What changed in this filing

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Item 1. Financial Statements

2023-11-15 compared with 2023-08-21 · 184 added, 141 removed, 583 unchanged (36% of the section changed)

2 unchanged sentences

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

June 30, 2023

September 30, 2023

December 31, 2022

34 unchanged sentences

35,594  

Operating lease liability

32 unchanged sentences

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Costs and expenses:

5 unchanged sentences

Goodwill impairment and write-off of intangible assets

Loss on disposal of property and equipment

Loss (gain) on disposal of property and equipment

Total costs and expenses

2 unchanged sentences

Income (loss) before income taxes

Income tax expense

Income tax (expense) benefit

Net income (loss)

7 unchanged sentences

Total shareholders'

Balance at March 31, 2023

Balance at June 30, 2023

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

Share-based compensation

Balance at June 30, 2023

Balance at September 30, 2023

Balance at December 31, 2022

2 unchanged sentences

Share-based compensation

Balance at June 30, 2023

Balance at September 30, 2023

Treasury stock

1 unchanged sentence

Total shareholders'

Balance at March 31, 2022

Balance at June 30, 2022

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

Share-based compensation

Balance at June 30, 2022

Balance at September 30, 2022

Balance at December 31, 2021

2 unchanged sentences

Share-based compensation

Balance at June 30, 2022

Balance at September 30, 2022

See notes to consolidated financial statements

1 unchanged sentence

(Amounts in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

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

Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and amortization

5 unchanged sentences

Provision for bad debt

Deferred income taxes

Changes in assets and liabilities, net of business acquisitions:

6 unchanged sentences

Deferred revenue

Net cash provided by (used in) operating activities

Net cash provided by operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

27 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 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 accompanying unaudited consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods ended September 30, 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").

5 unchanged sentences

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

Going concern

In accordance with ASC 205 - 40, Presentation of Financial Statements –

Going Concern, management must evaluate whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year after the date these accompanying unaudited financial statements are issued (the “issuance date”).

As part of this evaluation, management may consider the potential mitigating impact of its plans that have not been fully implemented as of the issuance date if (a) it is probable that management’s plans will be effectively implemented on a timely basis, and (b) it is probable that the plans, when implemented, will alleviate the relevant conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the issuance date.

The Company has experienced a decline in its operating results, driven primarily by the continued economic slowdown and uncertainty, as well as the impacts of the recently imposed regulatory requirements (see Note 10, Contingencies) .

As a result, as of 

September 30, 2023 , the Company was not in compliance with the total leverage ratio covenant under its Credit Agreement (see Note 5, Long-term debt, net ) and such event of default continued until the Waiver (defined below) became effective.

The Company has also projected a continued decline in its operating results, driven primarily by the same factors described above.

Therefore, the Company does not expect to be in compliance with certain financial covenants under the Credit Agreement during certain quarters in the twelve months following the issuance date.

If the Company is not in compliance with its covenants, under the Credit Agreement, it will be an event of default that would give lenders the right to accelerate maturities under the Credit Agreement. While the Company had cash and cash equivalents of $ 20.5 million as of 

September 30, 2023  and had positive cash flow from operations in the prior two fiscal years and for the nine months ended September 30, 2023, 

management does not expect the Company’s cash resources would be adequate to meet its obligations as they become due within the one -year period after the issuance date if maturities under the Credit Agreement were accelerated.

These circumstances raise substantial doubt about the Company’s ability to continue as a going concern.

As discussed in Note 5, Long-term debt, net , on November 15, 

2023, Fluent, LLC (the “Borrower”) entered into a Temporary Waiver Under Credit Agreement (the “Waiver”) to the Credit Agreement that is effective through the earlier of January 15, 2024 or an occurrence of any other event of default (the “Termination date”).

In addition to temporarily waiving the event of default resulting from the breach of the total leverage ratio covenant during the three months ended September 30, 2023, the Waiver imposed new financial reporting obligations on the Borrower, including the delivery of the Company’s 

2024 budget by November 22, 2023 for review by the business consultant retained by counsel to Citizens Bank. The Company intends for that budget to inform modified financial covenant levels and other provisions, as appropriate, for the quarters ending December 31, 2023 through December 31, 2024, which would be accomplished with an amendment to the Credit Agreement.

The Borrower and Citizens Bank have previously entered into amendments to the Credit Agreement as needed, and management expects to be able to enter into a new amendment prior to the Termination date.

In light of the recent challenges the Company has faced in achieving its financial targets, the Company plans to implement cost reductions and focus resources on new growth opportunities that will enable the Company to meet its projected budget.

