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Item 1. Financial Statements

2023-08-21 compared with 2023-05-15 · 231 added, 265 removed, 493 unchanged (50% of the section changed)

2 unchanged sentences

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

March 31, 2023

June 30, 2023

December 31, 2022

27 unchanged sentences

Current portion of long-term debt

10,000  

Current portion of operating lease liability

39 unchanged sentences

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

Three Months Ended March 31,

$ 77,254  

$ 89,063  

Three Months Ended June 30,

Six Months Ended June 30,

Costs and expenses:

Cost of revenue (exclusive of depreciation and amortization)

58,272  

67,562  

Sales and marketing

1 unchanged sentence

General and administrative

12,325  

11,287  

Depreciation and amortization

Goodwill impairment and write-off of intangible assets

25,700  

Loss on disposal of property and equipment

Total costs and expenses

108,407  

90,692  

Loss from operations

( 31,153 )  

Income (loss) from operations

Interest expense, net

( 689 )  

Loss before income taxes

( 31,842 )  

Income (loss) before income taxes

Income tax expense

( 101 )  

( 31,943 )  

Basic and diluted loss per share:

$ ( 0.39 )  

Net income (loss)

Basic and diluted income (loss) per share:

Weighted average number of shares outstanding:

81,906,913  

80,889,052  

81,906,913  

80,889,052  

See notes to consolidated financial statements

4 unchanged sentences

Total shareholders'

Balance at March 31, 2023

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

Share-based compensation

Balance at June 30, 2023

Balance at December 31, 2022

84,385,458  

4,300,152  

$ ( 11,171 )  

$ 423,384  

$ ( 318,300 )  

$ 93,955  

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

1,159,939  

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

311,417  

( 236 )  

Share-based compensation

( 31,943 )  

Balance at March 31, 2023

85,545,397  

4,611,569  

$ ( 11,407 )  

$ 424,531  

$ ( 350,243 )  

$ 62,924  

Balance at June 30, 2023

Treasury stock

1 unchanged sentence

Total shareholders'

Balance at December 31, 2021

83,057,083  

4,091,823  

$ ( 10,723 )  

$ 419,059  

$ ( 194,968 )  

$ 213,410  

Balance at March 31, 2022

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

926,504  

Share-based compensation

Balance at June 30, 2022

Balance at December 31, 2021

Vesting of restricted stock units and issuance of restricted stock

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

208,329  

( 448 )  

Share-based compensation

( 2,013 )  

Balance at March 31, 2022

83,983,587  

4,300,152  

$ ( 11,171 )  

$ 420,285  

$ ( 196,981 )  

$ 212,175  

Balance at June 30, 2022

See notes to consolidated financial statements

1 unchanged sentence

(Amounts in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

$ ( 31,943 )  

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

3 unchanged sentences

Goodwill impairment

25,700  

Write-off of intangible assets

Loss on disposal of property and equipment

Provision for bad debt

( 55 )  

Deferred income taxes

2 unchanged sentences

Prepaid expenses and other current assets

( 2,082 )  

Other non-current assets

Operating lease assets and liabilities, net

( 82 )  

Accounts payable

Accrued expenses and other current liabilities

( 3,362 )  

Deferred revenue

( 39 )  

Net cash provided by (used in) operating activities

1 unchanged sentence

Capitalized costs included in intangible assets

( 1,134 )  

Business acquisitions, net of cash acquired

( 1,250 )  

Acquisition of property and equipment

Net cash used in investing activities

( 2,384 )  

CASH FLOWS FROM FINANCING ACTIVITIES:

Repayments of long-term debt

( 1,250 )  

Debt financing costs

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

( 236 )  

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

25,547  

34,467  

Cash, cash equivalents and restricted cash at end of period

$ 26,567  

$ 28,944  

Net decrease in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

SUPPLEMENTAL DISCLOSURE INFORMATION

3 unchanged sentences

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

Contingent payments in connection with TAPP consolidation

Deferred payment in connection with True North acquisition

Contingent consideration in connection with True North acquisition

7 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 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 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 June 30, 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 .

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

3 unchanged sentences

The consolidated balance sheet as of 

December 31, 2022 included herein was derived from the audited financial statements as of that date included in the 2022 Form 10 -K.

December 31, 2022 included herein was derived from the audited financial statements as of that date and included in the 2022 Form 10 -K.

Principles of consolidation

2 unchanged sentences

(b) Recently issued and adopted accounting standards

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.

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

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

2 unchanged sentences

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

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

2 unchanged sentences

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.

Revenue is generated 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.

Revenue is recognized upon satisfaction of the associated performance obligation.

The Company elected the "right to invoice" practical expedient under Accounting Standards Codification ("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.

March 31, 2023 and

June 30, 2023 and

December 31, 2022 , the balance of deferred revenue was 

1 unchanged sentence

The majority of the deferred revenue balance as of 

December 31, 2022 was recognized into revenue during the

December 31, 2022 was recognized as revenue during the

first  quarter of

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.

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

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

June 30, 2023 and December 31, 2022 , unbilled revenue included in accounts receivable was $ 21,526 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.

15 unchanged sentences

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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

As of June 30, 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 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)

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.

As of June 30, 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 impairment charges.

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

Three Months Ended March 31,

For the three and 

six months ended June 30, 2023 and 2022 , basic and diluted income (loss) per share were as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Net income (loss)

$ 4,251  

$ ( 56,944 )  

$ ( 27,692 )  

Weighted average shares outstanding

1 unchanged sentence

79,793,240  

80,613,857  

79,479,049  

Weighted average restricted shares vested not delivered

1 unchanged sentence

1,700,581  

1,709,997  

1,714,058  

Total basic weighted average shares outstanding

1 unchanged sentence

81,493,821  

82,323,854  

81,193,107  

Dilutive effect of assumed conversion of restricted stock units

24,675  

Total diluted weighted average shares outstanding

1 unchanged sentence

81,493,821  

Basic and diluted loss per share:

82,323,854  

81,193,107  

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,

Basic and diluted income (loss) per share:

$ 0.05  

$ ( 0.70 )  

$ ( 0.34 )  

$ 0.05  

$ ( 0.70 )  

$ ( 0.34 )  

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

six months ended June 30, 2023 and 2022 , 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 June 30,

Six Months Ended June 30,

Restricted stock units

1 unchanged sentence

1,875,000  

5,592,510  

1,875,000  

Stock options

2 unchanged sentences

2,139,000  

Total anti-dilutive securities

1 unchanged sentence

4,014,000  

7,731,510  

4,014,000  

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3 unchanged sentences

Amortization period (in years)

March 31, 2023

June 30, 2023

December 31, 2022

17 unchanged sentences

Non-competition agreements

Total gross amount

122,716  

117,685  

Total gross amount

Accumulated amortization:

24 unchanged sentences

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).

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; 

the acquisition of a 100 % interest in True North Loyalty, LLC, (the "True North Acquisition"), effective January 1, 2022 ( see Note 11 , Business acquisition), and the consolidation of TAPP, LLC ("TAPP") effective January 9, 2023 ( see Note 12, Variable Interest Entity).

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.

three months ended June 

30, 2023  and has determined that the effect of the recently imposed regulatory requirements on the Company constituted a triggering event.

The Company conducted an interim test of the recoverability of its long-lived assets, which compared projected undiscounted cash flows to the carrying value of the asset group.

The results of this approach indicated that its long-lived assets were not impaired.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1 unchanged sentence

Amortization expense of $ 2,995  

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

and $ 3,218  for the three months ended June 30, 2023 and 2022 , respectively, and $ 5,251  and $ 6,359  for the 

six months ended June 30, 2023 and 2022 , respectively, is included in depreciation and amortization expenses in the consolidated statements of operations.

As of June 30, 2023 , intangible assets with a carrying amount of $ 1,184 , included in the gross amount of software developed for internal use, have not commenced amortization, as they are not ready for their intended use.

As of June 30, 2023 , estimated amortization expenses related to the Company's intangible assets for the remainder of 2023  and through 2028  and thereafter are as follows:

June 30, 2023

Remainder of 2023

3 unchanged sentences

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 ).

As of June 30, 2023 , the total balance of goodwill was $ 30,966 , a decrease of $ 24,145  from December 31, 2022, as a result of a non-cash impairment charge of $ 25,700 , offset by a $ 1,555  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.

7 unchanged sentences

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 .

The Company completed its quarterly triggering event assessments for the three months ended June 30, 2023 

and determined that the effect of the recently imposed regulatory requirements and the effect of the continued economic slowdown on the Company’s expected operating results had both constituted a triggering event .

The Company conducted an interim test of the fair value of the Fluent reporting unit's goodwill for potential impairment related to both triggering events as of June 30, 2023.

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

The results of this approach indicated that its fair value exceeded its carrying value by 5 %.

The Company therefore concluded that the Fluent reporting unit’s goodwill of $ 27,469 was not impaired.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2 unchanged sentences

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

March 31, 2023

June 30, 2023

December 31, 2022

8 unchanged sentences

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.

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 "Credit Facility"). On December 20, 2022, the Company entered into the second amendment to the Credit Agreement, which amended certain provisions to:

(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.

On March 31, 2021, Fluent, LLC ("Borrower") 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.

("Citizens Bank") 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 "Credit Facility"). On May 15, 2023, the parties entered into a third amendment to the Credit Agreement, which amended certain provisions by adding an additional tier of applicable margin to the selected rates and providing for additional notice of certain material events and, for the remaining fiscal quarters of 2023:

(i) established the applicable pricing floor;

(ii) modified and adjusted certain EBITDA add-backs;

(iii) added monthly financial reporting;

(iv) provided additional financial covenant testing conditions on Fluent’s ability to draw on the Revolving Loans;;

(v) added tiers to certain financial covenants and added a minimum cash liquidity financial covenant;

(vi) provided additional restrictions on the ability to make loans and advances to officers, directors and employees;

(vii) provided additional restrictions on the ability to invest in certain subsidiaries and joint ventures;

(viii) provided additional restrictions on the ability to make additional loans, investments or permitted acquisitions;

and (ix) added unrestricted cash requirements before the Company is permitted to pay dividends, make distributions or redeem or repurchase equity interests, in each case pursuant to the terms and conditions under the Credit Agreement. See Note 13, Subsequent Events .

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;

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 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  

June 30, 2023 , the Company was in compliance with all of the financial and other covenants applicable to the Term Loan 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, (as defined in the Credit Agreement), LIBOR (as defined in the Credit Agreement) rate (subject to a floor of 0.25 %) prior to the election as of December 31, 2022 or Term SOFR (as defined in the Credit Agreement) (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 2.25 % 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 7.95 % (Term SOFR + 0.1 % + 2.75 %) as of June 

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

The third amendment added an additional condition consisting of two financial covenants with which the Company must comply in order to draw on the Revolving Loans during the balance of 2023.

 As of June 30, 2023, the Company was 

not in compliance with this additional condition and was therefore unable to draw on the Revolving Loans. These matters do 

not  represent Events of Default (as defined in the Credit Agreement) and therefore do not affect the Term Loan.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

As of June 30, 2023 , scheduled future maturities of the Credit Agreement are as follows:

June 30, 2023  

Remainder of 2023

3 unchanged sentences

$ 38,750  

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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 (“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 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 tax provision for interim periods is determined using an estimate of the Company's annual effective tax rate ("AETR").

The Company updates its estimated AETR on a quarterly basis and, if the estimate changes, a cumulative adjustment is made. 

June 30, 2023 and December 31, 2022 , the Company 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 six months ended June 30, 2023 , the Company's effective income tax expense rate of 6.9 % 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. For the 

six months ended June 30, 2022 , the Company's effective income tax benefit rate of 9.5 % differed from the statutory federal income tax rate of 21 %, with such differences resulting primarily from the projected federal and state cash tax expense expected after consideration of the impact of the non-deductible goodwill impairment against pre-tax year-to-date losses.

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.

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 March 31, 2023 , the Company has not accrued any interest or penalties with respect to its uncertain tax positions.

June 30, 2023 and December 31, 2022 , the balance of unrecognized tax benefits was $ 1,480 .

The unrecognized tax benefits, if sustained, would benefit the Company's tax provision.

As of June 30, 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

Common stock, treasury stock and warrants

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

June 30, 2023 and December 31, 2022 , the number of issued shares of common stock was 

85,751,226 and 84,385,458 , respectively, which included shares of treasury stock of 

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

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 

For the six months ended June 30, 2023 , the change in the number of issued shares of common stock was the result of an aggregate 

1,365,768 shares of common stock issued upon vesting of RSUs, including 

1 unchanged sentence

Treasury stock

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)

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

June 30, 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.

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, 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.

For the six months ended June 30, 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. 

Share-based compensation

On June 8, 2022, the stockholders of the Company approved the Fluent, Inc.

On June 8, 2022 ( the "Effective Date"), the stockholders of the Company approved the Fluent, Inc.

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

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 

15,422,523 shares of the Company's common stock. As of June 30, 2023 , the Company had 

5,558,016 shares of common stock available for grants pursuant to the 2022 Plan, which includes 

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.

942,604  shares of common stock previously available for issuance under the 2018 Stock Incentive Plan. 

The primary purpose of the 2022 Plan and prior 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)

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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, under the Prior 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 %, 

March 1, 2020, and March 1, 2021.

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 20 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;

177.78 %, respectively, of the exercise price for 20 consecutive trading days;

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

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.

