We assess whether we are the primary beneficiary of a VIE at the inception of the arrangement and at each reporting date.   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 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.     13.  Related party transactions   During the three and  six months ended June 30, 2021 , the Company recognized revenue from a client in which the then-CEO holds a significant ownership interest. Accounts receivable for this client were $ 119 and $ 137 as of June 30, 2021 and December 31, 2020, respectively. For the three and  six months ended June 30, 2021 , the Company recognized revenue from this client of $ 0 and $ 33 , respectively, and for the three and six months ended June 30, 2020, the Company recognized revenue from this client of $ 95 and $ 145 , respectively. In accordance with the Company's policies and procedures for determining allowances for doubtful accounts and write-offs, the Company wrote-off the outstanding accounts receivable from this client as of June 30, 2021.   16 Table of Contents