While management believes its plans to enter into a new amendment to the Credit Agreement with financial covenant levels that the Company can satisfy will alleviate the conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern, successfully entering into it is not entirely within the Company’s control.

In addition, there is no guarantee that the planned cost reductions or growth opportunities will be successfully executed or have the expected benefits.

As there can be no assurance that the Company will be able to effectively implement its plans within one year after the issuance date, based on the factors above, management concluded that there is substantial doubt about the Company's ability to continue as a going concern through such one -year period.

The accompanying unaudited financial statements do not include any adjustments relating to the possible future effects on the recoverability and classification of recorded assets and classification of liabilities that might result should the Company be unable to continue as a going concern.

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 the Company's 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.

12 unchanged sentences

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

June 30, 2023 and

September 30, 2023 and

December 31, 2022 , the balance of deferred revenue was 

4 unchanged sentences

When there is a delay between the period in which revenue is recognized and when a customer invoice is issued, revenue is 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.

September 30, 2023 and December 31, 2022 , unbilled revenue included in accounts receivable was $ 23,374 and $ 26,878 , respectively.

In line with industry practice, the unbilled revenue balance is recorded based on the Company's internally tracked conversions, net of estimated variances between this amount and the amount tracked and subsequently confirmed by customers.

3 unchanged sentences

The preparation of consolidated financial statements in accordance with GAAP requires the Company’s management to make estimates and assumptions relating to the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods.

Significant items subject to such estimates and assumptions include the allowance for doubtful accounts, useful lives of intangible assets, recoverability of the carrying amounts of goodwill and intangible assets, the portion of revenue subject to estimates for variances between internally-tracked conversions and those confirmed by the customer, purchase accounting, consolidation of variable interest entity, accruals for contingencies, and income tax provisions.

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, valuation 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.

13 unchanged sentences

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.

As of September 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.

As of September 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 measurement, as certain inputs used to determine fair value are unobservable.

See Note 4, Goodwill , for further discussion of impairment charges.

3 unchanged sentences

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,

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

Three Months Ended September 30,

Nine Months Ended September 30,

Net income (loss)

32 unchanged sentences

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,

nine months ended September 30, 2023 and 2022 , certain stock equivalents, including restricted stock units and stock options, have been excluded from the diluted weighted average share calculations due to their anti-dilutive nature.

Three Months Ended September 30,

Nine Months Ended September 30,

Restricted stock units

18 unchanged sentences

Amortization period (in years)

June 30, 2023

September 30, 2023

December 31, 2022

39 unchanged sentences

10,619  

Total intangible assets, net

5 unchanged sentences

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.

("TAPP") effective January 9, 2023 ( see Note 12, Variable Interest Entity).

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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:

June 30, 2023

During the 

second  quarter of 

2023,  the Company determined that the effects of the recently imposed regulatory requirements on the Company constituted a triggering event. The Company also then determined that the decline in the market value of its publicly traded stock, which resulted in a corresponding decline in its market capitalization, along with the operating results for the 

third  quarter of 

2023, also 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 as of 

June 30, 2023 

September 30, 2023.

Amortization expenses of $ 2,559  

and $ 3,292  for the three months ended September 30, 2023 and 2022 , respectively, and $ 7,810  and $ 9,651  for the 

nine months ended September 30, 2023 and 2022 , respectively, are included in depreciation and amortization expenses in the consolidated statements of operations.

As of September 30, 2023 , intangible assets with a carrying amount of $ 919 , included in the gross amount of software developed for internal use, have not commenced amortization, as they are not ready for their intended use.

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

September 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 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 ).

As of September 30, 2023 , the total balance of goodwill was $ 1,261 , a decrease of $ 53,850  from December 31, 2022, as a result of a non-cash impairment charge of $ 55,405 , offset by a 1,555  increase in goodwill related to the TAPP consolidation, which was within the non-cash impairment charge (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.

For the three months ended March 31, 2023, the Company completed its quarterly triggering event assessments 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 therefore 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 results of this market-based approach indicated that the Fluent reporting unit’s 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

For the three months ended June 30, 2023, the Company completed its quarterly triggering event assessments 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 each constituted a triggering event. The Company therefore 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 the fair value exceeded its carrying value by 

The Company therefore concluded that the Fluent reporting unit’s goodwill of $ 27,469  was 

not  impaired.

