Fluent, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS.     FLUENT, INC. CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except share and per share data) (unaudited)       March 31, 2022     December 31, 2021   ASSETS:                 Cash and cash equivalents   $ 28,944     $ 34,467   Accounts receivable, net of allowance for doubtful accounts of $ 368 and $ 313 , respectively     65,023       70,228   Prepaid expenses and other current assets     2,138       2,505   Total current assets     96,105       107,200   Property and equipment, net     1,298       1,457   Operating lease right-of-use assets     6,369       6,805   Intangible assets, net     34,938       35,747   Goodwill     166,180       165,088   Other non-current assets     1,905       1,885   Total assets   $ 306,795     $ 318,182   LIABILITIES AND SHAREHOLDERS' EQUITY:                 Accounts payable   $ 12,782     $ 16,130   Accrued expenses and other current liabilities     28,823       33,932   Deferred revenue     701       651   Current portion of long-term debt     5,000       5,000   Current portion of operating lease liability     2,228       2,227   Total current liabilities     49,534       57,940   Long-term debt, net     39,147       40,329   Operating lease liability     5,213       5,692   Other non-current liabilities     726       811   Total liabilities     94,620       104,772   Contingencies (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 — 83,983,587 and 83,057,083 , respectively; and Shares outstanding — 79,683,435 and 78,965,260 , respectively (Note 7)     42       42   Treasury stock, at cost — 4,300,152 and 4,091,823 Shares, respectively (Note 7)     ( 11,171 )     ( 10,723 ) Additional paid-in capital     420,285       419,059   Accumulated deficit     ( 196,981 )     ( 194,968 ) Total shareholders' equity     212,175       213,410   Total liabilities and shareholders' equity   $ 306,795     $ 318,182     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 March 31,       2022     2021   Revenue   $ 89,063     $ 70,170   Costs and expenses:                 Cost of revenue (exclusive of depreciation and amortization)     67,562       50,990   Sales and marketing     3,852       2,961   Product development     4,556       3,434   General and administrative     11,287       11,699   Depreciation and amortization     3,307       3,373   Write-off of intangible assets     128       —   Total costs and expenses     90,692       72,457   Loss from operations     ( 1,629 )     ( 2,287 ) Interest expense, net     ( 384 )     ( 1,008 ) Loss on early extinguishment of debt     —       ( 2,964 ) Loss before income taxes     ( 2,013 )     ( 6,259 ) Income tax benefit     —       1   Net loss   $ ( 2,013 )   $ ( 6,258 )                   Basic and diluted loss per share:                 Basic   $ ( 0.02 )   $ ( 0.08 ) Diluted   $ ( 0.02 )   $ ( 0.08 )                   Weighted average number of shares outstanding:                 Basic     80,889,052       81,892,593   Diluted     80,889,052       81,892,593     See notes to consolidated financial statements   3 Table of Contents       FLUENT, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Amounts in thousands, except share and per share data) (unaudited)       Common stock     Treasury stock     Additional paid-in     Accumulated     Total shareholders'       Shares     Amount     Shares     Amount     capital     deficit     equity   Balance at December 31, 2021     83,057,083     $ 42       4,091,823     $ ( 10,723 )   $ 419,059     $ ( 194,968 )   $ 213,410   Vesting of restricted stock units and issuance of stock under incentive plans     926,504       —       —       —       211       —       211   Increase in treasury stock resulting from shares withheld to cover statutory taxes     —       —       208,329       ( 448 )     —       —       ( 448 ) Share-based compensation     —       —       —       —       1,015       —       1,015   Net loss     —       —       —       —       —       ( 2,013 )     ( 2,013 ) Balance at March 31, 2022     83,983,587     $ 42       4,300,152     $ ( 11,171 )   $ 420,285     $ ( 196,981 )   $ 212,175                                                                     Common stock     Treasury stock     Additional paid-in     Accumulated     Total shareholders'       Shares     Amount     Shares     Amount     capital     deficit     equity   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     1,735,682       1       —       —       ( 1 )     —       —   Increase in treasury stock resulting from shares withheld to cover statutory taxes     —       —       109,144       ( 624 )     —       —       ( 624 ) Exercise of stock options     198,000       —       —       —       934       —       934   Share-based compensation     —       —       —       —       1,272       —       1,272   Net loss     —       —       —       —       —       ( 6,258 )     ( 6,258 ) Balance at March 31, 2021     82,228,823     $ 41       4,055,011     $ ( 10,623 )   $ 413,958     $ ( 191,167 )   $ 212,209     See notes to consolidated financial statements   4 Table of Contents       FLUENT, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) (unaudited)       Three Months Ended March 31,       2022     2021   CASH FLOWS FROM OPERATING ACTIVITIES:                 Net loss   $ ( 2,013 )   $ ( 6,258 ) Adjustments to reconcile net loss to net cash (used in) provided by operating activities:                 Depreciation and amortization     3,307       3,373   Non-cash loan amortization expense     68       202   Share-based compensation expense     988       1,231   Non-cash loss on early extinguishment of debt     —       2,198   Non-cash accrued compensation expense for Put/Call Consideration     —       1,746   Write-off of intangible assets     128       —   Provision for bad debt     81       ( 99 ) Changes in assets and liabilities, net of business acquisition:                 Accounts receivable     5,127       4,764   Prepaid expenses and other current assets     451       ( 868 ) Other non-current assets     ( 13 )     ( 196 ) Operating lease assets and liabilities, net     ( 42 )     ( 45 ) Accounts payable     ( 3,348 )     5,792   Accrued expenses and other current liabilities     ( 6,251 )     ( 7,393 ) Deferred revenue     ( 174 )     562   Other     ( 85 )     ( 32 ) Net cash (used in) provided by operating activities     ( 1,776 )     4,977   CASH FLOWS FROM INVESTING ACTIVITIES:                 Capitalized costs included in intangible assets     ( 1,071 )     ( 816 ) Business acquisition, net of cash acquired     ( 971 )     —   Acquisition of property and equipment     ( 7 )     ( 20 ) Net cash used in investing activities     ( 2,049 )     ( 836 ) CASH FLOWS FROM FINANCING ACTIVITIES:                 Proceeds from issuance of long-term debt, net of debt financing costs     —       49,624   Repayments of long-term debt     ( 1,250 )     ( 41,736 ) Exercise of stock options     —       934   Prepayment penalty on debt extinguishment     —       ( 766 ) Taxes paid related to net share settlement of vesting of restricted stock units     ( 448 )     ( 624 ) Net cash (used in) provided by financing activities     ( 1,698 )     7,432   Net (decrease) increase in cash, cash equivalents and restricted cash     ( 5,523 )     11,573   Cash, cash equivalents and restricted cash at beginning of period     34,467       22,567   Cash, cash equivalents and restricted cash at end of period   $ 28,944     $ 34,140   SUPPLEMENTAL DISCLOSURE INFORMATION                 Cash paid for interest   $ 301     $ 772   Cash paid for income taxes   $ 34     $ 15   Share-based compensation capitalized in intangible assets   $ 27     $ 41   SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES                 Liability incurred for deferred payment in connection with True North acquisition   $ 860     $ —   Contingent consideration in connection with True North acquisition   $ 250     $ —   Equity issued in connection with True North acquisition   $ 211     $ —     See notes to consolidated financial statements   5 Table of Contents   FLUENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands, except share and per 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 ended March 31, 2022  and 2021, 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, 2022 .   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. 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  11 ,  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  December 31, 2021 (" 2021 Form 10 -K") filed with the SEC on March 9, 2021. The consolidated balance sheet as of  December 31, 2021 included herein was derived from the audited financial statements as of that date included in the 2021 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, Financial Accounting Standards Board ("FASB") issued Accounting Standards Updates ("ASU") No. 2016 - 13, Financial Instruments—Credit Losses ("Topic 326" ) , 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 guidance on its consolidated financial statements.   In March 2020, the FASB issued ASU 2020 - 04, Reference Rate Reform : Facilitation of the Effects of Reference Rate Reform on Financial Reporting  ("Topic 848" ), 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 and does not anticipate having material impact.   6 Table of Contents   FLUENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Amounts in thousands, except share and per share data) (unaudited)   (c) Revenue recognition   On January 1, 2018, we adopted and started applying the practical expedient offered under FASB Accounting Standards Codification ("ASC"), Revenue from Contracts with Customers,  ("Topic 606" ),   which permits, under ASC 606 - 10 - 55 - 18 revenue to be 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, LLC, 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  March 31, 2022 and December 31, 2021 , the balance of deferred revenue was  $ 701 and $ 651 , respectively. The majority of the deferred revenue balance as of  December 31, 2021 was recognized into revenue during the first quarter of 2022 .     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  March 31, 2022 and December 31, 2021 , unbilled revenue included in accounts receivable was $ 29,958 and $ 31,842 , 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.   (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 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. Actual results could differ from these estimates.   