What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-05-15 compared with 2023-11-15 · 433 added, 515 removed, 252 unchanged (79% of the section changed)

2 unchanged sentences

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

September 30, 2023

March 31, 2024

December 31, 2023

Cash and cash equivalents

$ 20,513  

$ 25,547  

$ 11,658 $ 15,804

Accounts receivable, net of allowance for doubtful accounts of $ 247 and $ 231 , respectively

48,515  

63,164  

53,421 56,531

Prepaid expenses and other current assets

Total current assets

77,097  

92,217  

71,416 78,406

Property and equipment, net

1 unchanged sentence

Intangible assets, net

27,710  

28,745  

55,111  

26,141 26,809

Other non-current assets

$ 112,090  

$ 183,969  

$ 103,577 $ 111,867

LIABILITIES AND SHAREHOLDERS' EQUITY:

Accounts payable

$ 11,841  

$ 6,190  

$ 8,829 $ 10,954

Accrued expenses and other current liabilities

25,746  

35,626  

30,878 30,534

Deferred revenue

Current portion of long-term debt

31,799  

Current portion of operating lease liability

Total current liabilities

72,173  

50,219  

73,528 49,214

Long-term debt, net

35,594  

Operating lease liability

Operating lease liability, net

Other non-current liabilities

Total liabilities

76,600  

90,014  

74,831 77,463

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 —

85,803,727 and 84,385,458 , respectively;

and Shares outstanding —

81,192,158 and 80,085,306 , respectively (Note 7)

Treasury stock, at cost —

4,611,569 and 4,300,152 Shares, respectively (Note 7)

( 11,407 )  

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 — 14,429,193 and 14,384,936 , respectively;

and Shares outstanding — 13,660,598 and 13,616,341 , respectively (Note 7)

Treasury stock, at cost — 768,595 and 768,595 Shares, respectively (Note 7)

( 11,407 ) ( 11,407 )

Additional paid-in capital

426,473  

423,384  

427,904 427,286

Accumulated deficit

( 379,619 )  

( 387,794 ) ( 381,518 )

Total shareholders' equity

35,490  

93,955  

28,746 34,404

Total liabilities and shareholders' equity

$ 112,090  

$ 183,969  

$ 103,577 $ 111,867

See notes to consolidated financial statements

1 unchanged sentence

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

$ 65,983 $ 77,254

Costs and expenses:

Cost of revenue (exclusive of depreciation and amortization)

47,348 58,272

Sales and marketing

1 unchanged sentence

General and administrative

10,365 12,325

Depreciation and amortization

Goodwill impairment and write-off of intangible assets

Loss (gain) on disposal of property and equipment

Total costs and expenses

Income (loss) from operations

69,936 108,407

Loss from operations

( 3,953 ) ( 31,153 )

Interest expense, net

Income (loss) before income taxes

Income tax (expense) benefit

Net income (loss)

Basic and diluted income (loss) per share:

( 1,415 ) ( 689 )

Loss before income taxes

( 5,368 ) ( 31,842 )

Income tax expense

( 908 ) ( 101 )

( 6,276 ) ( 31,943 )

Basic and diluted loss per share:

$ ( 0.45 ) $ ( 2.34 )

Weighted average number of shares outstanding:

13,902,165 13,651,152

See notes to consolidated financial statements

4 unchanged sentences

Total shareholders'

Balance at June 30, 2023

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

Share-based compensation

Balance at September 30, 2023

Balance at December 31, 2023

14,384,936 $ 43 768,595 $ ( 11,407 ) $ 427,286 $ ( 381,518 ) $ 34,404

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

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

44,257 — — — — — —

Share-based compensation

Balance at September 30, 2023

— — — — 618 — 618

— — — — — ( 6,276 ) ( 6,276 )

Balance at March 31, 2024

14,429,193 $ 43 768,595 $ ( 11,407 ) $ 427,904 $ ( 387,794 ) $ 28,746

Treasury stock

1 unchanged sentence

Total shareholders'

Balance at June 30, 2022

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

Share-based compensation

Balance at September 30, 2022

Balance at December 31, 2022

Vesting of restricted stock units and issuance of restricted stock

14,129,530 $ 42 716,692 $ ( 11,171 ) $ 423,384 $ ( 318,300 ) $ 93,955

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

193,323 1 — — ( 1 ) — —

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

— — 51,903 ( 236 ) — — ( 236 )

Share-based compensation

Balance at September 30, 2022

— — — — 1,148 — 1,148

— — — — — ( 31,943 ) ( 31,943 )

Balance at March 31, 2023

14,322,853 $ 43 768,595 $ ( 11,407 ) $ 424,531 $ ( 350,243 ) $ 62,924

See notes to consolidated financial statements

1 unchanged sentence

(Amounts in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

CASH FLOWS FROM OPERATING ACTIVITIES:

$ ( 6,276 ) $ ( 31,943 )

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

3 unchanged sentences

Goodwill impairment

Write-off of intangible assets

Loss on disposal of property and equipment

Provision for bad debt

Allowance for credit losses

Changes in assets and liabilities, net of business acquisitions:

1 unchanged sentence

Prepaid expenses and other current assets

( 266 ) ( 2,082 )

Other non-current assets

Operating lease assets and liabilities, net

( 85 ) ( 82 )

Accounts payable

( 2,125 ) 6,739

Accrued expenses and other current liabilities

2,344 ( 3,362 )

Deferred revenue

Net cash provided by operating activities

( 947 ) ( 39 )

Net cash (used in) provided by operating activities

( 132 ) 4,890

CASH FLOWS FROM INVESTING ACTIVITIES:

Capitalized costs included in intangible assets

( 1,796 ) ( 1,134 )

Business acquisitions, net of cash acquired

Acquisition of property and equipment

Net cash used in investing activities

( 1,796 ) ( 2,384 )

CASH FLOWS FROM FINANCING ACTIVITIES:

Repayments of long-term debt

( 1,250 ) ( 1,250 )

Debt financing costs

1 unchanged sentence

Net cash used in financing activities

Net decrease in cash and cash equivalents

( 2,218 ) ( 1,486 )

Net increase (decrease) in cash and cash equivalents

( 4,146 ) 1,020

Cash and cash equivalents at beginning of period

15,804 25,547

Cash and cash equivalents at end of period

$ 11,658 $ 26,567

SUPPLEMENTAL DISCLOSURE INFORMATION

4 unchanged sentences

Contingent payments in connection with TAPP consolidation

Deferred payment in connection with True North acquisition

Contingent consideration in connection with True North acquisition

Equity issued in connection with True North acquisition

Long-term debt issuance

See notes to consolidated financial statements

2 unchanged sentences

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.

(a) Basis of preparation

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 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 .

The accompanying unaudited consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods ended March 31, 2024 and 2023 , 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, 2024 .

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.

The consolidated balance sheet as of December 31, 2023 included herein was derived from the audited financial statements as of that date and included in the 2023 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.

In accordance with Accounting Standards Codification (“ASC”) 205 - 4 0, 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 consolidated financial statements are issued (the “issuance date”).

The Company has experienced a decline in its operating results, driven primarily by the continued impact of the imposed regulatory requirements on its owned and operated digital media properties (see Note 10 , Contingencies) .

As a result, the Company had pre-emptively received a waiver for not being in compliance with the total leverage and fixed charge ratio covenants under the Citizens Credit Agreement as of March 31, 2024 (as defined in Note 5 ) (see Note 5 , Long-term debt, net ) and such event of default continued until that debt was extinguished with proceeds from the SLR Credit Agreement (as defined in Note 5 ) entered into on April 2, 2024.

The SLR Credit Agreement requires the Company to maintain and comply with certain financial covenants.

Moreover, the borrowings under the SLR Revolver (as defined in Note 5 ) under the SLR Credit Agreement are limited to a borrowing base described in Note 5 .

The borrowing base fluctuates as regularly as weekly based on our eligible accounts receivable.

As a result of a decline in financial performance of the Company's owned and operated digital media properties in April 2024, the Company's accounts receivable were expected to be insufficient to support the borrowing base needed to fund operations through the end of the second quarter of 2024.

The Company therefore raised equity capital in the private placement described below and updated its projections to reflect the continued decline in its operating results.

The revised projections indicate that the Company will not be in compliance with all financial covenants under the SLR Credit Agreement for each of the quarters in the twelve months following the issuance date of this Quarterly Report on Form 10 -Q.

Such non-compliance, in turn, would constitute an event of default that would give SLR (as defined in Note 5 ) the right to accelerate maturities under the SLR Credit Agreement.

Furthermore, the decline in operating results could lead to declines in the borrowing base, which could lead to the Company's inability to draw on the SLR Revolver Facility in order to fund its operations as well as, potentially, require repayment of a portion of its current borrowings under the SLR Credit Facility.

While the Company had cash and cash equivalents of $ 11,658 as of March 31, 2024 and raised an additional $ 10,000 in gross proceeds from the private placement on May 13, 2024 ( as described in Note 12 , Subsequent Events), management does not expect the Company’s cash resources will be adequate to meet its obligations as they become due within the one -year period after the issuance date if maturities under the SLR Credit Agreement are accelerated or the SLR Revolver cannot be drawn on due to a decline in the borrowing base if the Company did not meet is projections.

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

On May 15, 2024, the Company and SLR entered into the first amendment to the SLR Credit Agreement pursuant to which, among other things, SLR waived any required prepayments on the SLR Revolver from the proceeds from the Private Placement (see Note 5 , Long-term debt, net ).

Additionally, the Company has initiated discussions with SLR about remedies if the Company is unable to meet its covenants in the next twelve months.

Given the continued challenges the Company has faced achieving its financial targets, the Company plans to consider further cost reduction measures and focus resources on opportunities that will enable the Company to meet its projected budget and cash flow requirements.

These initial plans include divesting a business unit (see Note 12 , Subsequent Events ) and reviewing divesting other business units to determine the impact of potential divestments.

While management believes the proceeds from the Private Placement and the other steps noted above will be adequate to cover a decline in the borrowing base under the SLR Revolver and fund its current operations, there is no guarantee that the Company's plans will be successfully executed or have the expected benefits.

Furthermore, if an event of default under the SLR Credit Agreement were to occur and the maturity date accelerated, the Company likely would not have sufficient funds to repay the Term Loan (as defined in Note 5 ) and the SLR Revolver.

While management believes the Company will be able to work through its plans to mitigate any event of default with SLR, obtaining a waiver of an event of default or entering into an amendment to mitigate an event of default is not entirely within the Company’s control.

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.

2 unchanged sentences

All significant transactions among the Company and its subsidiaries have been eliminated upon consolidation.

(b) Recently issued and adopted accounting standards

(b) Reverse stock split

On April 11, 2024, the Company effected a 1 -for- 6 reverse split of the issued shares (the "Reverse Stock Split") of the Company’s common stock.

All historical share amounts disclosed in this Quarterly Report on Form 10 -Q have been retroactively restated to reflect the Reverse Stock Split.

No fractional shares were issued as a result of the Reverse Stock Split, as fractional shares of Common Stock were rounded up to the nearest whole share.

See Note 7, Common stock and treasury stock for additional information.

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.

In October 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No.

2023 - 06, D isclosure Improvements:

Codification Amendments in Response to the SEC ’ s Disclosure Update and Simplification Initiatives , which incorporates updates to the Codification to align with SEC disclosure requirements in response to the August 2018 SEC Release No.

The amendment updates and simplifies certain SEC disclosure requirements that were duplicative, overlapping, or outdated due to changes in other SEC requirements and in U.S.

GAAP, International Financial Reporting Standards (“IFRS”), or the overall financial reporting environment.

The new guidance is effective for each amendment only if the SEC removes the related disclosure of presentation requirements from its existing regulations by June 30, 2027.

The guidance is to be applied prospectively, with early adoption prohibited.

The Company is currently evaluating the impact of adopting the ASU on its consolidated financial statements and disclosures.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

In November 2023, the FASB issued ASU No.