For the three months ended September 30, 2023, the Company completed its quarterly triggering event assessments and determined that the decline in the market value of its publicly-traded stock, which resulted in a corresponding decline in its market capitalization, along with the impact of the continued economic slowdown on the Company’s expected operating results had both constituted a triggering event.

The Company therefore conducted an interim test of the fair value of the Fluent reporting unit's goodwill for potential impairment related to both triggering events and All Others for potential impairment related to the economic slowdown.

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

The results of this approach indicated that the Fluent reporting unit’s carrying value and All Others carrying value exceeded its fair value by 32 % and 29 %, respectively. The Company therefore concluded that the Fluent reporting unit’s goodwill was impaired and recorded a non-cash impairment for the remainder of the goodwill balance of $ 27,469 .

In addition, the All Other goodwill of $ 3,497  was also concluded to be impaired, and the Company recorded a non-cash impairment charge of $ 2,236 .

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

September 30, 2023

December 31, 2022

6 unchanged sentences

$ 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.

On March 31, 2021, Fluent, LLC (the "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 the Borrower as guarantors, the lenders thereto, 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.

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.

The original Credit Agreement provided 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 Borrower and Citizens Bank 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, established the following, in each case pursuant to the terms and conditions under the Credit Agreement: (i) adjustments to the pricing floor and certain EBITDA add-backs;

(ii) monthly financial reporting requirements;

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

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

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

(b) invest in certain subsidiaries and joint ventures;

and (c) make additional loans, investments or permitted acquisitions;

and (vi) additional unrestricted cash requirements before the Company is permitted to pay dividends, make distributions or redeem or repurchase equity interests.

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  

On August 21, 2023, the Borrower and Citizens Bank entered into a 

fourth  amendment to the Credit Agreement (the “Fourth Amendment”), which (i) adjusted certain financial covenants for the remaining fiscal quarters of 

2023,  including prohibiting the Company from drawing on the Revolving Loans until the issuance of the December 31, 2023 annual financial statements, (ii) temporarily adjusted interest rates, (iii) permitted Citizens Bank to retain a business consultant at the Borrower's expense to advise on the credit parties’ financial and operating performance;

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

The $ 5,000  prepayment amount was paid as of 

September 30, 2023 . In evaluating the amendments under ASC 470 - 50, Debt- Modifications and Extinguishments , the Company determined that the amendment should be treated as a debt modification with no gain or loss recognized.

On November 15, 2023, the Borrower and Citizens Bank entered into a Waiver to the Credit Agreement, pursuant to which Citizens Bank agreed to waive through the Termination date its rights and remedies arising from the Company’s breach of the total leverage ratio covenant during the quarter ending September 30, 2023. 

The Waiver also added new reporting requirements, temporarily increased the applicable margin, and extended the term of the business consultant through January 15, 2024. 

The Borrower must also provide a 2024 budget that has been reviewed by the business consultant retained by counsel to Citizens Bank.

The Company intends for that budget to inform modified financial covenant levels and other provisions, as appropriate, for the quarters ending December 31, 2023 through December 31, 2024, which would be accomplished with an amendment to the Credit Agreement.

All obligations under the the Credit Agreement currently mature on 

March 31, 2026, and interest is payable monthly.

Scheduled principal amortization of the Term Loan is $ 1,250 per quarter, which commenced with the fiscal quarter ended June 30, 2021. 

At September 30, 2023, the Company was in compliance with all of the financial covenants under the Credit Agreement except for the total leverage ratio covenant.

As discussed above, this covenant breach was waived through the Termination date by the Waiver.

However, based on projections, the Company does not expect to be in compliance with certain financial covenants during certain quarters in the next twelve months.

If the Company is not in compliance with financial covenants, it will be an event of default that would give the lenders the right to accelerate maturities. 

Accordingly, all borrowings under the Credit Agreement have been classified as current as of September 30, 2023.

The opening interest rate of the Credit Facility was 2.50 % (LIBOR + 2.25 %), which increased to 8.92 % (Term SOFR + 0.1 % + 3.50 %) as of September 30, 2023 .

As of September 30, 2023 , scheduled future maturities of the Credit Agreement are as follows, reflective of the debt being accelerated as of the termination date if a new amendment is not reached:

September 30, 2023  

Remainder of 2023

3 unchanged sentences

$ 32,500  

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.

1 unchanged sentence

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.