7 Table of Contents   FLUENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Amounts in thousands, except share and per share data) (unaudited)     2. Loss per share   Basic loss per share is computed by dividing net loss 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 per share reflects the potential dilution that could occur if securities or other contracts to issue common stock are exercised or converted into common stock and is calculated using the treasury stock method for stock options, restricted stock units, restricted stock, warrants and deferred common stock. Common equivalent shares are excluded from the calculation in loss periods, as their effects would be anti-dilutive.   For the  three months ended March 31, 2022 and 2021 , basic and diluted loss per share was as follows:       Three Months Ended March 31,       2022     2021   Numerator:                 Net loss   $ ( 2,013 )   $ ( 6,258 ) Denominator:                 Weighted average shares outstanding     79,161,367       79,608,513   Weighted average restricted shares vested not delivered     1,727,684       2,284,080   Total basic weighted average shares outstanding     80,889,052       81,892,593   Dilutive effect of assumed conversion of restricted stock units     —       —   Total diluted weighted average shares outstanding     80,889,052       81,892,593   Basic and diluted loss per share:                 Basic   $ ( 0.02 )   $ ( 0.08 ) Diluted   $ ( 0.02 )   $ ( 0.08 )   Based upon exercise prices to the average stock prices for the three months ended March 31, 2022 and 2021, certain stock equivalents, including stock options and warrants, have been excluded from diluted weighted average share calculations due to their anti-dilutive nature.       Three Months Ended March 31,       2022     2021   Restricted stock units     1,985,611       3,042,873   Stock options     2,139,000       2,204,000   Warrants     833,333       833,333   Total anti-dilutive securities     4,957,944       6,080,206     8 Table of Contents   FLUENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Amounts in thousands, except share and per share data) (unaudited)     3. Intangible assets, net   Intangible assets, net, other than goodwill, consist of the following:        Amortization period (in years)     March 31, 2022     December 31, 2021   Gross amount:                         Software developed for internal use     3     $ 10,603       9,552   Acquired proprietary technology     3 - 5       15,824       14,844   Customer relationships     5 - 10       38,068       37,886   Trade names     4 - 20       16,657       16,657   Domain names     20       195       191   Databases     5 - 10       31,292       31,292   Non-competition agreements     2 - 5       1,768       1,768   Total gross amount             114,407       112,190   Accumulated amortization:                         Software developed for internal use             ( 5,864 )     ( 5,263 ) Acquired proprietary technology             ( 13,571 )     ( 13,402 ) Customer relationships             ( 31,317 )     ( 29,948 ) Trade names             ( 5,368 )     ( 5,145 ) Domain names             ( 60 )     ( 58 ) Databases             ( 21,521 )     ( 20,859 ) Non-competition agreements             ( 1,768 )     ( 1,768 ) Total accumulated amortization             ( 79,469 )     ( 76,443 ) Net intangible assets:                         Software developed for internal use             4,739       4,289   Acquired proprietary technology             2,253       1,442   Customer relationships             6,751       7,938   Trade names             11,289       11,512   Domain names             135       133   Databases             9,771       10,433   Total intangible assets, net           $ 34,938     $ 35,747     The gross amounts associated with software developed for internal use primarily represent capitalized costs of internally developed software. 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,  LLC. and certain of its affiliates , effective July 1, 2019 ( the "AdParlor Acquisition"), the acquisition of a 50 % interest in Winopoly (the "Initial Winopoly Acquisition"), effective April 1, 2020 ( see Note   11 ,  Business acquisition ), and the acquisition of 100 % interest in True North Loyalty, LLC. (the "True North Acquisition"), effective January 1, 2022 ( see Note 11 , Business acquisition).  In connection with the Initial Winopoly Acquisition, the Company recorded 100 % equity ownership for GAAP purposes due to Winopoly's status as a VIE for which the Company is a primary beneficiary, so no further intangible assets were acquired in connection with the Full Winopoly Acquisition described in Note 11,   Business acquisition.   The Company completed its quarterly triggering event assessments for the three months ended March 31, 2022  and has determined that no triggering event had occurred requiring impairment assessments for its long-lived assets.   9 Table of Contents   FLUENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Amounts in thousands, except share and per share data) (unaudited)   Amortization expense of $ 3,141 and $ 3,177 for the three months ended March 31, 2022 and 2021 , respectively, is included in depreciation and amortization expenses in the consolidated statements of operations. As of March 31, 2022 , intangible assets with a carrying amount of $ 968 , included in the gross amount of software developed for internal use, have not commenced amortization, as they are not ready for their intended use.   As of March 31, 2022 , estimated amortization expense related to the Company's intangible assets for the remainder of 2022  and through 2027  and thereafter are as follows:   Year   March 31, 2022   Remainder of 2022   $ 7,828   2023     6,608   2024     6,459   2025     5,033   2026     1,450   2027 and thereafter     7,560   Total   $ 34,938       4. Goodwill   Goodwill represents consideration in excess of fair value of net assets acquired in a business combination. As of March 31, 2022 , the total balance of goodw ill was $ 166,180 , an increase of $ 1,092 from December 31, 2021, as a result of the True North Acquisition (see Note   11 ,  Business acquisition).  The balance also r elates 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  11 ,  Business acquisition ). In connection with the Initial Winopoly Acquisition, the Company recorded 100 % equity ownership for GAAP purposes due to Winopoly's status as aVIE for which the Company is a primary beneficiary, so no further goodwill was acquired in connection with the Full Winopoly Acquisition described in 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.   The Company completed its quarterly triggering event assessments for the three months ended March 31, 2022 and determined no triggering event had occurred that would require interim impairment assessments for its remaining goodwill. However, if there is a reduction in operating results or a decline in the market value of its publicly-traded stock, 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:       March 31, 2022     December 31, 2021   New Credit Facility Term Loan due 2026 (less unamortized discount and financing costs of $ 853 and $ 921 , respectively)   $ 44,147     $ 45,329   Less: Current portion of long-term debt     ( 5,000 )     ( 5,000 ) Long-term debt, net (non-current)   $ 39,147     $ 40,329     10 Table of Contents   FLUENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Amounts in thousands, except share and per share data) (unaudited)   Refinanced Term Loan   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, $ 766 of which was a cash payment.   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 $ 50,000 funded on the closing date (the “Term Loan”), along with an undrawn revolving credit facility of up to $ 15,000  (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 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 was  2.50 % (LIBOR + 2.25 %) and as of March 2022, the interest rate increased to 2.75 % (LIBOR + 2.50 %)   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 March 31, 2022 , the Company was in compliance with all of the financial and other covenants under the Credit Agreement. Effective September 1, 2021, the Credit Agreement was amended to add Winopoly as a party to that agreement following the consummation of the Full Winopoly Acquisition which transaction is more fully described in Note 11 of this Form  10 -Q.   Maturities   As of March 31, 2022 , scheduled future maturities of the Credit Agreement and Note Payable are as follows:   Year     March 31, 2022   Remainder of 2022   $ 3,750   2023     5,000   2024     5,000   2025     5,000   2026     26,250   Total maturities   $ 45,000     11 Table of Contents   FLUENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Amounts in thousands, except share and per share data) (unaudited)   Fair value   As of March 31, 2022 , 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  March 31, 2022 and December 31, 2021 , 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.   For the three months ended March 31, 2022 and 2021 , 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  March 31, 2022 and December 31, 2021 , 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 March 31, 2022 , 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  March 31, 2022 and December 31, 2021 , the number of issued shares of common stock was  83,983,587 and 83,057,083 , respectively, which included shares of treasury stock of  4,300,152 and 4,091,823 , respectively.   For the three months ended March 31, 2022 , the change in the number of issued shares of common stock was the result of an aggregate  926,504 shares of common stock issued upon vesting of RSUs, including  208,329 shares of common stock withheld to cover statutory taxes upon such vesting, which are reflected in treasury stock, as discussed below.     Treasury stock   As of  March 31, 2022 and December 31, 2021 , the Company held shares of treasury stock of 4,300,152  and 4,091,823 , with a cost of $ 11,171 and $ 10,723 , respectively.   12 Table of Contents   FLUENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Amounts in thousands, except share and per share data) (unaudited)   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 three months ended March 31, 2022 , 208,329  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  March 31, 2022 and December 31, 2021 , 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 the 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.     8. Share-based compensation   As of March 31, 2022 , 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  21,468,344 shares of common stock. As of March 31, 2022 , there were  909,251 shares of common stock available for additional grants pursuant to the Company's equity plans. 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.   13 Table of Contents   FLUENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Amounts in thousands, except share and per share data) (unaudited)   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, 2022 , 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. 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 three months ended March 31, 2022 , 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, 2021     2,204,000       $ 4.41       7.1       $ —   Granted     —       —       —       —   Exercised     —       —       —       —   Expired     (65,000)       1.10       —       —   Outstanding as of March 31, 2022     2,139,000       $ 4.37       7.1       $ —   Options exercisable as of March 31, 2022     1,242,000       $ 3.98       7.1       $ —     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.   14 Table of Contents   FLUENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Amounts in thousands, except share and per share data) (unaudited)   For the  three months ended March 31, 2022 , 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, 2021     897,000     $ 4.91       7.3   Granted     —       —       —   Vested     —       —       —   Unvested as of March 31, 2022     897,000     $ 4.91       7.1     Compensation expense recognized for stock options of $ 105 and $ 167  for the  three months ended March 31, 2022 and 2021 , respectively, was recorded in sales and marketing, product development and general and administrative expenses in the consolidated statements of operations. As of March 31, 2022 , there was $ 20 of unrecognized share-based compensation with respect to outstanding stock options.   Restricted stock units and restricted stock   For the three months ended March 31, 2022 , 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, 2021     3,111,321     $ 8.03   Granted     100,000     $ 2.11   Vested and delivered     ( 718,175 )   $ 4.16   Withheld as treasury stock (1)     ( 208,329 )   $ 4.56   Vested not delivered (2)     ( 45,731 )   $ 3.42   Forfeited     ( 253,475 )   $ 3.75   Unvested as of March 31, 2022     1,985,611     $ 10.15     ( 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 March 31, 2022 , there were  4,300,152  outstanding shares of treasury stock. ( 2 ) Vested not delivered represents vested RSUs with delivery deferred to a future time. For the three months ended March 31, 2022 , there was a net increase of  45,731  shares included in the vested not delivered balance as a result of the timing of delivery of certain shares. As of March 31, 2022 ,  1,737,397 outstanding RSUs were vested not delivered.   Compensation expense recognized for RSUs and restricted stock of $ 910  and $ 1,105  for the three months ended March 31, 2022 and 2021 , 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 March 31, 2022 , unrecognized share-based compensation expense associated with the granted RSUs and stock options amounted to $ 6,089 , which is expected to be recognized over a weighted average period of  1.8 years.   15 Table of Contents   FLUENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Amounts in thousands, except share and per share data) (unaudited)   For the  three months ended March 31, 2022 and 2021 , share-based compensation for the Company's stock options, RSU's, common stock and restricted stock awards were allocated to the following accounts in the consolidated financial statements:       Three Months Ended March 31,       2022     2021   Sales and marketing   $ 170     $ 163   Product development     160       268   General and administrative     658       800   Share-based compensation expense     988       1,231   Capitalized in intangible assets     27       41   Total share-based compensation   $ 1,015     $ 1,272       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 earnings before interest, taxes, depreciation and amortization ("EBITDA"). As of March 31, 2022 , 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 March 31,       2022     2021   Fluent segment revenue:                 United States   $ 60,659     $ 58,252   International     25,375       9,290   Fluent segment revenue   $ 86,034     $ 67,542   All Other segment revenue:                 United States   $ 2,989     $ 2,597   International     40       31   All Other segment revenue   $ 3,029     $ 2,628   Segment EBITDA                 Fluent segment EBITDA   $ 1,921     $ 1,410   All Other segment EBITDA     ( 243 )     ( 324 ) Total EBITDA     1,678       1,086   Depreciation and amortization     3,307       3,373   Total loss from operations   $ ( 1,629 )   $ ( 2,287 )       March 31,     December 31,       2022     2021   Total assets:             Fluent   $ 290,311     $ 297,768   All Other     16,484       20,414   Total assets   $ 306,795     $ 318,182     16 Table of Contents   FLUENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Amounts in thousands, except share and per share data) (unaudited)   As of March 31, 2022, long-lived assets are all located in the United States.   For the three months ended  March 31, 2022, the Company identified an international customer within the Fluent segment with revenue in the amount of $ 13,077  which represents 14.7 % of consolidated revenue.     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 $ 3,700  penalty, which was in line with the Company's accrual as of March 31, 2021  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. At this time, it is not possible to predict the ultimate outcome of this matter or the significance, if any, to our business, results of operations or financial position.   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 March 31, 2022, after a Conciliation Conference, the Company reached a settlement with the Tax Department for $ 1.7  million. which was paid on April 1, 2022.   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.   17 Table of Contents   FLUENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Amounts in thousands, except share and per share data) (unaudited)   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. ("PA UTP"); the Telemarketer Registration Act, 73 P.S. § 2241 et. seq. ("PA TSR"), and the Telemarketing Sales Rule, 16 C.F.R. 310 et seq ("TSR"). The Company has been responsive and is fully cooperating with the PA OAG. On February 14, 2022, the PA OAG sent a letter in which it asserted that the Company's lead generation practices violate the PA TSR, the PA UTP and the TSR. The Company disputes the PA OAG's assertions and believes its lead generation practices are compliant.  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   True North acquisition   On  January 1, 2022 ,  the Company acquired a  100 % membership interest in True North Loyalty, LLC (the "True North Acquisition") for a deemed purchase price of $ 2,321 , which consisted of $ 1,000  of cash at closing, $ 860 of deferred payments due at both the first and second anniversary of the closing adjusted for net-working capital, and contingent consideration with a fair value at the closing of $ 250 , payable in common stock based upon the achievement of specified revenue targets over the  five -year period following the completion of the acquisition. The Company also issued  100,000  shares of fully vested stock under the Fluent, Inc.  2018  Stock Incentive Plan to the sellers valued at $ 211 . Certain seller parties entered into employment and non-competition agreements with Company in connection with the True North Acquisition. True North Loyalty, LLC is a subscription-based business that utilizes call center operations and other media channels to market recurring revenue services to consumers. In accordance with ASC  805,  the Company determined that the True North Acquisition constituted the purchase of a business. For the three months ended March 31, 2022 ,  the Company incurred transaction-related expenses of   $ 20 and $ 125 of compensation expense related to non-compete agreements in connection with the acquisition, which are recorded as part of general and administrative expenses in the consolidated statements of operations. Assets and revenues of True North Loyalty, LLC totaled  0.7 % and  1.5 % , respectively, of the Company's consolidated financial statements at and for the three months ended  March 31, 2022  and are included in the Fluent operating segment.   On  January 1, 2022, it was determined to use the excess earnings method, a variation of the income approach, to amortize: (i) the fair value of the acquired customer relationships related to subscribers of $ 170 over a period of  one  year and (ii) the fair value of the acquired customer relationships related to call centers of $ 1,180 , over a period of  five  years. 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 $ 1,092  and primarily relates to intangible assets that do  not  qualify for separate recognition, including assembled workforce and synergies. For tax purposes, the goodwill is not deductible.   Below is a summary of the purchase price allocation of the True North acquisition:     Cash $ 29 Accounts receivable, net   3 Prepaid expenses and other current assets   84 Intangible assets:     Customer list   182 Developed technology   1,180 Goodwill   1,092 Other non-current assets   7 Liabilities assumed   (256) Consideration transferred $ 2,321   Certain fair values may be estimated at the acquisition date pending confirmation or completion of the valuation process. Where provisional values are used in accounting for a business combination, they may be adjusted retrospectively in subsequent periods, not to exceed one year from the acquisition date.   18 Table of Contents   FLUENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Amounts in thousands, except share and per share data) (unaudited)   Winopoly acquisition   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 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 due to Winopoly's status as VIE for which the Company is a primary beneficiary.   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 the 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 $ 3,201  on the date of the Full Winopoly Acquisition which was recorded as general and administrative and product development expenses. For the year ended December 31, 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 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 months ended March 31, 2021, compensation expense of $ 1,746  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.   19 Table of Contents   FLUENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Amounts in thousands, except share and per share data) (unaudited)     12. Variable Interest Entity   The Company determined that, following the Initial Winopoly Acquisition, Winopoly qualified as a VIE for which the Company was a primary beneficiary (see 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.   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).     20 Table of Contents