As of June 30, 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 three months ended March 31, 2023 , details of stock option activity were as follows:

For the six months ended June 30, 2023 , details of stock option activity were as follows:

Number of options

5 unchanged sentences

$ 4.37  

Outstanding as of March 31, 2023

Outstanding as of June 30, 2023

2,139,000  

$ 4.37  

Options exercisable as of March 31, 2023

Options exercisable as of June 30, 2023

1,242,000  

4 unchanged sentences

For the 

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

six months ended June 30, 2023 , the unvested balance of stock options was as follows:

Number of stock options

4 unchanged sentences

$ 4.91  

Unvested as of March 31, 2023

Unvested as of June 30, 2023

897,000  

1 unchanged sentence

Compensation expense recognized for stock options of $ 0 and $ 20  for the 

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.

three months ended June 30, 2023 and 2022 , respectively, and $ 0  and $ 125  for the 

six months ended June 30, 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 June 30, 2023 , there was $ 0 of unrecognized share-based compensation with respect to outstanding stock options.

Restricted stock units and restricted stock

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

For the six months ended June 30, 2023 , details of unvested RSU activity were as follows:

Number of units

16 unchanged sentences

$ 1.47  

Unvested as of March 31, 2023

Unvested as of June 30, 2023

5,592,510  

2 unchanged sentences

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, 2023 , there were 

As of June 30, 2023 , there were 

4,611,569  

1 unchanged sentence

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

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 

For the six months ended June 30, 2023 , there was a net increase in the vested not delivered balance as a result of the vesting of the 

19,592  shares that were deferred due to timing of delivery of certain shares.

As of March 31, 2023 , 

As of June 30, 2023 , 

1,719,592 outstanding RSUs were vested not delivered.

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.

Compensation expense recognized for RSUs of $ 960  and $ 867  for the three months ended June 30, 2023 and 2022 , respectively, and $ 2,108  and $ 1,777 for the 

six months ended June 30, 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 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 

As of June 30, 2023 , unrecognized share-based compensation expense associated with the granted RSUs and stock options amounted to $ 5,801 , 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 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,

For the three and 

six months ended June 30, 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 June 30,

Six Months Ended June 30,

Sales and marketing

6 unchanged sentences

$ 1,902  

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

As of June 

30, 2023, the Company recorded a liability of $ 14  related to PSUs that are to be settled in cash.

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 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, 2023 , 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 for the 

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

Three Months Ended March 31,

As of June 30, 2023 , the Company had 

two operating segments with two corresponding reporting units, "Fluent" and "All Other," and one reportable segment.

"Fluent," for the purposes of segment reporting, represents the consolidated operating results of the Company excluding "All Other." "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.

Summarized financial information concerning the Company's segments for the three and 

six months ended June 30, 2023 and 2022 are shown in the following tables below:

Three Months Ended June 30,

Six Months Ended June 30,

Fluent segment revenue(1):

2 unchanged sentences

$ 54,684  

$ 83,108  

$ 115,343  

International

1 unchanged sentence

$ 41,258  

72,139  

66,633  

Fluent segment revenue

1 unchanged sentence

95,942  

155,247  

181,976  

All Other segment revenue(1):

2 unchanged sentences

$ 4,152  

$ 5,376  

International

2 unchanged sentences

$ 4,152  

$ 5,448  

Segment EBITDA

2 unchanged sentences

$ ( 48,168 )  

$ ( 18,894 )  

All Other segment EBITDA

1 unchanged sentence

( 48,060 )  

( 18,960 )  

Depreciation and amortization

1 unchanged sentence

$ 6,739  

$ ( 51,392 )  

$ ( 24,414 )  

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

Total assets:

5 unchanged sentences

$ 183,969  

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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

As of June 30, 2023 , long-lived assets are all located in the United States.

For the 

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.

six months ended 

June 30, 2023 , the Company identified an international customer within the Fluent segment with revenue in the amount of $ 41,997  which represents 26 % of consolidated revenue.

Contingencies

4 unchanged sentences

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.

On March 31, 2022, the Company reached a settlement for $ 1,700 with the New York State Department of Taxation and Finance (the "Tax Department") following a sales and use tax audit covering the period from December 1, 2010 to November 30, 2019.

The Tax Department had asserted that revenue derived from certain of the Company’s customer acquisition and list management services were subject to sales tax, as a result of being deemed taxable information services.

The settlement amount was paid on April 1, 2022.

Since March 1, 2022, the Company has been collecting and remitting New York sales tax on certain types of revenue from New York based clients.

On January 28, 2020, Fluent received a Civil Investigative Demand from the Federal Trade Commission ("FTC") regarding compliance with the FTC Act and the Telemarketing Sales Rule. 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.

On January 12, 2023, the Company made an initial proposal of $ 5,000 for the civil monetary penalty contingent on successful negotiation of the remaining outstanding injunctions and other provisions. The Company accrued the same amount for the year ending December 31, 2022. 

May 26, 2023, Fluent agreed to the terms of a Stipulated Order for Permanent Injunction, Monetary Judgment, Civil Penalty Judgment, and Other Relief (the "FTC Consent Order"). The FTC Consent Order imposed a civil penalty of $ 2,500 , required additional changes to the Company’s employment opportunities marketplace and programmatic advertising business, and resulted in the implementation of compliance measures across the business.

The same day, Fluent transferred the amount of the civil penalty to a third -party escrow account. On July 

17, 2023, the FTC filed its Complaint for Civil Penalties, Permanent Injunction, Monetary Relief, and Other Relief and, together with Fluent, filed a Joint Motion for Entry of Proposed Stipulated Order in the United States District Court for the Southern District of Florida. The FTC Consent Order was entered by the Court on August 11, 2023, and the escrow funds were released on August 15, 2023.

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 (“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.

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.

On May 19, 2023, the parties entered into a settlement, wherein the Company agreed to injunctive relief and to pay the PAAG $ 250  for investigatory costs, all of which was paid as of June 30, 2023.

The Company has been involved in a Telephone Consumer Protection Act 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 

On May 31, 2023, the p arties entered into an Amended Class Action Settlement Agreement (the "Berman Settlement Agreement"), which includes injunctive provisions and payment to plaintiffs of $ 9,750 for legal fees and a consumer redress fund.

On July 28, 2023, the Court preliminarily approved the Berman Settlement Agreement, and the Company contributed $ 3,100 , payable following the final approval of the  

The final approval of the settlement is expected in mid- 2024.

 The Company’s contribution amounts were accrued as of 

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.

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 Network.

Business acquisition

4 unchanged sentences

The Company also issued 

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

100,000  shares of fully-vested common stock 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.

2 unchanged sentences

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 

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 

Since January 1, 2022, the Company has used 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 one -year period and (ii) the fair value of the acquired customer relationships related to call centers of $ 1,180 , over a five -year period. 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.

3 unchanged sentences

Variable Interest Entity

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.

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 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.

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

On January 9, 2023, the Company entered into employment agreements with certain key employees of 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.

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.

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

The deemed fair value of the consideration was $ 4,165 , which consisted of $ 1,250 of initial cash and $ 2,915 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.

The fair value of assets acquired, which excluded the immaterial net-working capital, were determined to be the publisher contracts of $ 1,100 , which were valued using the 'with or without' method, a variation of the income approach, to be amortized over a period of one year and industry-based trade secrets of $ 1,510 , which were valued using the excess earnings method, a variation of the income approach, to be amortized over a period of four 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 $ 1,555  and primarily represents workforce and expected cash flow generation for the TAPP business that does not qualify for separate recognition as intangible assets included within the Fluent operating segment. For tax purposes, the value of the acquisition payments are treated as ordinary compensation for services rendered, deductible when paid and included in the employees’

At and for the six months ended June 30, 2023, the assets and revenues of TAPP totaled a de minimis percentage of the Company’s total assets and revenue.

Subsequent Events

On July 31, 2023, the Company was informed that it would be receiving $ 4,022 of insurance proceeds to reimburse the Company for certain legal defense costs incurred in connection with the FTC investigation and PAAG matter, which have been classified as a current asset with an offsetting contra-expense to general and administrative expenses.

On August 14, 2023, the insurance proceeds were received by the Company.

On August 21, 2023, 

in order to avoid a projected violation of certain financial covenants for the third and fourth quarters of 2023, Fluent, LLC entered into a fourth amendment to the Credit Agreement with certain subsidiaries of Fluent, LLC as guarantors, and Citizens Bank as administrative agent, lead arranger and bookrunner, which (i) adjusted certain financial covenants for the remaining fiscal quarters of 2023, (ii) temporarily adjusted interest rates, (iii) permitted Citizens Bank to retain a business consultant at Fluent, LLC’s expense to advise on the credit parties’ financial and operating performance;

(iv) required weekly liquidity reports to Citizens Bank, (iv) required a $ 5,000 prepayment of the Term Loan, and (v) adjusted the Revolving Loans by the same amount to $ 10,000 .

The $ 5 million prepayment amount is reflected as current portion of long-term debt at June 30, 2023 in the consolidated balance sheet included in this report.

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