September 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 

For the nine months ended September 30, 2023 , the Company's effective income tax expense rate of 0.9 % differed from the statutory federal income tax rate of 21 % primarily due to 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.

nine months ended September 30, 2022 , the Company's effective income tax expense rate of 4.0 % differed from the statutory federal income tax rate of 21 % primarily due to the projected federal and state cash tax expense expected to result in taxable income for full-year 

2022  after the impact of a non-deductible goodwill impairment against pre-tax year-to-date losses, offset by the benefit of federal research and development credits.

The Company assesses its income tax positions and records tax benefits for all years subject to examination based upon its evaluation of the facts, circumstances, and information available as of the reporting dates.

1 unchanged sentence

For those income tax positions where it is not more-likely-than- not that a tax benefit will be sustained, no tax benefit has been recognized in the Company's financial statements.

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

September 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.

As of September 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

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

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

85,803,727 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 

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

1,418,269 shares of common stock issued upon vesting of RSUs, including 

1 unchanged sentence

Treasury stock

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.

September 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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.

For the nine months ended September 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 "Effective Date"), the stockholders of the Company approved the Fluent, Inc.

On June 8, 2022, 

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 

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

5,598,650 shares of common stock available for grants pursuant to the 2022 Plan, which includes 

1 unchanged sentence

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)

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

Stock options

5 unchanged sentences

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.

As of September 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.

32 unchanged sentences

1.05 %  

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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

Number of options

5 unchanged sentences

$ 4.37  

Outstanding as of June 30, 2023

( 308,000 )  

Outstanding as of September 30, 2023

1,831,000  

Options exercisable as of June 30, 2023

$ 4.32  

Options exercisable as of September 30, 2023

1,088,000  

$ 3.88  

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

For the 

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

nine months ended September 30, 2023 , the unvested balance of stock options was as follows:

Number of stock options

4 unchanged sentences

$ 4.91  

Unvested as of June 30, 2023

( 154,000 )  

Unvested as of September 30, 2023

743,000  

$ 4.95  

Compensation expense recognized for stock options of $ 0 and $ 0  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.

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

Restricted stock units and restricted stock

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

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

Number of units

16 unchanged sentences

$ 1.49  

Unvested as of June 30, 2023

Unvested as of September 30, 2023

5,499,375  

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 June 30, 2023 , there were 

As of September 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 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 

For the nine months ended September 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 , 

As of September 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.

Compensation expense recognized for RSUs of $ 982  and $ 818  for the three months ended September 30, 2023 and 2022 , respectively, and $ 3,090  and $ 2,595 for the 

nine months ended September 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 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

As of September 30, 2023 , unrecognized share-based compensation expense associated with the granted RSUs and stock options amounted to $ 4,757 , which is expected to be recognized over a weighted average period of 

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,

nine months ended September 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 September 30,

Nine Months Ended September 30,

Sales and marketing

6 unchanged sentences

$ 2,720  

As of June 

As of September 

30, 2023, the Company recorded a liability of $ 15  related to PSUs that are to be settled in cash.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

Segment information

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

As of June 30, 2023 , the Company had 

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 September 30, 2023 , the Company had 

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

1 unchanged sentence

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,

nine months ended September 30, 2023 and 2022 are shown in the following tables below:

Three Months Ended September 30,

Nine Months Ended September 30,

Fluent segment revenue(1):

33 unchanged sentences

( 2,463 )  

( 31,276 )  

( 50,236 )  

Depreciation and amortization

Total income (loss) from operations

10,037  

Total income (loss) from operations

$ ( 33,934 )  

3 unchanged sentences

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

September 30,

Total assets:

5 unchanged sentences

$ 183,969  

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

As of September 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.

nine months ended 

September 30, 2023 , the Company identified an international customer within the Fluent segment with revenue in the amount of $ 47,658  which represents 21 % of consolidated revenue.

Contingencies

13 unchanged sentences

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.

The Company maintains insurance policies that cover certain legal costs, which include those incurred related to the FTC investigation.

As of September 30, 2023, the Company had recognized $ 5,799  as contra-expense to general and administrative expenses with a remaining current asset of $ 1,777  related to these insurance policies.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2 unchanged sentences

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.

On May 18, 2023, the parties entered into a settlement and jointly filed a Consent Petition of Final Decree, 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.

9 unchanged sentences

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 

100 % membership interest in True North Loyalty, LLC for a deemed purchase price of $ 2,321 , which consisted of (i) $ 1,000 in cash at closing, (ii) $ 860 of deferred payments due at both the first and second anniversary of the closing date adjusted for net working capital, and (iii) 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.

15 unchanged sentences

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.

5 unchanged sentences

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.

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 is treated as ordinary compensation for services rendered, deductible when paid and included in the employees’

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

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements