Fluent, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS.   FLUENT, INC. CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except share and per share data) (unaudited)       June 30, 2023     December 31, 2022   ASSETS:                 Cash and cash equivalents   $ 20,983     $ 25,547   Accounts receivable, net of allowance for doubtful accounts of $ 209 and $ 544 , respectively     58,120       63,164   Prepaid expenses and other current assets     9,941       3,506   Total current assets     89,044       92,217   Property and equipment, net     783       964   Operating lease right-of-use assets     4,278       5,202   Intangible assets, net     28,525       28,745   Goodwill     30,966       55,111   Other non-current assets     1,486       1,730   Total assets   $ 155,082     $ 183,969   LIABILITIES AND SHAREHOLDERS' EQUITY:                 Accounts payable   $ 13,303     $ 6,190   Accrued expenses and other current liabilities     27,469       35,626   Deferred revenue     895       1,014   Current portion of long-term debt     10,000       5,000   Current portion of operating lease liability     2,309       2,389   Total current liabilities     53,976       50,219   Long-term debt, net     27,989       35,594   Operating lease liability     2,734       3,743   Other non-current liabilities     2,248       458   Total liabilities     86,947       90,014   Contingencies (Note 10)                     Shareholders' equity:                 Preferred stock — $ 0.0001 par value, 10,000,000 Shares authorized; Shares outstanding — 0 shares for both periods     —       —   Common stock — $ 0.0005 par value, 200,000,000 Shares authorized; Shares issued — 85,751,226 and 84,385,458 , respectively; and Shares outstanding — 81,139,657 and 80,085,306 , respectively (Note 7)     43       42   Treasury stock, at cost — 4,611,569 and 4,300,152 Shares, respectively (Note 7)     ( 11,407 )     ( 11,171 ) Additional paid-in capital     425,491       423,384   Accumulated deficit     ( 345,992 )     ( 318,300 ) Total shareholders' equity     68,135       93,955   Total liabilities and shareholders' equity   $ 155,082     $ 183,969     See notes to consolidated financial statements   2 Table of Contents       FLUENT, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands, except share and per share data) (unaudited)       Three Months Ended June 30,     Six Months Ended June 30,       2023     2022     2023     2022   Revenue   $ 82,145     $ 98,361     $ 159,399     $ 187,424   Costs and expenses:                                 Cost of revenue (exclusive of depreciation and amortization)     59,540       70,026       117,812       137,589   Sales and marketing     4,215       4,484       9,028       8,336   Product development     4,615       4,802       9,553       9,357   General and administrative     3,941       11,688       16,266       22,975   Depreciation and amortization     3,095       3,332       5,454       6,639   Goodwill impairment and write-off of intangible assets     —       55,400       25,700       55,528   Loss on disposal of property and equipment     —       21       —       21   Total costs and expenses     75,406       149,753       183,813       240,445   Income (loss) from operations     6,739       ( 51,392 )     ( 24,414 )     ( 53,021 ) Interest expense, net     ( 795 )     ( 430 )     ( 1,484 )     ( 814 ) Income (loss) before income taxes     5,944       ( 51,822 )     ( 25,898 )     ( 53,835 ) Income tax expense     ( 1,693 )     ( 5,122 )     ( 1,794 )     ( 5,122 ) Net income (loss)     4,251       ( 56,944 )     ( 27,692 )     ( 58,957 )                                   Basic and diluted income (loss) per share:                                 Basic   $ 0.05     $ ( 0.70 )   $ ( 0.34 )   $ ( 0.73 ) Diluted   $ 0.05     $ ( 0.70 )   $ ( 0.34 )   $ ( 0.73 )                                   Weighted average number of shares outstanding:                                 Basic     82,727,971       81,493,821       82,323,854       81,193,107   Diluted     82,752,646       81,493,821       82,323,854       81,193,107     See notes to consolidated financial statements   3 Table of Contents       FLUENT, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Amounts in thousands, except share and per share data) (unaudited)       Common stock     Treasury stock     Additional paid-in     Accumulated     Total shareholders'       Shares     Amount     Shares     Amount     capital     deficit     equity   Balance at March 31, 2023     85,545,397     $ 43       4,611,569     $ ( 11,407 )   $ 424,531     $ ( 350,243 )   $ 62,924   Vesting of restricted stock units and issuance of stock under incentive plans     205,829       —       —       —       —       —       —   Share-based compensation     —       —       —       —       960       —       960   Net income     —       —       —       —       —       4,251       4,251   Balance at June 30, 2023     85,751,226     $ 43       4,611,569     $ ( 11,407 )   $ 425,491     $ ( 345,992 )   $ 68,135                                                             Balance at December 31, 2022     84,385,458     $ 42       4,300,152     $ ( 11,171 )   $ 423,384     $ ( 318,300 )   $ 93,955   Vesting of restricted stock units and issuance of stock under incentive plans     1,365,768       1       —       —       ( 1 )     —       —   Increase in treasury stock resulting from shares withheld to cover statutory taxes     —       —       311,417       ( 236 )     —       —       ( 236 ) Share-based compensation     —       —       —       —       2,108       —       2,108   Net loss     —       —       —       —       —       ( 27,692 )     ( 27,692 ) Balance at June 30, 2023     85,751,226     $ 43       4,611,569     $ ( 11,407 )   $ 425,491     $ ( 345,992 )   $ 68,135           Common stock     Treasury stock     Additional paid-in     Accumulated     Total shareholders'       Shares     Amount     Shares     Amount     capital     deficit     equity   Balance at March 31, 2022     83,983,587     $ 42       4,300,152     $ ( 11,171 )   $ 420,285     $ ( 196,981 )   $ 212,175   Vesting of restricted stock units and issuance of stock under incentive plans     162,495       —       —       —       —       —       —   Share-based compensation     —       —       —       —       887       —       887   Net loss     —       —       —       —       —       ( 56,944 )     ( 56,944 ) Balance at June 30, 2022     84,146,082     $ 42       4,300,152     $ ( 11,171 )   $ 421,172     $ ( 253,925 )   $ 156,118                                                             Balance at December 31, 2021     83,057,083     $ 42       4,091,823     $ ( 10,723 )   $ 419,059     $ ( 194,968 )   $ 213,410   Vesting of restricted stock units and issuance of restricted stock     1,088,999       —       —       —       211       —       211   Increase in treasury stock resulting from shares withheld to cover statutory taxes     —       —       208,329       ( 448 )     —       —       ( 448 ) Share-based compensation     —       —       —       —       1,902       —       1,902   Net loss     —       —       —       —       —       ( 58,957 )     ( 58,957 ) Balance at June 30, 2022     84,146,082     $ 42       4,300,152     $ ( 11,171 )   $ 421,172     $ ( 253,925 )   $ 156,118     See notes to consolidated financial statements   4 Table of Contents       FLUENT, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) (unaudited)       Six Months Ended June 30,       2023     2022   CASH FLOWS FROM OPERATING ACTIVITIES:                 Net loss   $ ( 27,692 )   $ ( 58,957 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities:                 Depreciation and amortization     5,454       6,639   Non-cash loan amortization expense     133       135   Share-based compensation expense     1,997       1,851   Goodwill impairment     25,700       55,400   Write-off of intangible assets     —       128   Loss on disposal of property and equipment     —       21   Provision for bad debt     ( 92 )     158   Deferred income taxes     —       —   Changes in assets and liabilities, net of business acquisitions:                 Accounts receivable     5,136       ( 7,913 ) Prepaid expenses and other current assets     ( 6,435 )     488   Other non-current assets     244       ( 25 ) Operating lease assets and liabilities, net     ( 165 )     ( 85 ) Accounts payable     7,113       913   Accrued expenses and other current liabilities     ( 9,147 )     ( 451 ) Deferred revenue     ( 119 )     ( 177 ) Other     ( 76 )     ( 72 ) Net cash provided by (used in) operating activities     2,051       ( 1,947 ) CASH FLOWS FROM INVESTING ACTIVITIES:                 Capitalized costs included in intangible assets     ( 2,370 )     ( 2,199 ) Business acquisitions, net of cash acquired     ( 1,250 )     ( 971 ) Acquisition of property and equipment     ( 22 )     ( 6 ) Net cash used in investing activities     ( 3,642 )     ( 3,176 ) CASH FLOWS FROM FINANCING ACTIVITIES:                 Repayments of long-term debt     ( 2,500 )     ( 2,500 ) Debt financing costs     ( 237 )     —   Taxes paid related to net share settlement of vesting of restricted stock units     ( 236 )     ( 448 ) Net cash used in financing activities     ( 2,973 )     ( 2,948 ) Net decrease in cash and cash equivalents     ( 4,564 )     ( 8,071 ) Cash and cash equivalents at beginning of period     25,547       34,467   Cash and cash equivalents at end of period   $ 20,983     $ 26,396   SUPPLEMENTAL DISCLOSURE INFORMATION                 Cash paid for interest   $ 1,434       687   Cash paid for income taxes   $ 78       35   Share-based compensation capitalized in intangible assets   $ 51       51   SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES                 Contingent payments in connection with TAPP consolidation   $ 2,915     $ —   Deferred payment in connection with True North acquisition   $ —     $ 860   Contingent consideration in connection with True North acquisition   $ —     $ 250   Equity issued in connection with True North acquisition   $ —     $ 211     See notes to consolidated financial statements   5 Table of Contents   FLUENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands, except share and per share data) (unaudited)     1. Summary of significant accounting policies   (a) Basis of preparation    The accompanying unaudited consolidated financial statements have been prepared by Fluent, Inc., a Delaware corporation (the "Company" or "Fluent"), in accordance with accounting principles generally accepted in the United States ("GAAP") and applicable rules and regulations of the Securities and Exchange Commission (the "SEC") regarding interim financial reporting. Certain information and note disclosures normally included in annual financial statements prepared in accordance with 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 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 .   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.    The information included in this Quarterly Report on Form 10 -Q should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company's Annual Report on Form 10 -K for the year ended  December 31, 2022 (" 2022 Form 10 -K") filed with the SEC on March 15, 2023 . The consolidated balance sheet as of  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   The consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant transactions among the Company and its subsidiaries have been eliminated upon consolidation.   (b) Recently issued and adopted accounting standards   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. 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 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.   6 Table of Contents   FLUENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Amounts in thousands, except share and per share data) (unaudited)   (c) Revenue recognition   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 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. As of  June 30, 2023 and December 31, 2022 , the balance of deferred revenue was  $ 895 and $ 1,014 , respectively. The majority of the deferred revenue balance as of  December 31, 2022 was recognized as revenue during the first  quarter of 2023 .   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. As of  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. Substantially all amounts included within the unbilled revenue balance are invoiced to customers within the month directly following the period of service. Historical estimates related to unbilled revenue have not been materially different from actual revenue billed.   (d) Use of estimates   The preparation of consolidated financial statements in accordance with 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, 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. Actual results could differ from these estimates.   (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:     ● Level  1  — Quoted prices in active markets for identical assets, liabilities, or funds.   ● Level  2—  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.   7 Table of Contents   FLUENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Amounts in thousands, except share and per share data) (unaudited)     ● Level  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 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 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.     2. 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 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,       2023     2022     2023     2022   Numerator:                                 Net income (loss)   $ 4,251     $ ( 56,944 )   $ ( 27,692 )   $ ( 58,957 ) Denominator:                                 Weighted average shares outstanding     81,012,997       79,793,240       80,613,857       79,479,049   Weighted average restricted shares vested not delivered     1,714,974       1,700,581       1,709,997       1,714,058   Total basic weighted average shares outstanding     82,727,971       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     82,752,646       81,493,821       82,323,854       81,193,107   Basic and diluted income (loss) per share:                                 Basic   $ 0.05     $ ( 0.70 )   $ ( 0.34 )   $ ( 0.73 ) Diluted   $ 0.05     $ ( 0.70 )   $ ( 0.34 )   $ ( 0.73 )   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,       2023     2022     2023     2022   Restricted stock units     5,568,341       1,875,000       5,592,510       1,875,000   Stock options     2,139,000       2,139,000       2,139,000       2,139,000   Total anti-dilutive securities     7,707,341       4,014,000       7,731,510       4,014,000     8 Table of Contents   FLUENT, INC.   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Amounts in thousands, except share and per share data) (unaudited)     3. Intangible assets, net   Intangible assets, net, other than goodwill, consist of the following:        Amortization period (in years)     June 30, 2023     December 31, 2022   Gross amount:                         Software developed for internal use     3     $ 16,664       13,740   Acquired proprietary technology     3 - 5       16,972       15,965   Customer relationships     5 - 10       39,168       38,068   Trade names     4 - 20       16,657       16,657   Domain names     20       195       195   Databases     5 - 10       31,292       31,292   Non-competition agreements     2 - 5       1,768       1,768                 122,716       117,685   Total gross amount                         Accumulated amortization:                         Software developed for internal use             ( 10,007 )     ( 8,097 ) Acquired proprietary technology             ( 14,825 )     ( 14,305 ) Customer relationships             ( 36,202 )     ( 35,156 ) Trade names             ( 6,484 )     ( 6,038 ) Domain names             ( 72 )     ( 68 ) Databases             ( 24,833 )     ( 23,508 ) Non-competition agreements             ( 1,768 )     ( 1,768 ) Total accumulated amortization             ( 94,191 )     ( 88,940 ) Net intangible assets:                         Software developed for internal use             6,657       5,643   Acquired proprietary technology             2,147       1,660   Customer relationships             2,966       2,912   Trade names             10,173       10,619   Domain names             123       127   Databases             6,459       7,784   Total intangible assets, net           $ 28,525     $ 28,745     The gross amounts associated with software developed for internal use primarily represent capitalized costs of internally developed software. The amounts relating to acquired proprietary technology, customer relationships, trade names, domain names, databases and non-competition agreements primarily represent the fair values of intangible assets acquired as a result of the acquisition of Fluent, LLC, effective December 8, 2015 ( the "Fluent LLC Acquisition");  the acquisition of Q Interactive, LLC, 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;  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 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.   9 Table of Contents   FLUENT, INC.   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Amounts in thousands, except share and per share data) (unaudited)   Amortization expense of $ 2,995   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:   Year   June 30, 2023   Remainder of 2023   $ 6,636   2024     8,676   2025     6,360   2026     2,765   2027     1,657   2028 and thereafter     2,431   Total   $ 28,525       4. Goodwill   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 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. The measurement date of the Company's annual goodwill impairment test is set to October 1.   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 .   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.     10 Table of Contents   FLUENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Amounts in thousands, except share and per share data) (unaudited)     5. Long-term debt, net   Long-term debt, net of unamortized discount and financing costs, related to the Credit Facility consisted of the following:       June 30, 2023     December 31, 2022   Credit Facility due 2026 (less unamortized discount and financing costs of $761 and $656, respectively)   $ 37,989     $ 40,594   Less: Current portion of long-term debt     ( 10,000 )     ( 5,000 ) Long-term debt, net (non-current)   $ 27,989     $ 35,594     Credit Facility   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. As of  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  30, 2023.   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.   11 Table of Contents   FLUENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Amounts in thousands, except share and per share data) (unaudited)   Maturities   As of June 30, 2023 , scheduled future maturities of the Credit Agreement are as follows:   Year     June 30, 2023   Remainder of 2023   $ 2,500   2024     5,000   2025     5,000   2026     26,250   Total maturities   $ 38,750       6. Income taxes   The Company is subject to federal and state income taxes in the United States. The tax provision for interim periods is determined using an estimate of the Company's annual effective tax rate ("AETR"). The Company updates its estimated AETR on a quarterly basis and, if the estimate changes, a cumulative adjustment is made.    As of  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. For those tax positions where it is more-likely-than- not that a tax benefit will be sustained, the Company has recorded the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where it is not more-likely-than- not that a tax benefit will be sustained, no tax benefit has been recognized in the Company's financial statements.   As of  June 30, 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.   12 Table of Contents   FLUENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Amounts in thousands, except share and per share data) (unaudited)   7. Common stock, treasury stock and warrants   Common stock   As of  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 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  311,417 shares of common stock withheld to cover statutory taxes upon such vesting, which are reflected in treasury stock, as discussed below.   Treasury stock   As of  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 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.      8. Share-based compensation   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. 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  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.   13 Table of Contents   FLUENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Amounts in thousands, except share and per share data) (unaudited)   Stock options   The Compensation Committee of the Company's Board of Directors approved the grant of stock options to certain Company executives, which were issued on February 1, 2019, December 20, 2019,  March 1, 2020, and March 1, 2021. 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 20 consecutive trading days; provided, that no shares will vest prior to the first anniversary of the grant date. 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. The fair value of the stock options granted was estimated at the trading day before the date of grant using a Monte Carlo simulation model. The key assumptions utilized to calculate the grant-date fair values for these awards are summarized below:   Issuance Date   February 1, 2019     December 20, 2019     March 1, 2020     March 1, 2021   Fair value lower range   $ 2.81     $ 1.58     $ 1.46     $ 4.34   Fair value higher range   $ 2.86     $ 1.61     $ 1.49     $ 4.43   Exercise price   $ 4.72     $ 2.56     $ 2.33     $ 6.33   Expected term (in years)     1.0 - 1.3       1.0 - 1.6       1.0 - 1.5       1.0 - 1.3   Expected volatility     65 %     70 %     70 %     80 % Dividend yield     — %     — %     — %     — % Risk-free rate     2.61 %     1.85 %     1.05 %     1.18 %   For the six months ended June 30, 2023 , details of stock option activity were as follows:       Number of options     Weighted average exercise price per share     Weighted average remaining contractual term (in years)     Aggregate intrinsic value   Outstanding as of December 31, 2022     2,139,000     $ 4.37       6.3     $ —   Granted     —       —       —       —   Exercised     —       —       —       —   Expired     —       —       —       —   Outstanding as of June 30, 2023     2,139,000     $ 4.37       5.8     $ —   Options exercisable as of June 30, 2023     1,242,000     $ 3.98       5.8     $ —     The aggregate intrinsic value amounts in the table above represent the difference between the closing price of the Company's common stock at the end of the reporting period and the corresponding exercise prices, multiplied by the number of in-the-money stock options as of the same date.   14 Table of Contents   FLUENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Amounts in thousands, except share and per share data) (unaudited)   For the  six months ended June 30, 2023 , the unvested balance of stock options was as follows:       Number of stock options     Weighted average exercise price per share     Weighted average remaining contractual term (in years)   Unvested as of December 31, 2022     897,000     $ 4.91       6.3   Granted     —       —       —   Vested     —       —       —   Unvested as of June 30, 2023     897,000     $ 4.91       5.8     Compensation expense recognized for stock options of $ 0 and $ 20  for the  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 six months ended June 30, 2023 , details of unvested RSU activity were as follows:       Number of units     Weighted average grant-date fair value   Unvested as of December 31, 2022     4,223,156     $ 5.37   Granted     3,487,110     $ 0.89   Vested and delivered     ( 1,054,351 )   $ 3.13   Withheld as treasury stock (1)     ( 311,417 )   $ 1.82   Vested not delivered (2)     ( 19,592 )   $ 1.41   Forfeited     ( 732,396 )   $ 1.47   Unvested as of June 30, 2023     5,592,510     $ 4.05     ( 1 ) As discussed in Note 7 , Common stock, treasury stock and warrants,  the increase in treasury stock was due to shares withheld to cover statutory withholding taxes upon the delivery of shares following vesting of RSUs. As of June 30, 2023 , there were  4,611,569   outstanding shares of treasury stock. ( 2 ) Vested not delivered represents vested RSUs with delivery deferred to a future time. For the six months ended June 30, 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 June 30, 2023 ,  1,719,592 outstanding RSUs were vested not delivered.   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 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  1.4 years.   15 Table of Contents   FLUENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Amounts in thousands, except share and per share data) (unaudited)   For the three 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,       2023     2022     2023     2022   Sales and marketing   $ 129     $ 143     $ 296     $ 313   Product development     136       98       327       258   General and administrative     671       622       1,434       1,280   Share-based compensation expense     936       863       2,057       1,851   Capitalized in intangible assets     24       24       51       51   Total share-based compensation   $ 960     $ 887     $ 2,108     $ 1,902     As of June  30, 2023, the Company recorded a liability of $ 14  related to PSUs that are to be settled in cash.     9. Segment information   The Company identifies operating segments as components of an entity for which discrete financial information is available and is regularly reviewed by the chief operating decision maker ("CODM") in making decisions regarding resource allocation and performance assessment. The profitability measure employed by CODM is earnings before interest, taxes, depreciation, and amortization ("EBITDA"). As of 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,       2023     2022     2023     2022   Fluent segment revenue(1):                                 United States     40,200     $ 54,684     $ 83,108     $ 115,343   International     39,809     $ 41,258       72,139       66,633   Fluent segment revenue     80,009       95,942       155,247       181,976   All Other segment revenue(1):                                 United States     2,136     $ 2,387     $ 4,152     $ 5,376   International     —       32       —       72   All Other segment revenue     2,136     $ 2,419     $ 4,152     $ 5,448   Segment EBITDA                                 Fluent segment EBITDA   $ 9,685     $ ( 48,168 )   $ ( 18,894 )   $ ( 46,247 ) All Other segment EBITDA     149       108       ( 66 )     ( 135 ) Total EBITDA     9,834       ( 48,060 )     ( 18,960 )     ( 46,382 ) Depreciation and amortization     3,095       3,332       5,454       6,639   Total income (loss) from operations   $ 6,739     $ ( 51,392 )   $ ( 24,414 )   $ ( 53,021 ) ( 1 ) Revenue aggregation is based upon location of the customer.   16 Table of Contents   FLUENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Amounts in thousands, except share and per share data) (unaudited)       June 30,     December 31,       2023     2022   Total assets:             Fluent   $ 140,236     $ 168,486   All Other     14,846       15,483   Total assets   $ 155,082     $ 183,969     As of June 30, 2023 , long-lived assets are all located in the United States.   For the  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.     10. Contingencies   In the ordinary course of business, the Company is subject to loss contingencies that cover a range of matters. An estimated loss from a loss contingency, such as a legal proceeding or claim, is accrued if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. In determining whether a loss should be accrued, the Company evaluates, among other factors, the degree of probability and the ability to reasonably estimate the amount of any such loss. The Company does  not  accrue liabilities when the likelihood that the liability has been incurred is probable, but the amount cannot be reasonably estimated.   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.  On  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.   17 Table of Contents   FLUENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Amounts in thousands, except share and per share data) (unaudited)   On October 6, 2020, the Company received notice from the Pennsylvania Office of the Attorney General ("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.  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. 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   settlement. 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 Network.     11. Business acquisition   True North Acquisition   On  January 1, 2022 ,  the Company acquired a  100 % membership interest in True North Loyalty, LLC for a deemed purchase price of $ 2,321 , which consisted of $ 1,000 in cash at closing, $ 860 of deferred payments due at both the first and second anniversary of the closing date adjusted for net working capital, and contingent consideration with a fair value at the closing date of $ 250 , payable in common stock based upon the achievement of specified revenue targets over the  five -year period following the completion of the acquisition. The Company also issued  100,000  shares of fully-vested 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. True North Loyalty, LLC is a subscription-based business that utilizes call center operations and other media channels to market recurring revenue services to consumers. In accordance with ASC  805,  the Company determined that the True North Acquisition constituted the purchase of a business.   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. For tax purposes, the goodwill is not deductible.   18 Table of Contents   FLUENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Amounts in thousands, except share and per share data) (unaudited)     12. Variable Interest Entity   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 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. 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, 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 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’ wages. 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.     13. 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.   19 Table of Contents