What changed in this filing

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Item 1. Financial Statements

2021-11-04 compared with 2021-08-09 · 187 added, 239 removed, 590 unchanged (42% of the section changed)

2 unchanged sentences

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

June 30, 2021

September 30, 2021

December 31, 2020

70 unchanged sentences

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

Three Months Ended June 30,

Six Months Ended June 30,

$ 73,378  

$ 71,509  

$ 143,548  

$ 150,443  

Three Months Ended September 30,

Nine Months Ended September 30,

Costs and expenses:

Cost of revenue (exclusive of depreciation and amortization)

56,605  

49,007  

107,595  

105,631  

Sales and marketing

1 unchanged sentence

General and administrative

11,527  

10,044  

23,226  

21,120  

Depreciation and amortization

1 unchanged sentence

Total costs and expenses

78,130  

69,724  

150,587  

146,718  

(Loss) income from operations

( 4,752 )  

( 7,039 )  

Interest expense, net

( 427 )  

( 1,333 )  

( 1,435 )  

Loss on early extinguishment of debt

( 2,964 )  

(Loss) income before income taxes

( 5,179 )  

( 11,438 )  

Income tax benefit

Income tax benefit (expense)

Net (loss) income

$ ( 5,179 )  

$ ( 11,437 )  

Basic and diluted (loss) income per share:

$ ( 0.06 )  

$ 0.01  

$ ( 0.14 )  

$ 0.01  

$ ( 0.06 )  

$ 0.01  

$ ( 0.14 )  

$ 0.01  

Weighted average number of shares outstanding:

79,962,275  

78,510,383  

79,560,643  

78,557,331  

79,962,275  

78,666,776  

79,560,643  

78,905,792  

See notes to consolidated financial statements

4 unchanged sentences

Total shareholders'

Balance at March 31, 2021

82,228,823  

4,055,011  

$ ( 10,623 )  

$ 413,958  

$ ( 191,167 )  

$ 212,209  

Balance at June 30, 2021

Vesting of restricted stock units and issuance of stock under incentive plans

211,436  

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

13,821  

( 43 )  

Exercise of stock options

Share-based compensation

( 5,179 )  

Balance at June 30, 2021

82,440,259  

4,068,832  

$ ( 10,666 )  

$ 415,325  

$ ( 196,346 )  

$ 208,354  

Balance at September 30, 2021

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 stock under incentive plans

1,947,118  

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

122,965  

( 667 )  

Exercise of stock options

198,000  

Share-based compensation

( 11,437 )  

Balance at June 30, 2021

82,440,259  

4,068,832  

$ ( 10,666 )  

$ 415,325  

$ ( 196,346 )  

$ 208,354  

Balance at September 30, 2021

Treasury stock

1 unchanged sentence

Total shareholders'

Balance at March 31, 2020

79,809,417  

3,601,804  

$ ( 9,900 )  

$ 408,633  

$ ( 186,708 )  

$ 212,065  

Balance at June 30, 2020

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 )  

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

Share-based compensation

Balance at June 30, 2020

79,908,985  

3,616,398  

$ ( 9,930 )  

$ 409,961  

$ ( 186,256 )  

$ 213,815  

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

1,566,907  

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

190,326  

( 446 )  

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 June 30, 2020

79,908,985  

3,616,398  

$ ( 9,930 )  

$ 409,961  

$ ( 186,256 )  

$ 213,815  

Balance at September 30, 2020

See notes to consolidated financial statements

1 unchanged sentence

(Amounts in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

Net (loss) income

$ ( 11,437 )  

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

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

Depreciation and amortization

3 unchanged sentences

Non-cash accrued compensation expense for Put/Call Consideration

Non-cash termination of Put/Call Consideration

Goodwill impairment

1 unchanged sentence

Provision for bad debt

Provision for income taxes

Changes in assets and liabilities, net of business acquisition:

Accounts receivable

( 3,334 )  

Prepaid expenses and other current assets

Other non-current assets

( 258 )  

Operating lease assets and liabilities, net

( 91 )  

Accounts payable

Accrued expenses and other current liabilities

( 9,345 )  

Deferred revenue

( 151 )  

( 64 )  

Net cash (used in) provided by operating activities

( 665 )  

CASH FLOWS FROM INVESTING ACTIVITIES:

Capitalized costs included in intangible assets

( 1,535 )  

Business acquisition, net of cash acquired

Acquisition of property and equipment

( 23 )  

Net cash used in investing activities

( 1,558 )  

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 )  

Exercise of stock options

Prepayment penalty on debt extinguishment

( 766 )  

Taxes paid related to net share settlement of vesting of restricted stock units

( 667 )  

Proceeds from the issuance of stock

1 unchanged sentence

Net cash provided by (used in) financing activities

Net increase in cash, cash equivalents and restricted cash

Net decrease in cash, cash equivalents and restricted cash

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

8 unchanged sentences

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 

From April 1, 2020 through August 31, 2021, the Company had 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 ).

Beginning September 1, 2021, Winopoly is a wholly owned subsidiary of the Company.

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 

23 unchanged sentences

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.

June 30, 2021 and December 31, 2020 , the balance of deferred revenue was $ 1,222 and $ 1,373 , respectively.

September 30, 2021 and December 31, 2020 , the balance of deferred revenue was $ 722 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.

June 30, 2021 and December 31, 2020 , unbilled revenue included in accounts receivable was $ 25,581 and $ 28,337 , respectively.

September 30, 2021 and December 31, 2020 , unbilled revenue included in accounts receivable was $ 27,692 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 allowance for deferred tax assets.

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 consideration, 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.

5 unchanged sentences

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,

nine months ended September 30, 2021 and 2020 , basic and diluted (loss) income per share was as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

Net (loss) income

1 unchanged sentence

$ 1,169  

$ ( 13,889 )  

$ 2,029  

Weighted average shares outstanding

31 unchanged sentences

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,

Three Months Ended September 30,

Nine Months Ended September 30,

Restricted stock units

22 unchanged sentences

Amortization period (in years)

June 30, 2021

September 30, 2021

December 31, 2020

43 unchanged sentences

13,501  

Total intangible assets, net

3 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 (the "Winopoly Acquisition") , effective April 1, 2020 ( see Note  

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

Business acquisition ).

In connection with the Initial Winopoly Acquisition, the Company recorded 100 % equity ownership for GAAP purposes, and 

no further intangible assets were acquired in connection with the Full Winopoly Acquisition described in Note  

Business acquisition . 

During the three months ended 

1 unchanged sentence

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.

Management believes that the assumptions utilized in this interim impairment testing, including the estimation of future cash flows, were reasonable. The Company completed its quarterly triggering event assessments for the three months ended June 30, 2021 and September 30, 2021 and has determined that no triggering event had occurred requiring further impairment assessments for its long lived assets.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands, except share data)

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:

June 30, 2021

Amortization expense of $ 3,006 and $ 3,711 for the three months ended September 30, 2021 and 2020 , respectively, and $ 9,352 and $ 10,917 , for the nine months ended 

September 30, 2021 and 2020 , respectively, is included in depreciation and amortization expenses in the consolidated statements of operations.

As of September 30, 2021 , intangible assets with a carrying amount of $ 592 , 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, 2021 , estimated amortization expense related to the Company's intangible assets for the remainder of 2021  and through 2026 and thereafter are as follows:

September 30, 2021

Remainder of 2021

4 unchanged sentences

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 

As of September 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 Initial Winopoly Acquisition 

(see Note 

Business acquisition ).

In connection with the Initial Winopoly Acquisition, the Company recorded 100 % equity ownership for GAAP purposes, and 

no further goodwill was acquired in connection with the Full Winopoly Acquisition as described in Note  

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.

3 unchanged sentences

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.

The Company completed its quarterly triggering event assessments for the three months ended June 30, 2021 and September 30, 2021 and determined no triggering event had occurred that would require 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.

1 unchanged sentence

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

September 30, 2021

December 31, 2020

15 unchanged sentences

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.

On March 31, 2021, Fluent, LLC redeemed in full $ 38,318  aggregate principal amount of its prior 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

3 unchanged sentences

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 %).

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 LIBOR rate (subject to a floor of 0.25 %).

The applicable margin is between 0.75 % and 

17 unchanged sentences

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.

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.

At September 30, 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 was guaranteed by the Company's subsidiary, Fluent, LLC, did not accrue interest except in the case of default, was payable in two equal installments on the first and second anniversaries of the date of closing of the acquisition and was 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.

As of June 30, 2021 , scheduled future maturities of the Credit Agreement and Note Payable are as follows:

June 30, 2021  

As of September 30, 2021 , scheduled future maturities of the Credit Agreement and Note Payable are as follows:

September 30, 2021  

Remainder of 2021

3 unchanged sentences

$ 47,500  

As of June 30, 2021 , the fair value of long-term debt is considered to approximate its carrying value.

As of September 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.

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. 

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.

September 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.

1 unchanged sentence

(Amounts in thousands, except share data)

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.

For the nine months ended September 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.

1 unchanged sentence

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.

June 30, 2021 and December 31, 2020 , the balance of unrecognized tax benefits was $ 1,480 .

September 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.

As of September 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.

Common stock, treasury stock and warrants

June 30, 2021 and December 31, 2020 , the number of issued shares of common stock was 

September 30, 2021 and December 31, 2020 , the number of issued shares of common stock was 

83,018,418 and 80,295,141 , respectively, which included shares of treasury stock of 

4,089,780 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 

For the nine months ended September 30, 2021 , the change in the number of issued shares of common stock was the result of an aggregate 

2,525,277 shares of common stock issued upon vesting of RSUs, including 

2 unchanged sentences

Treasury stock

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.

September 30, 2021 and December 31, 2020 , the Company held shares of treasury stock of 4,089,780  and 3,945,867 , with a cost of $ 10,718 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. 

June 30, 2021 and December 31, 2020 , warrants to purchase an aggregate of 

For the nine months ended September 30, 2021 , 143,913  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. 

September 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.

15 unchanged sentences

Share-based compensation

As of June 30, 2021 , the Company maintains two share-based incentive plans:

As of September 30, 2021 , the Company maintains two share-based incentive plans:

the Cogint, Inc.

2 unchanged sentences

21,392,864 shares of common stock.

As of June 30, 2021 , there were 

As of September 30, 2021 , there were 

1,015,494 shares of common stock reserved for issuance under the 2018  Plan.

7 unchanged sentences

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.

As of September 30, 2021 , the first condition for the stock options issued on February 1, 2019, December 20, 2019 and March 1, 2020 had been met and the second condition for the stock options issued on December 20, 2019 and March 1, 2020 had been met.

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

7 unchanged sentences

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

1 unchanged sentence

Risk-free rate

For the six months ended June 30, 2021 , details of stock option activity were as follows:

2.61 %  

1.85 %  

1.05 %  

For the nine months ended September 30, 2021 , details of stock option activity were as follows:

Number of options

3 unchanged sentences

Outstanding as of December 31, 2020

Outstanding as of June 30, 2021

Options exercisable as of June 30, 2021

2,294,000  

$ 4.34  

$ 2,256  

108,000  

$ 6.33  

( 198,000 )  

Outstanding as of September 30, 2021

2,204,000  

$ 4.41  

Options exercisable as of September 30, 2021

1,307,000  

$ 4.06  

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:

nine months ended September 30, 2021 , the unvested balance of options was as follows:

Number of options

2 unchanged sentences

Unvested as of December 31, 2020

Unvested as of June 30, 2021

1,225,000  

$ 3.93  

108,000  

$ 6.33  

( 436,000 )  

Unvested as of September 30, 2021

897,000  

$ 4.91  

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1 unchanged sentence

Compensation expense recognized for stock options of $ 105 and $ 73  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.

three months ended September 30, 2021 and 2020 , respectively, and $ 395 and $ 1,424 for the nine months ended September 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 September 30, 2021 , there was $ 230 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:

For the nine months ended September 30, 2021 , details of unvested RSU and restricted stock activity were as follows:

Number of units

1 unchanged sentence

Unvested as of December 31, 2020

3,377,097  

$ 7.09  

1,684,061  

$ 4.67  

Vested and delivered

( 2,381,364 )  

$ 2.93  

Withheld as treasury stock (1)

( 143,913 )  

$ 4.71  

Vested not delivered (2)

Unvested as of June 30, 2021

570,335  

$ 2.70  

( 291,428 )  

$ 4.57  

Unvested as of September 30, 2021

2,814,788  

$ 8.64  

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 

As of September 30, 2021 , there were 

4,089,780  outstanding shares of treasury stock.

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 

For the nine months ended September 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 , 

As of September 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.

Compensation expense recognized for RSUs and restricted stock of $ 1,063  and $ 1,131  for the three months ended September 30, 2021 and 2020 , respectively, and $ 3,276  and $ 3,544 for the nine months ended September 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 

As of September 30, 2021 , unrecognized share-based compensation expense associated with the granted RSUs and stock options amounted to $ 8,716 , which is expected to be recognized over a weighted average period of 

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,

nine months ended September 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 September 30,

Nine Months Ended September 30,

Sales and marketing

4 unchanged sentences

Total share-based compensation

$ 1,168  

$ 1,204  

$ 3,671  

$ 4,968  

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.

5 unchanged sentences

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”

As of September 30, 2021 , the Company has two operating segments and two corresponding reporting units, “Fluent”

and “All Other,”

5 unchanged sentences

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,

Three Months Ended September 30,

Nine Months Ended September 30,

Fluent segment revenue:

30 unchanged sentences

$ 19,560  

$ ( 172 )  

$ 12,698  

All Other segment EBITDA

1 unchanged sentence

17,768  

( 1,386 )  

( 300 )  

11,311  

Depreciation and amortization

11,492  

Total (loss) income from operations

3 unchanged sentences

$ 6,276  

September 30,

Total assets:

24 unchanged sentences

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.

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.

On October 16, 2020, the Company filed challenges to the Notices of Determination. Since June 21, 2021, the Company and the Tax Department have been participating in a conciliation conference, but the audits have not yet been 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 $ 0.8  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.

On January 28, 2020, the Company received a Civil Investigative Demand 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.

On October 6, 2020, the Company received notice from the Pennsylvania Office of the Attorney General (“PA OAG”) that it was reviewing the Company’s business practices for compliance under the Unfair Trade Practices and Consumer Protection Law, 73 P.S.

201 - 1 et seq.

the Telemarketer Registration Act, 73 P.S.

, and the Telemarketing Sales Rule, 16 C.F.R.

 The Company has been responsive and is fully cooperating with the PA OAG.

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 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 April 1, 2020, the Company acquired, through a wholly owned subsidiary, a 50 % membership interest in Winopoly (the "Initial 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. 

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 Initial Winopoly Acquisition constituted the purchase of a business . 

On April 1, 2020, 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.

In connection with the Initial Winopoly Acquisition, the Company had recorded 100 % equity ownership for GAAP purposes. 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands, except share data)

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.

In connection with the Initial Winopoly Acquisition, at any time between the fourth and sixth anniversary of the Initial Winopoly Acquisition, the sellers had the ability to exercise a put option to require the Company to acquire the remaining 50 % membership interests in Winopoly.

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

The purchase price to be paid upon exercise of the put or call option for the remaining 50% membership interests was 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 would have been required to enter into employment agreements with the Company in order to receive their respective shares of the Put/Call Consideration.

On September 1, 2021, 

the Company acquired the remaining 50 % membership interest in Winopoly (the “Full Winopoly Acquisition”) in a negotiated transaction.

The consideration was $ 7,785 , which consisted of $ 3,425 of cash at closing, $ 2,000 of cash due on January 31, 2022, and $ 500 of deferred payments due at both the first and second anniversary of the closing.

The Company also issued 500,000 shares of fully-vested stock under the Fluent, Inc.

2018 Stock Incentive Plan to certain Winopoly personnel valued at $ 1,360 .

Certain seller parties entered into employment and non-competition agreements with Company in connection with the Full Winopoly Acquisition.

As a result, the Put/Call Consideration was terminated, partially offsetting the consideration paid in the Full Winopoly Acquisition, resulting in a net expense of $ 2,796 on the date of the Full Winopoly Acquisition which was recorded as general and administrative and product development expenses.

For the nine months ended September 30, 2021, the Company incurred transaction related costs of $ 28 in connection with the Full Winopoly Acquisition which are also recorded as general and administrative expenses.

Although the sellers maintained an equity interest in Winopoly through August 31, 2021, the Company had deemed this equity interest to be non-substantive in nature, as the sellers would primarily benefit from the Initial Winopoly Acquisition based on periodic distributions of the earnings of Winopoly and the Put/Call Consideration, both of which were 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.

however, such a liquidity event was considered unlikely.

Therefore, no non-controlling interest had been previously recognized.

Periodic distributions for services rendered were recorded as compensation expense.

In addition, the Company had estimated the amount of the Put/Call Consideration, which was accreted over the six -year estimated service period, consisted of the estimated four years until the put/call could 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.

nine months ended September 30, 2021 , compensation expense of $ 586  and $ 3,213 , respectively, and for the three and 

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

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.

The Company determined that, following the Initial Winopoly Acquisition, Winopoly qualified as a VIE for which the Company was a primary beneficiary (as discussed in Note 11 , Business acquisition ).

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.

The Company's conclusion that Winopoly was a VIE, and the Company was its primary beneficiary, derived from contractual arrangements that provided the Company with control over certain activities that most significantly impacted its economic performance.

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

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

On September 1, 2021, the Company completed the Full Winopoly Acquisition and Winopoly's status as a VIE terminated (see Note 3 , Intangible assets, net , Note 4 , Goodwill and Note 11 , Business acquisition).

 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.

nine months ended September 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 $ 0 and $ 137 as of September 

30, 2021 and December 31, 2020, respectively. For the three and 

nine months ended September 30, 2021 , the Company recognized revenue from this client of $ 0 and $ 33 , respectively, and for the three and nine months ended September 

30, 2020, the Company recognized revenue from this client of $ 69 and $ 214 , 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.

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