What changed in this filing

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Item 1. Financial Statements

2023-05-15 compared with 2022-11-07 · 204 added, 364 removed, 554 unchanged (51% of the section changed)

2 unchanged sentences

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

September 30, 2022

March 31, 2023

December 31, 2022

68 unchanged sentences

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

Three Months Ended September 30,

Nine Months Ended September 30,

$ 89,046  

$ 85,858  

Three Months Ended March 31,

$ 77,254  

4 unchanged sentences

67,562  

202,859  

171,379  

Sales and marketing

12,590  

Product development

13,979  

11,331  

General and administrative

1 unchanged sentence

11,287  

33,852  

36,505  

Depreciation and amortization

10,037  

Goodwill impairment and write-off of intangible assets

25,700  

Loss (gain) on disposal of property and equipment

Total costs and expenses

1 unchanged sentence

90,692  

328,864  

238,492  

Income (loss) from operations

( 2,047 )  

Loss from operations

( 31,153 )  

1 unchanged sentence

( 689 )  

( 405 )  

( 1,331 )  

Loss on early extinguishment of debt

Income (loss) before income taxes

( 2,452 )  

( 53,725 )  

Income tax (expense) benefit

( 2,119 )  

Net income (loss)

( 2,452 )  

( 55,844 )  

Basic and diluted income (loss) per share:

$ 0.04  

Loss before income taxes

( 31,842 )  

Income tax expense

( 101 )  

( 31,943 )  

Basic and diluted loss per share:

$ ( 0.39 )  

5 unchanged sentences

80,889,052  

81,699,966  

80,133,406  

81,327,639  

79,753,662  

See notes to consolidated financial statements

4 unchanged sentences

Total shareholders'

Balance at June 30, 2022

84,146,082  

4,300,152  

$ ( 11,171 )  

$ 421,172  

$ ( 253,925 )  

$ 156,118  

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

96,880  

Share-based compensation

Balance at September 30, 2022

84,242,962  

4,300,152  

$ ( 11,171 )  

$ 421,990  

$ ( 250,812 )  

$ 160,049  

Balance at December 31, 2022

12 unchanged sentences

( 31,943 )  

Balance at September 30, 2022

Balance at March 31, 2023

85,545,397  

7 unchanged sentences

Total shareholders'

Balance at June 30, 2021

82,440,259  

4,068,832  

$ ( 10,666 )  

$ 415,325  

$ ( 196,346 )  

$ 208,354  

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

578,159  

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

20,948  

( 52 )  

Share-based compensation

( 2,452 )  

Balance at September 30, 2021

83,018,418  

4,089,780  

$ ( 10,718 )  

$ 417,852  

$ ( 198,798 )  

$ 208,378  

Balance at December 31, 2021

5 unchanged sentences

$ 213,410  

Vesting of restricted stock units and issuance of restricted stock

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

926,504  

2 unchanged sentences

( 448 )  

Exercise of stock options

198,000  

Share-based compensation

( 2,013 )  

Balance at September 30, 2021

Balance at March 31, 2022

83,983,587  

7 unchanged sentences

(Amounts in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

CASH FLOWS FROM OPERATING ACTIVITIES:

2 unchanged sentences

Depreciation and amortization

10,037  

Non-cash loan amortization expense

Share-based compensation expense

Non-cash loss on early extinguishment of debt

Non-cash accrued compensation expense for Put/Call Consideration

Non-cash termination of Put/Call Consideration

Goodwill impairment

1 unchanged sentence

Write-off of intangible assets

Loss on disposal of property and equipment

Provision for bad debt

Provision for income taxes

( 55 )  

Deferred income taxes

Changes in assets and liabilities, net of business acquisitions:

1 unchanged sentence

Prepaid expenses and other current assets

( 2,082 )  

Other non-current assets

2 unchanged sentences

Accounts payable

( 1,212 )  

Accrued expenses and other current liabilities

12 unchanged sentences

CASH FLOWS FROM FINANCING ACTIVITIES:

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

49,624  

Repayments of long-term debt

( 1,250 )  

Exercise of stock options

Prepayment penalty on debt extinguishment

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

( 236 )  

Proceeds from the issuance of stock

Net cash (used in) provided by financing activities

( 4,198 )  

Net decrease in cash, cash equivalents and restricted cash

Net cash used in financing activities

( 1,486 )  

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

Cash, cash equivalents and restricted cash at beginning of period

6 unchanged sentences

Cash paid for interest

$ 1,162  

$ 1,413  

Cash paid for income taxes

1 unchanged sentence

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

Liability incurred for future contingent payments in connection with TAPP consolidation

$ 2,693  

Liability incurred for deferred payment in connection with True North acquisition

8 unchanged sentences

Certain information and note disclosures normally included in annual financial statements prepared in accordance with 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 September 30, 2022  and 2021 , respectively, 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 .

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, 2023  and 2022 , respectively, 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, 2023 .

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 

Business acquisition 

and Note 12 , Variable Interest Entity ). Winopoly has been a wholly-owned subsidiary of the Company since September 1, 2021.

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 

6 unchanged sentences

(b) Recently issued and adopted accounting standards

In January 2016, the 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.

Accounting pronouncements not listed below were assessed and determined to be not applicable or are expected to have minimal impact on our consolidated financial statements.

In January 2016, the Financial Accounting Standards Board issued Accounting Standards Updates No.

2016 - 13, Financial Instruments —

Credit Losses 

and additional changes, modifications, clarifications, or interpretations thereafter, which require a reporting entity to estimate credit losses on certain types of financial instruments, and present assets held at amortized cost and available-for-sale debt securities at the amounts expected to be collected.

The new guidance is effective for annual and interim periods beginning after December 15, 2022, and early adoption is permitted.

The Company is currently evaluating the impact of the 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 has completed its assessment and concluded this update has no  material impact on its consolidated financial statements.

The Company completed its assessment of the new guidance and determined it had no material impact on its consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1 unchanged sentence

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.

Revenue is when control of goods or services is transferred to customers, in the 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 business of AdParlor, LLC, a wholly-owned subsidiary of the Company.

Revenue is recognized upon satisfaction of associated performance obligation.

The Company elected the “right to invoice”

practical expedient under ASC 606 - 10 - 55 - 18 as a measure for revenue to be recognized, as it corresponds directly with the amounts that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.

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

September 30, 2022 and

March 31, 2023 and

December 31, 2022 , the balance of deferred revenue was 

4 unchanged sentences

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

September 30, 2022 and December 31, 2021 , unbilled revenue included in accounts receivable was $ 28,384 and $ 31,842 , respectively.

March 31, 2023 and December 31, 2022 , unbilled revenue included in accounts receivable was $ 22,777 and $ 26,878 , 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.

3 unchanged sentences

The preparation of consolidated financial statements in accordance with 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, consolidation of variable interest entity, accruals for contingencies, and income tax provisions.

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

1 unchanged sentence

(e) Fair value

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

Accounting standards describe a fair value hierarchy based on the following three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:

1  — Quoted prices in active markets for identical assets, liabilities, or funds.

 Inputs other than Level 

1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities;

quoted prices in markets that are not active;

or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

3  — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The fair value of the Company’s cash, cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their carrying values because of the short-term nature of these instruments.

As of September 30, 2022 , the fair value of long-term debt is considered to approximate its carrying value.

The fair value assessment represents a Level 2 measurement.

As of March 31, 2023 , the Company regards the fair value of its long-term debt to approximate its carrying value.

The fair value assessment represents a Level 2 measurement. See Note 5, Long-term debt, net.

The fair value of certain long-lived non-financial assets and liabilities may be required to be measured on a nonrecurring basis in certain circumstances, including when there is evidence of impairment.

As of September 30, 2022 , certain non-financial assets have been measured at fair value subsequent to their initial recognition. The Company determined the estimated fair value to be Level 3, as certain inputs used to determine fair value are unobservable, see Note 4, Goodwill , for further discussion of the impairment charge.

As of March 31, 2023 , certain non-financial assets have been measured at fair value subsequent to their initial recognition. The Company determined the estimated fair value to be a Level 3, as certain inputs used to determine fair value are unobservable, see Note 4, Goodwill , for further discussion of the impairment charge.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

Income (loss) per share

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

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

Loss 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") that are vested but not delivered. Diluted income (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock are exercised or converted into common stock and is calculated using the treasury stock method for stock options, restricted stock units, restricted stock, warrants and deferred common stock.

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

For the three and 

nine months ended September 30, 2022 and 2021 , basic and diluted income (loss) per share was as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

Net income (loss)

$ 3,113  

$ ( 2,452 )  

For the three months ended March 31, 2023 and 2022 , basic and diluted loss per share were as follows:

Three Months Ended March 31,

$ ( 31,943 )  

2 unchanged sentences

79,161,367  

79,620,308  

77,866,621  

Weighted average restricted shares vested not delivered

1 unchanged sentence

1,727,684  

1,707,331  

1,887,041  

Total basic weighted average shares outstanding

1 unchanged sentence

80,889,052  

81,327,639  

79,753,662  

Dilutive effect of assumed conversion of restricted stock units

107,650  

Total diluted weighted average shares outstanding

1 unchanged sentence

80,889,052  

81,327,639  

79,753,662  

Basic and diluted income (loss) per share:

$ 0.04  

$ ( 0.03 )  

$ ( 0.69 )  

$ 0.04  

Basic and diluted loss per share:

$ ( 0.39 )  

Based upon the exercise price and the average stock price for the three and nine months ended September 30, 2022 and 2021 , respectively, 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 September 30,

Nine Months Ended September 30,

Based on exercise prices compared to the average stock prices for the 

three months ended March 31, 2023 and 2022 , respectively, certain stock equivalents, including stock options and warrants, have been excluded from the diluted weighted average share calculations due to their anti-dilutive nature.

Three Months Ended March 31,

Restricted stock units

1 unchanged sentence

1,985,611  

1,780,022  

2,814,788  

Stock options

2 unchanged sentences

833,333  

2,204,000  

833,333  

Total anti-dilutive securities

1 unchanged sentence

4,957,944  

3,919,022  

5,852,121  

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3 unchanged sentences

Amortization period (in years)

September 30, 2022

March 31, 2023

December 31, 2022

2 unchanged sentences

$ 15,403  

13,740  

Acquired proprietary technology

35 unchanged sentences

10,619  

10,433  

Total intangible assets, net

1 unchanged sentence

$ 28,745  

The gross amounts associated with software developed for internal use primarily represents the 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 ( Note  

Business acquisition ), and the acquisition of 100 % interest in True North Loyalty, LLC, (the "True North Acquisition"), effective January 1, 2022 ( 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.

During the second quarter of 2022, the Company determined that the decline in its publicly traded stock price which resulted in a corresponding decline in its market capitalization constituted a triggering event. As such, the Company conducted an interim test of the recoverability of its long-lived assets. The Company continued to see a decline in its market capitalization for the third quarter of 2022 and conducted another recoverability test of its long-lived assets.

Based on the results of the recoverability tests, which measured the Company's projected undiscounted cash flows as compared to the carrying value of the asset group, the Company determined that its long-lived assets were not impaired as of June 30, 2022 or September 30, 2022.

The Company believes that the assumptions utilized in the impairment tests, including the estimation of future cash flows, were reasonable. Future tests may indicate impairment if actual future cash flows or other factors considered differ from the assumptions used in the prior interim impairment tests. 

The gross amounts associated with software developed for internal use primarily represent capitalized costs of internally developed software.

the acquisition of Q Interactive, LLC, effecti ve June 8, 2016 ( the "Q Interactive Acquisition"); the acquisition of substantially all the assets of AdParlor Holdings, Inc.

and certain of its affiliates, effective July 1, 2019 ( the "AdParlor Acquisition"); the acquisition of 

a 50 % interest in Winopoly, LLC (the "Initial Winopoly Acquisition"), effective April 1, 2020; 

and the acquisition of a 100 % interest in True North Loyalty, LLC, (the "True North Acquisition"), effective January 1, 2022 ( see Note 11 , Business acquisition).

The Company completed its quarterly triggering event assessments for the 

three months ended 

March 31, 2023 

and has determined that 

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1 unchanged sentence

Amortization expense of $ 2,256  

and $ 3,006  for the three months ended September 30, 2022 and 2021 , respectively, and $ 9,651  

and $ 9,352 , for the nine  months ended September 30, 2022 and 2021 , respectively, is included in depreciation and amortization expenses in the consolidated statements of operations.

As of September 30, 2022 , intangible assets with a carrying amount of $ 1,034 , 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, 2022 , estimated amortization expense related to the Company's intangible assets for the remainder of 2022  and through 2027  and thereafter are as follows:

September 30, 2022

and $ 3,141  for the three months ended March 31, 2023 and 2022 , respectively, is included in depreciation and amortization expenses in the consolidated statements of operations.

As of March 31, 2023 , intangible assets with a carrying amount of $ 971 , 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, 2023 , estimated amortization expenses related to the Company's intangible assets for the remainder of 2023  and through 2028  and thereafter are as follows:

March 31, 2023

Remainder of 2023

2 unchanged sentences

$ 27,650  

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

As of September 30, 2022 , the total balance of goodwill was $ 110,780 , a decrease of $ 54,308  from December 31, 2021, as a result of a non-cash impairment charge of $ 55,400 partially offset by $ 1,092 attributable to the True North Acquisition (Note 

Business acquisition).

 The balance also includes goodwill from the acquisition of the Fluent LLC Acquisition, the Q Interactive Acquisition, the AdParlor Acquisition, and the Initial Winopoly Acquisition (Note 

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 goodwill was acquired in connection with the Full Winopoly Acquisition described in Note 11,  

Business acquisition.

Goodwill represents the difference between the purchase price and the estimated fair value of net assets acquired, when accounted for under business combination accounting.

As of March 31, 2023 , the total balance of goodwill was $ 33,354 , a decrease of $ 25,700 from December 31, 2022, as a result of a non-cash impairment charge, offset by a $ 3,943 preliminary increase in goodwill related to the TAPP consolidation (see Note 12, Variable Interest Entities ). The balance also relates to the Fluent LLC Acquisition, the Q Interactive Acquisition, the AdParlor Acquisition, the Initial Winopoly Acquisition, and the True North Acquisition (see Note 11, Business acquisition ).

In accordance with ASC 350, Intangibles - Goodwill and Other, goodwill is assessed 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 set to October 1.

During the second quarter of 2022, the Company determined that the decline in the market value of its publicly-traded stock price, which resulted in a corresponding decline in its market capitalization, constituted a triggering event.

The Company conducted an interim test of the fair value of the Fluent reporting unit's goodwill for potential impairment as of June 30, 2022.

The Company considered a combination of income and market approaches to determine the fair value of the Fluent reporting unit. The Company determined that a market-based approach, which considered the Company’s implied market multiple applied to management’s forecast and further adjusted for a control premium, provided the best indication of fair value of the Fluent reporting unit. The results of this market-based approach indicated that its carrying value exceeded its fair value by 27 %.

The Company therefore concluded that the Fluent reporting unit’s goodwill of $ 162,000 was impaired and recorded a non-cash impairment charge of $ 55,400 in the second quarter of 2022.

During the third quarter of 2022,  the Company assessed the impact of the continued decline in the market value of its publicly-traded stock price and concluded that the continued decline constituted a triggering event.

The Company conducted a test of the fair value of the Fluent reporting unit's goodwill for potential impairment as of September 30, 2022.

The Company applied a combination of income and market approaches to determine the fair value of the Fluent reporting unit and concluded its goodwill of $ 106,600 was not impaired since the results of the test indicated that the estimated fair value exceeded its carrying value by approximately 4 %.

If there is a reduction in operating results or a further decline in the market value of the Company's publicly-traded stock, this could result in future impairment charges, which could affect the financial results.

The Company believes that the assumptions utilized in its interim impairment testing, including forecasted cash flows, market multiples and control premiums, are reasonable.

Balance as of December 31, 2021

True North acquisition

Fluent goodwill impairment

Balance as of September 30, 2022

The Company completed its quarterly triggering event assessments for the three months ended March 31, 2023 

and determined that the decline in the market value of its publicly-traded stock, which resulted in a corresponding decline in its market capitalization, constituted a triggering event .

The Company conducted an interim test of the fair value of the Fluent reporting unit's goodwill for potential impairment as of March 31, 2023.

The Company considered a combination of income and market approaches to determine the fair value of the Fluent reporting unit.

The Company determined that a market-based approach, which considered the Company’s implied market multiple applied to management’s forecast and further adjusted for a control premium, provided the best indication of fair value of the Fluent reporting unit.

The results of this market-based approach indicated that its carrying value exceeded its fair value by 20 %.

The Company therefore concluded that the Fluent reporting unit’s goodwill of $ 51,614  was impaired and recorded a non-cash impairment charge of $ 25,700 .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

Long-term debt, net of unamortized discount and financing costs, related to the Refinanced Term Loan and the New Credit Facility consisted of the following:

September 30, 2022

Long-term debt, net

Long-term debt, net of unamortized discount and financing costs, related to the Credit Facility consisted of the following:

March 31, 2023

December 31, 2022

New Credit Facility due 2026 (less unamortized discount and financing costs of $ 720 and $ 921 , respectively)

Credit Facility due 2026 (less unamortized discount and financing costs of $ 596 and $ 656 , respectively)

$ 39,404  

5 unchanged sentences

$ 35,594  

Refinanced Term Loan

On March 31, 2021, Fluent, LLC, a wholly-owned subsidiary of the Company redeemed in full $ 38,318 in the aggregate principal amount of a 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 the cost of early extinguishment of the 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”) with certain subsidiaries of Fluent, LLC as guarantors, and Citizens Bank, N.A. as administrative agent, lead arranger and bookrunner.

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 due 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 %), which increased to 4.87 % (LIBOR + 1.75 %) as of September 30, 2022.

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:

Credit Facility

On March 31, 2021, Fluent, LLC entered into a credit agreement (as amended, modified, extended, restated, replaced, or supplemented from time to time, the “Credit Agreement”) with certain subsidiaries of Fluent, LLC as guarantors, and Citizens Bank, N.A. as administrative agent, lead arranger and bookrunner.

(i) reflect the replacement of the current benchmark settings with Term Secured Overnight Financial Rate ("SOFR") pursuant to an early opt-in election;

(ii) acknowledge certain litigation matters;

and (iii) join additional subsidiaries of Borrower as guarantors of the loan facilities provided under the Credit Agreement.  On May 15, 2023, the Company entered into the third amendment to the Credit Agreement, which amended certain provisions to:

(i) add an additional tier of applicable margin to the selected rates;

(ii) establish the applicable pricing floor for the remaining fiscal quarters in 2023;

(iii) modify and adjust certain EBITDA add-backs for certain fiscal quarters in 2023;

(iv) add monthly financial reporting for the remaining fiscal quarters in 2023;

(v) provide additional financial covenant testing conditions on Fluent’s ability to draw on the Revolving Loans for the remaining fiscal quarters in 2023;

(vi) provide additional notice of certain material events;

(vii) add tiers to certain financial covenants and add a minimum cash liquidity financial covenant for the remaining fiscal quarters in 2023;

(viii) provide additional restrictions on the ability to make loans and advances to officers, directors and employees for the remaining fiscal quarters in 2023;

(ix) provide additional restrictions on the ability to invest in certain subsidiaries and joint ventures for the remaining fiscal quarters in 2023;

( x ) provide additional restrictions on the ability to make additional loans, investments or permitted acquisitions for the remaining fiscal quarters in 2023;

and (xi) add unrestricted cash requirements in order for the Company to be permitted to pay dividends, make distributions or redeem or repurchase equity interests, for the remaining fiscal quarters in 2023, in each case pursuant to the terms and conditions under the Credit Agreement.

Borrowings under the Credit Agreement bear interest at a rate per annum equal to the benchmark selected by the Borrower, which may be based on the Alternative Base Rate, LIBOR rate (subject to a floor of 0.25 %) prior to the election as of December 31, 2022 or Term SOFR (subject to a floor of 0.00 %) subsequent to the election, plus a margin applicable to the selected benchmark.

The applicable margin is between 0.75 % and 2.75 % for borrowings based on the Alternative Base Rate and 1.75 % and 3.25 % for borrowings based on Term SOFR, depending upon the Borrower's total leverage ratio.

The opening interest rate of the Credit Facility was 2.50 % (LIBOR + 2.25 %), which increased to 7.16 % (Term SOFR + 0.1 % + 2.25 %) as of March 31, 2023.

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, 2023 , the Company was in compliance with all of the financial and other covenants under the Credit Agreement.

The Credit Agreement contains negative covenants that, among other things, limit the Borrower's ability to:

incur indebtedness;

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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 September 30, 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, Business acquisition , of this Quarterly Report on Form 

Effective April 

29, 2022, the Credit Agreement was amended to add certain additional subsidiaries of Fluent, LLC as parties. 

As of September 30, 2022 , scheduled future maturities of the Credit Agreement are as follows:

September 30, 2022  

The Credit Agreement also contains certain affirmative covenants and customary events of default provisions, including, subject to thresholds and grace periods, among others, payment default, covenant default, cross default to other material indebtedness, and judgment default.

The Credit Agreement also contains certain customary conditions to extensions of credit, including that representations and warranties made in the Existing Credit Agreement be materially true and correct at the time of such extension.

One such representation concerning the absence of litigation or proceedings is not currently true and correct as a result of the matters pending involving the Federal Trade Commission and the Pennsylvania Office of the Attorney General described in FN 10, Contingencies .

These matters do not represent events of default under the Credit Agreement, but at March 31, 2023, the Borrower is not able to draw on the Revolving Credit Facility due the representation and warranty requirement for an extension of credit. 

As of March 31, 2023 , scheduled future maturities of the Credit Agreement are as follows:

March 31, 2023  

Remainder of 2023

7 unchanged sentences

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, a cumulative adjustment is made. 

September 30, 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.

The Company updates its estimated annual effective tax rate (“AETR”) on a quarterly basis and, if the estimate changes, a cumulative adjustment is made. 

March 31, 2023 and December 31, 2022 , 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 that the Company is able to achieve and the net deferred tax assets available.

For the nine months ended September 30, 2022, the Company's effective income tax expense rate of 4.0 % primarily represents the projected federal and state cash tax expense expected to result in taxable income for full-year 2022 after the impact of a non-deductible goodwill impairment against pre-tax year-to-date losses, offset by the benefit of federal research and development credits on expected federal cash tax expense. For the nine months ended September 30, 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.

For the three months ended March 31, 2023 , the Company's effective income tax expense rate of 0.3 % primarily represents the projected federal and state cash tax expense expected to result in taxable income for full-year 

2023  after the impact of a non-deductible goodwill impairment against pre-tax year-to-date losses, offset by the benefit of federal research and development credits on expected federal cash tax expense. For the 

three months ended March 31, 2022 , 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.

September 30, 2022 and December 31, 2021 , the balance of unrecognized tax benefits was $ 1,480 .

March 31, 2023 and December 31, 2022 , the balance of unrecognized tax benefits was $ 1,480 .

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

As of September 30, 2022 , the Company has not accrued any interest or penalties with respect to its uncertain tax positions.

As of March 31, 2023 , 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

September 30, 2022 and December 31, 2021 , the number of issued shares of common stock was 

March 31, 2023 and December 31, 2022 , the number of issued shares of common stock was 

85,545,397 and 84,385,458 , respectively, which included shares of treasury stock of 

4,611,569 and 4,300,152 , respectively.

For the nine months ended September 30, 2022 , the change in the number of issued shares of common stock was the result of an aggregate 

For the three months ended March 31, 2023 , the change in the number of issued shares of common stock was the result of an aggregate 

1,159,939 shares of common stock issued upon vesting of RSUs, including 

1 unchanged sentence

Treasury stock

September 30, 2022 and December 31, 2021 , the Company held shares of treasury stock of 4,300,152  and 4,091,823 , respectively with a cost of $ 11,171 and $ 10,723 , respectively.

March 31, 2023 and December 31, 2022 , the Company held shares of treasury stock of 4,611,569  and 4,300,152 , respectively with a cost of $ 11,407 and $ 11,171 , respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2 unchanged sentences

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

For the nine months ended September 30, 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.

For the three months ended March 31, 2023 , 311,417  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. 

On May 22, 2022, the warrants to purchase an aggregate of 833,333  shares of common stock at prices ranging from $ 3.75 to $ 6.00 per share expired, unexercised.

Share-based compensation

1 unchanged sentence

2022 Omnibus Equity Incentive Plan (the "2022 Plan") that authorized for issuance 

15,422,523 shares of the Company's common stock.

As of September 30, 2022 , the Company had 

15,422,523 shares of the Company's common stock, which became effective on August 10, 2022 ( “Effective Date”).

With the 

2022  Plan, 

no  further awards are available to be issued under the 

2018  Stock Incentive Plan (the “Prior Plan”), but all awards under the Prior Plans that are outstanding as of the Effective Date will continue to be governed by the terms, conditions and procedures set forth in the Prior Plans and any applicable award agreement. As of March 31, 2023 , the Company had 

6,091,436 shares of common stock available for grants pursuant to the 2022 Plan, which includes 

901,195  shares of common stock previously available for issuance under the Fluent, Inc.

2018 Stock Incentive Plan (the "Prior Plan"). The primary purpose of the plans is to attract, retain, reward, and motivate certain individuals by providing them with opportunities to acquire or increase their ownership interests in the Company. 

922,286  shares of common stock previously available for issuance under the Prior Plan. 

The primary purpose of the plans is to attract, retain, reward, and motivate certain individuals by providing them with opportunities to acquire or increase their ownership interests in the Company. In October 2022, the Company issued to certain of its senior officers and employees, restricted stock units (“RSUs”) (time-based vesting), long-term incentive grants (performance and time-based vesting RSUs), or performance share units (“PSUs”) (achievement of performance targets settled in cash) under the 2022 Plan.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7 unchanged sentences

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

As of September 30, 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.

As of March 31, 2023 , 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.

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1.05 %  

For the nine months ended September 30, 2022 , details of stock option activity were as follows:

For the three months ended March 31, 2023 , details of stock option activity were as follows:

Number of options

5 unchanged sentences

$ 4.37  

( 65,000 )  

Outstanding as of September 30, 2022

Outstanding as of March 31, 2023

2,139,000  

$ 4.37  

Options exercisable as of September 30, 2022

Options exercisable as of March 31, 2023

1,242,000  

4 unchanged sentences

For the 

nine months ended September 30, 2022 , the unvested balance of stock options was as follows:

three months ended March 31, 2023 , the unvested balance of stock options was as follows:

Number of stock options

4 unchanged sentences

$ 4.91  

Unvested as of September 30, 2022

Unvested as of March 31, 2023

897,000  

1 unchanged sentence

Compensation expense recognized for stock options of $ 0 and $ 105  for the 

three months ended September 30, 2022 and 2021 , respectively, and $ 125  

$ 395  for the nine months ended 

September 30, 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 September 30, 2022 , there was $ 0 of unrecognized share-based compensation with respect to outstanding stock options.

three months ended March 31, 2023 and 2022 , respectively, was recorded in sales and marketing, product development and general and administrative expenses in the consolidated statements of operations. As of March 31, 2023 , there was $ 0 of unrecognized share-based compensation with respect to outstanding stock options.

Restricted stock units and restricted stock

For the nine months ended September 30, 2022 , details of unvested RSU and restricted stock activity were as follows:

For the three months ended March 31, 2023 , details of unvested RSU activity were as follows:

Number of units

15 unchanged sentences

( 688,891 )  

Unvested as of September 30, 2022

$ 1.43  

Unvested as of March 31, 2023

5,270,095  

$ 4.24  

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 September 30, 2022 , there were 

As of March 31, 2023 , there were 

4,611,569  

1 unchanged sentence

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

For the nine months ended September 30, 2022 , there was no net change in the vested not delivered balance as a result of the timing of delivery of certain shares.

As of September 30, 2022 , 

For the three months ended March 31, 2023 , there was a net increase in the vested not delivered balance as a result of the vesting of the 

14,416  shares that were deferred due to timing of delivery of certain shares.

As of March 31, 2023 , 

1,706,081 outstanding RSUs were vested not delivered.

Compensation expense recognized for RSUs and restricted stock of $ 818  and $ 1,063  for the three months ended September 30, 2022 and 2021 , respectively, and $ 2,595  

$ 3,276  

for the nine months ended 

September 30, 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, net in the consolidated balance sheets.

Compensation expense recognized for RSUs of $ 1,148  and $ 910  for the three months ended March 31, 2023 and 2022 , respectively, was recorded in sales and marketing, product development and general and administrative in the consolidated statements of operations, and intangible assets, net in the consolidated balance sheets.

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

As of September 30, 2022 , unrecognized share-based compensation expense associated with the granted RSUs and stock options amounted to $ 4,190 , which is expected to be recognized over a weighted average period of 

As of March 31, 2023 , unrecognized share-based compensation expense associated with the granted RSUs and stock options amounted to $ 8,397 , which is expected to be recognized over a weighted average period of 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

For the three and 

nine months ended September 30, 2022 and 2021 , share-based compensation for the Company's stock options, RSUs, and common stock awards were allocated to the following accounts in the consolidated financial statements:

Three Months Ended September 30,

Nine Months Ended September 30,

For the three months ended March 31, 2023 and 2022 , share-based compensation for the Company's stock options, RSUs, and common stock awards were allocated to the following accounts in the consolidated financial statements:

Three Months Ended March 31,

Sales and marketing

6 unchanged sentences

$ 1,015  

$ 3,671  

As of March 31, 2023, the Company recorded a liability of $ 15  related to PSUs that are to be settled in cash.

Segment information

1 unchanged sentence

The profitability measure employed by CODM is earnings before interest, taxes, depreciation, and amortization ("EBITDA").

As of September 30, 2022 , the Company has two operating segments and two corresponding reporting units, “Fluent”

As of March 31, 2023 , the Company has two operating segments and two corresponding reporting units, “Fluent”

and “All Other,”

4 unchanged sentences

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 for the three and nine  months ended September 30, 2022 and 2021  are shown in the following tables below:

Three Months Ended September 30,

Nine Months Ended September 30,

Summarized financial information concerning the Company's segments for the 

three  months ended March 31, 2023 and 2022  are shown in the following tables below:

Three Months Ended March 31,

Fluent segment revenue (1) :

2 unchanged sentences

$ 60,659  

$ 169,197  

$ 180,091  

International

1 unchanged sentence

$ 25,375  

99,841  

40,041  

Fluent segment revenue

1 unchanged sentence

$ 86,034  

$ 269,038  

$ 220,132  

All Other segment revenue (1) :

2 unchanged sentences

$ 2,989  

$ 7,360  

$ 9,194  

International

2 unchanged sentences

$ 3,029  

$ 7,432  

$ 9,274  

Segment EBITDA

5 unchanged sentences

( 28,794 )  

( 42,357 )  

Depreciation and amortization

10,037  

Total income (loss) from operations

$ ( 31,153 )  

$ ( 52,394 )  

September 30,

( 1 ) Revenue aggregation is based upon location of the customer.

Total assets:

7 unchanged sentences

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

As of September 30, 2022 , long-lived assets are all located in the United States.

As of March 31, 2023 , long-lived assets are all located in the United States.

For the 

nine months ended 

September 30, 2022 , the Company identified an international customer within the Fluent segment with revenue in the amount of $ 59,175  

which represents 21 % of consolidated revenue.

three months ended 

March 31, 2023 , the Company identified an international customer within the Fluent segment with revenue in the amount of $ 19,125  which represents 25 % of consolidated revenue.

Contingencies

2 unchanged sentences

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 

 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 has not received any communications from either the DOJ or the DC AG since the second quarter of 2020.

 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 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  notices of determination subsequently issued by the Tax Department totaling $ 3.0  million, including $ 0.7 million of interest.

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 (“CID”) from the Federal Trade Commission (“FTC”) regarding compliance with the Federal Trade Commission Act, 15 U.S.C.

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

Part 310, as they relate to the advertising, marketing, promotion, offering for sale, or sale of rewards and other products, the transmission of commercial text messages, and/or consumer privacy or data security. 

Since receipt of the CID, the Company has provided information and documentation and fully cooperated with the FTC. 

On October 18, 2022, the FTC sent the Company a draft complaint and proposed consent order seeking injunctive relief and a civil monetary penalty. 

A substantial majority of the injunctive provisions contained in the consent order are consistent with the Company’s current business practices.

The FTC and the Company have commenced settlement negotiations.

The Company believes that a loss from these matters is probable but it is not yet possible to reasonably estimate the magnitude of such loss. 

An unfavorable outcome of this matter could have a material adverse effect on the Company’s business, results of operations and/or financial position.

The Company does 

not  accrue liabilities when the likelihood that the liability has been incurred is probable, but the amount cannot be reasonably estimated.

The New York State Department of Taxation and Finance (the “Tax Department”) performed a sales and use tax audit covering the period from December 1, 2010 to November 30, 2019.

The Tax Department asserted 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 taxable information services.

The Company reached a settlement with the Tax Department for $ 1,700 which was paid on April 1, 2022.

Starting on 

March 1, 2022, the Company has been collecting and remitting New York sales tax on certain list management and hosted revenues from New York based clients.

On January 28, 2020, Fluent received a Civil Investigative Demand from the FTC regarding compliance with the FTC Act and the Telemarketing Sales Rule (“TSR”).

On October 18, 2022, the FTC staff sent the Company a draft complaint and proposed consent order seeking injunctive relief and a civil monetary penalty.

The Company has been negotiating resolution of the terms of the consent order with the FTC staff.

On January 12, 2023, the Company made an initial proposal of $ 5.0 million for the civil monetary penalty contingent on successful negotiation of the remaining outstanding injunctions and other provisions.

On January 30, 2023, the FTC staff forwarded a complaint recommendation to the FTC’s Bureau of Consumer Protection for consideration.

On March 3, 2023, the Company met with the Bureau of Consumer Protection and, as a result of that meeting, the Company continued negotiation with the FTC staff. On April 12, 2023, the FTC staff recommended that the FTC’s Bureau of Consumer Protection forward a complaint recommendation to the Commission. The Company is scheduled to meet with the Commission on May 16, 2023 in an effort to continue negotiations on the limited outstanding issues. 

The Company is seeking an agreement with the FTC on the terms of a consent order, including injunctive and civil monetary penalty provisions, but there is no assurance this will occur.

The Company accrued $ 5,000 in connection with this matter for the year ended December 31, 2022, which it continues to maintain, however, a final civil monetary penalty could be higher or lower.

The Company will continue to devote substantial resources and incur outside legal expenses until this matter is concluded.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

On October 6, 2020, the Company received notice from the Pennsylvania Office of the Attorney General (“PA AG”) 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 AG.

On July 27, 2022, the PA AG sent the Company a draft Assurance of Voluntary Compliance (“AVC”). The Company responded with a revised AVC but the PA AG indicated an unwillingness to negotiate the terms of the AVC, and on November 2, 2022, the Commonwealth of Pennsylvania filed a complaint for permanent injunction, civil penalties in the amount of $ 1,000 for each violation of the PA Consumer Protection Law and disgorgement of profits plus other monetary relief, and other equitable relief against Fluent, LLC and four of its subsidiaries in the United States District Court for the Western District of Pennsylvania. 

The Company believes its current practices are in compliance with the PA Consumer Protection Law and is currently evaluating this complaint. 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 (“PAAG”) that it was reviewing the Company’s business practices relating to telemarketing.

After the Company and the PAAG were unable to reach agreement on a proposed Assurance of Voluntary Compliance, the Commonwealth of Pennsylvania filed a complaint for permanent injunction, civil penalties, and other relief in the United States District Court for the Western District of Pennsylvania on November 2, 2022.

While the Company believes that its historical practices were in full compliance with the PA Consumer Protection Law and the TSR, the Company has updated its telemarketing practices. On May 8, 2023, the Parties notified the Court that they had reached a settlement in principle and are coordinating on finalizing documentation for submission to the Court. 

As part of the settlement in principle, the Company has agreed to pay the PAAG $ 250  for investigatory costs, of which $ 200  had been accrued for as of March 31, 2023.

The Company has been involved in a TCPA class action, Daniel Berman v.

Freedom Financial Network, which was originally filed in 2018.

Plaintiff's second Motion for Class Certification (the first such motion was denied) is pending and oral argument was scheduled for February 7, 2023. 

The parties entered into a Class Action Settlement Agreement which provides for payment to plaintiffs of $ 9,750 and injunctive provisions.

The Company will contribute $ 3,100 towards the settlement, payable following the approval of the Final Approval Order and Judgement anticipated to occur in approximately a year.

This amount was accrued during the three months ended 

December 31, 2022.

This amount is payable $ 1,100 in cash and $ 2,000 pursuant to an interest-bearing note with a two -year term provided by co-defendant, Freedom Financial.

Business acquisition

4 unchanged sentences

The Company also issued 

100,000  shares of fully vested stock under the Prior Plan to the sellers valued at $ 211 .

100,000  shares of fully-vested common stock under the Prior Plan to the sellers valued at $ 211 .

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

1 unchanged sentence

In accordance with ASC 

805,  the Company determined that the True North Acquisition constituted the purchase of a business. For the three and nine  months ended September 30, 2022 ,  the Company incurred transaction-related expenses of $ 0  and $ 59 , respectively, and compensation expense related to non-compete agreements in connection with the acquisition of $ 125 and $ 375 , respectively, 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 2 % and 2 %, respectively, of the Company's consolidated assets and revenues as of and for the 

nine  months ended 

September 30, 2022 and are included in the Fluent operating segment.

January 1, 2022, it was determined to use the excess earnings method, a variation of the income approach, to amortize:

805,  the Company determined that the True North Acquisition constituted the purchase of a business.

January 1, 2022, the Company 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 

3 unchanged sentences

For tax purposes, the goodwill is not deductible.

Below is a summary of the purchase price allocation of the True North Acquisition:

Accounts receivable, net  

Prepaid expenses and other current assets  

Intangible assets:

Customer list  

Developed technology  

Goodwill  

Other non-current assets  

Liabilities assumed  

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

Winopoly acquisition

On April 1, 2020, the Company acquired, through a wholly-owned subsidiary, a 50 % membership interest in Winopoly 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.

The initial contingent consideration of $1,000 had been paid based on specific revenue targets having been met in the first quarter of 2021.

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.

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.

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 Prior 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.

For the 

three and 

nine months ended September 30, 2021, compensation expense of $ 586 and $ 3,213  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.

There was no corresponding charge for the three and nine months ended September 30, 2022.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

Variable Interest Entity

The Company determined that, following the Initial Winopoly Acquisition, Winopoly qualified as a VIE for which the Company was the primary beneficiary (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 include 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 (Note 3 , Intangible assets, net , Note 4 , Goodwill and Note 11 , Business acquisition).

The Company assesses whether we are the primary beneficiary of a VIE at the inception of the arrangement and at each reporting date.

On January 9, 2023, the Company entered into employment agreements with certain key employees of TAPP, LLC (“TAPP”), an influencer-based business, which uses as an application to utilize its relationship with influencer to bring consumers to advertising clients.

The Company is also a customer of TAPP and accounts for the majority of TAPP’s revenues.

By virtue of TAPP’s key employees being employed by the Company and the significance of the Company to TAPP’s financial performance, the Company determined that TAPP qualified as a VIE in which the Company had a variable interest and that the Company is the primary beneficiary as a result of its significant influence and control over certain activities that most significantly impact its economic performance. As a result, the Company consolidates the TAPP operations.

As the Company does not have an equity interest, 100 % of the net assets and results of the operations of TAPP are attributable to non-controlling interests.

As the Company gained control of TAPP, in accordance with ASC 805, Business Combinations (ASC 805 ), it was then determined that TAPP constituted a business.

The deemed fair value of the consideration was $ 3,943 , which consisted of $ 1,250 of initial cash and $ 2,693 which was contingent based upon achievement of specified revenue and media margin targets over three - years.

The purchase price allocation is based upon preliminary estimates as not all information relevant to determine these amounts were available as of March 31, 2023.

Under these circumstances, the preliminary valuation was based upon initial internal estimates.

The assets acquired include publisher contract intangibles and goodwill.

The tax effects of this transaction are still being evaluated.

Preliminary allocation to net-working capital and acquired assets is expected to be immaterial and as a result the initial allocation of the consideration resulted in goodwill of $ 3,943 .

The amounts recognized will be finalized as the information necessary to complete the analysis is obtained, but no later than one year after the transaction date, which is January 9, 2023.

Finalization of the valuation during the measurement period could result in changes in the amounts recorded for the transaction date fair value.

Goodwill was determined as the excess of the purchase price over the fair value of the assets acquired, and represents workforce and expected cash flow generation for the TAPP business that does not qualify for separate recognition as intangible assets.

At and for the three months ended March 31, 2023, the assets and revenues of TAPP totaled a de minimis percentage of the Company’s total assets and revenue.

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