2023 - 07, Segment Reporting (Topic 2 80 ):

Improvements to Reportable Segment Disclosures, which requires a public entity to disclose significant segment expenses that are regularly provided to the chief operating decision maker ("CODM"), a description of other segment items by reportable segment, and an explanation of any additional measures the CODM uses in deciding how to allocate resources.

The new guidance is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, and early adoption is permitted.

The guidance is to be applied on a retrospective basis, with such disclosures to be made in regard to all prior periods presented in the financial statements.

The Company is currently completing its assessment and expects this update to have no material impact on its consolidated financial statements.

In December 2023, the FASB issued ASU No.

2023 - 09, Income Taxes (Topic 470 ):

Improvements to Income Tax Disclosures , which are designed to increase the transparency and decision-usefulness of income tax disclosures for financial statement users.

The ASU follows investors' indication and request for enhanced tax disclosures in order to better assess an entity’s operations, related tax risks, jurisdictional tax exposures, and increase transparency regarding tax information through improvements to tax disclosures, specifically rate reconciliation, income taxes paid, and unrecognized tax benefits and certain temporary differences.

The new guidance is effective for fiscal years beginning after December 15, 2024 and interim periods within fiscal years beginning after December 15, 2025, and early adoption is permitted.

The guidance is to be applied on a prospective basis, but retrospective application is permitted.

The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements and disclosures.

(d) Revenue recognition

Data and performance-based marketing

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.

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 ("AdParlor"), a wholly-owned subsidiary of the Company.

The Company applies the practical expedient related to the review of a portfolio of contracts in reviewing the terms of customer contracts as one collective group, rather than by individual contract.

Based on historical knowledge of the contracts contained in this portfolio and the similar nature and characteristics of the customers, the Company concluded that the financial statement effects are not materially different than accounting for revenue on a contract-by-contract basis.

Revenue is recognized upon satisfaction of associated performance obligations.

The Company's customers simultaneously receive and consume the benefits provided, which satisfies the Company's performance obligations.

Furthermore, the Company elected the "right to invoice" practical expedient available within ASC 606 - 10 - 55 - 18 as the measure for revenue to be recognized, as it corresponds directly with the amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.

The Company's revenue arrangements do not contain significant financing components.

The Company has further concluded that revenue does not require disaggregation.

For each identified performance obligation in a contract with a customer, the Company assesses whether it or the third -party supplier is the principal or agent.

In arrangements where Fluent has substantive control of the specified goods and services, is primarily responsible for the integration of products and services into the final deliverable to the customer, and has inventory risk and discretion in establishing pricing, Fluent is considered to have acted as the principal.

For performance obligations in which Fluent acts as principal, the Company records the gross amount billed to the customer within revenue and the related incremental direct costs incurred as cost of revenue.

If the third -party supplier, rather than Fluent, is primarily responsible for the performance and deliverable to the customer, and Fluent solely arranges for the third -party supplier to provide services to the customer, Fluent is considered to have acted as the agent.

For performance obligations in which Fluent acts as the agent, the net fees on such transactions are recorded as revenue, with no associated costs of revenue for the Company.

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

September 30, 2023 and

December 31, 2022 , the balance of deferred revenue was 

March 31, 2024 and

December 31, 2023 , the balance of deferred revenue was

$ 430 , respectively.

The majority of the deferred revenue balance as of 

December 31, 2022 was recognized as revenue during the

first  quarter of

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

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

The majority of the deferred revenue balance as of

December 31, 2023 was recognized as revenue during the

first quarter of

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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

As of March 31, 2024 and December 31, 2023 , unbilled revenue included in accounts receivable was $ 18,623 and $ 21,488 , 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, valuation of variable interest entity, accruals for contingencies, and income tax provisions.

Historical estimates related to unbilled revenue have not differed materially from actual invoiced revenue.

Sales commissions are recorded at the time revenue is recognized and recorded in sales and marketing in the consolidated statements of operations.

The Company has elected to utilize a practical expedient to expense incremental costs incurred related to obtaining a contract.

In addition, the Company elected the practical expedient to not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which revenue is recognized at the amount to which the Company has the right to invoice for services performed.

Commission revenue

The Company, acting as the agent, recognizes commission revenue that it expects to receive from the insurance provider from the sale of certain of its health insurance policies, which includes the assumed automatic renewals of such policies once its performance obligation is satisfied.

The Company considers its performance obligation related to commissions for both the initial policy sale and future renewals of the policy to be satisfied upon submission by the Company of the initial policy application.

The Company applies the practical expedient to estimate the commission revenue for each insurance policy by applying the use of the portfolio approach to policies grouped together by product type and period submitted for effectuation.

The commission revenue is variable based on a policy's estimated lifetime value ("LTV"), which is based on the time the Company expects the policy will remain effective due to past trends, industry data, expectations as to future retention rates, and commission rates.

Further, the Company considers the application of constraints to the LTV and only recognizes the amount of variable consideration believed probable to be received that will not be subject to a significant revenue reversal in the future.

Based on this, the commission revenue is recorded upon satisfaction of the performance obligation, which is typically paid monthly by the insurance provider as the consumer renews and pays the insurance provider for the policy over the duration the consumer remains on the policy.

The Company reassesses the estimated LTV for the health insurance policies on a quarterly or as-needed basis.

Adjustments to the LTV may result in an increase or decrease in revenue and the corresponding asset in the period the change is made.

(e) Use of estimates

The preparation of consolidated financial statements in accordance with U.S.

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 credit losses, 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, the variable commission revenue based on the estimated LTV, purchase accounting, consolidation of variable interest entity and income tax provision.

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

(f) Fair value

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

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

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

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

 Inputs other than Level 

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

quoted prices in markets that are not active;

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

ASC 820, Fair Value Measurements and Disclosure describes 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 — defined as observable inputs, such as quoted prices in active markets;

Level 2— defined as inputs other than quoted prices in active markets that are either directly or indirectly observable;

● Level 3 — defined as unobservable inputs, for which little or no market data exists, therefore requiring an entity to develop its own assumptions.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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

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

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

As of March 31, 2024 , the Company regards the fair value of its long-term debt to approximate its carrying value.

The fair value assessment represents a Level 2 measurement.

See Note 5 , Long-term debt, net .

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

As of September 30, 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.

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.

As of March 31, 2024 , 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.

Loss per share

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

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

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

For the three and 

nine months ended September 30, 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)

$ ( 33,627 )  

$ 3,113  

$ ( 61,319 )  

For the three months ended March 31, 2024 and 2023 , basic and diluted loss per share were as follows:

Three Months Ended March 31,

$ ( 6,276 ) $ ( 31,943 )

Weighted average shares outstanding

81,160,944  

79,898,219  

80,798,223  

79,620,308  

13,572,224 13,368,380

Weighted average restricted shares vested not delivered

1,719,592  

1,694,097  

1,713,231  

1,707,331  

329,941 282,772

Total basic weighted average shares outstanding

82,880,536  

81,592,316  

82,511,454  

81,327,639  

13,902,165 13,651,152

Dilutive effect of assumed conversion of restricted stock units

107,650  

Total diluted weighted average shares outstanding

82,880,536  

81,699,966  

82,511,454  

81,327,639  

Basic and diluted income (loss) per share:

$ ( 0.41 )  

$ 0.04  

$ ( 0.74 )  

$ ( 0.41 )  

$ 0.04  

$ ( 0.74 )  

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

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,

13,902,165 13,651,152

Basic and diluted loss per share:

$ ( 0.45 ) $ ( 2.34 )

Based on exercise prices compared to the average stock prices for the three months ended March 31, 2024 and 2023 , 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 March 31,

Restricted stock units

5,499,375  

1,220,790  

5,499,375  

1,780,022  

449,673 878,349

Stock options

1,831,000  

2,139,000  

1,831,000  

2,139,000  

302,330 356,500

Total anti-dilutive securities

7,330,375  

3,359,790  

7,330,375  

3,919,022  

752,003 1,234,849

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1 unchanged sentence

Intangible assets, net

Intangible assets, net, other than goodwill, consist of the following: 

Amortization period (in years)

September 30, 2023

Intangible assets, net, other than goodwill, consist of the following:

Amortization period (in years) March 31, 2024

December 31, 2023

1 unchanged sentence

Software developed for internal use

$ 18,407  

13,740  

3 $ 21,990 20,175

Acquired proprietary technology

16,972  

15,965  

3 - 5 16,972 16,972

Customer relationships

5 - 10  

39,168  

38,068  

4 - 20  

16,657  

5 - 10  

31,292  

5 - 10 39,168 39,168

4 - 20 16,657 16,657

5 - 10 31,292 31,292

Non-competition agreements

124,459  

117,685  

2 - 5 1,768 1,768

128,042 126,227

Total gross amount

1 unchanged sentence

Software developed for internal use

( 11,018 )  

( 13,353 ) ( 12,142 )

Acquired proprietary technology

( 14,978 )  

( 15,285 ) ( 15,132 )

Customer relationships

( 36,726 )  

( 6,689 )  

( 75 )  

( 25,495 )  

( 37,497 ) ( 37,249 )

( 7,098 ) ( 6,893 )

( 80 ) ( 77 )

( 26,820 ) ( 26,157 )

Non-competition agreements

( 1,768 )  

( 1,768 ) ( 1,768 )

Total accumulated amortization

( 96,749 )  

( 101,901 ) ( 99,418 )

Net intangible assets:

2 unchanged sentences

Customer relationships

10,619  

Total intangible assets, net

$ 27,710  

$ 28,745  

$ 26,141 $ 26,809

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 Influencers Corp.

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 acquisition of Q Interactive, LLC, effecti ve June 8, 2016;

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, effective April 1, 2020;

the acquisition of a 100 % interest in True North Loyalty, LLC, (the "True North Acquisition"), effective January 1, 2022, and the consolidation of TAPP Influencers Corp.

("TAPP") effective January 9, 2023 ( see Note 11 , Variable Interest Entity).

1 unchanged sentence

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

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

Amortization expenses of $ 2,483 and $ 2,256 for the three months ended March 31, 2024 and 2023 , respectively, are included in depreciation and amortization expenses in the consolidated statements of operations.

As of March 31, 2024 , intangible assets with a carrying amount of $ 688 , included in the gross amount of software developed for internal use, have not commenced amortization, as they are not ready for their intended use.

As of March 31, 2024 , estimated amortization expenses related to the Company's intangible assets for the remainder of 2024 and through 2029 and thereafter are as follows:

March 31, 2024

Remainder of 2024

$ 2,777  

2029 and thereafter

$ 27,710  

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 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.

Goodwill represents the difference between the purchase price and the estimated fair value of net assets acquired, when accounted for by the acquisition method of accounting.

As of March 31, 2024 , the total balance of goodwill was $ 1,261 , which represented no change from the balance as of December 31, 2023 .

The remaining balance relates to the AdParlor 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.

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 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 .

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:

September 30, 2023

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

March 31, 2024

December 31, 2023

Credit Facility due 2025 (less unamortized discount and financing costs of $ 1,019 and $ 762 , respectively)

$ 31,799  

$ 40,594  

$ 28,981 $ 30,488

Note Payable due 2026

Long-term debt, net

30,981 30,488

Current portion of long-term debt

( 31,799 )  

( 30,981 ) ( 5,000 )

Long-term debt, net (non-current)

$ 35,594  

Credit Facility

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 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.

Citizens Credit Facility

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 "Citizens 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 original Citizens 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 Citizens 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 certain terms and conditions under the Citizens Credit Agreement.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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.

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 8.92 % (Term SOFR + 0.1 % + 3.50 %) as of September 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 (once such extensions are no longer prohibited by the Fourth Amendment or a later amendment). 

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  

On August 21, 2023, the Borrower and Citizens Bank entered into a fourth amendment to the Citizens Credit Agreement (the "Fourth Amendment"), which adjusted certain financial covenants for the re maining fiscal quarters of 2023, required updated reporting requirements, including a business consultant to be retained at the Borrower's expense and 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, and 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 recognize d.

On November 15, 2023, the Borrower and Citizens Bank entered into a Temporary Waiver under Credit Agreement (the "Initial Waiver"), 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.

On January 17, 2024, the Initial Waiver termination date was extended until January 26, 2024.

On January 26, 2024, the Borrower and Citizens Bank entered into a Third Temporary Waiver and Amendment to Credit agreement (the "Third Waiver"), pursuant to which Citizens Bank agreed to waive through the earlier of April 30, 2024, an occurrence of any other event of default, or failure to comply with requirements of the Third Waiver and its rights and remedies arising from the Company’s breach of the total leverage covenant and fixed charge ratio during the quarters ending December 31, 2023 and March 31, 2024.

Among other things, the Third Waiver required the Borrower to, by March 31, 2024, deliver one or more Transaction Commitments, defined as:

(i) a third -party commitment to provide additional capital in exchange for equity or subordinated debt, (ii) a purchase agreement for the sale of a divested business, or (iii) a third -party commitment to refinance the Credit Agreement.

One condition of the Transaction Commitments was that the Borrower provide for net proceeds, in the aggregate, to Fluent of not less than $ 10,000 .

All obligations under the Citizens Credit Agreement were accelerated from the initial March 30, 2026 deadline to September 30, 2025, and interest was payable monthly.

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

At March 31, 2024 , the Company was in compliance with all of the financial covenants under the Citizens Credit Agreement, except for the total leverage ratio and fixed charge ratio covenants.

As discussed above, these covenant breaches were waived through the termination date by the Third Waiver.

Borrowings under the Citizens Credit Agreement bore interest at a rate per annum equal to the benchmark selected by the Borrower, which was based on the Alternative Base Rate (as defined in the Citizens Credit Agreement), LIBOR (as defined in the Citizens 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 Citizens Credit Agreement) (subject to a floor of 0.00 %) subsequent to the election, plus a margin applicable to the selected benchmark.

The applicable margin was 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 9.43 % (Term SOFR + 0.1 % + 4.00 %) as of March 31, 2024 .

The Citizens 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 (once such extensions are no longer prohibited by the Fourth Amendment or a later amendment).

On April 2, 2024, the Company repaid the $ 30,000 aggregate principal amount of the Term Loan, prior to maturity, resulting in a debt extinguishment loss of approximately $ 1,000 , which will be recognized in the second quarter of 2024.

New Credit Facility

On April 2, 2024, Fluent, LLC, as Borrower, entered into a credit agreement (the "SLR Credit Agreement") with Fluent, Inc.

and certain subsidiaries of the Borrower as guarantors, Crystal Financial LLC D/B/A SLR Credit Solutions, as administrative agent, lead arranger and bookrunner ("SLR") and each other lender from time to time party thereto.

The SLR Credit Agreement provides for a $ 20,000 term loan (the "SLR Term Loan") and a revolving credit facility of up to $ 30,000 (the "SLR Revolver" and together with the SLR Term Loan, the "SLR Credit Facility").

As of April 2, 2024, the SLR Credit Facility has an outstanding principal balance of $ 32,700 and matures on April 2, 2029.

The Company used a portion of the net proceeds of the SLR Credit Facility to repay its outstanding Term Loan under the Citizens Credit Agreement, dated March 31, 2021.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

There is no principal amortization prior to maturity under the SLR Credit Agreement except for certain mandatory prepayments to be made with the net cash proceeds of certain asset sales, casualty events, and other extraordinary receipts and upon the occurrence of certain other events, in each case, subject to certain reinvestment rights, thresholds and other exceptions.

Unfunded commitments will be subject to an unused facility fee, which will be payable monthly in arrears, as of the month following the closing, at a rate of 0.50 % per annum.

All amounts owed under the Credit Facility are due and payable on the five -year anniversary of the closing date (the "Maturity Date"), or earlier following a change in control or an event of default, unless otherwise extended in accordance with the terms of the SLR Credit Agreement.

Borrowings under the SLR Credit Agreement bear interest at a rate per annum equal to a 3 -month term SOFR plus 0.26161 %, subject to a 1.50 % floor, plus 5.25 % (the "Applicable Margin").

The Applicable Margin will be reduced to 5.0 % when our fixed charge coverage ratio is greater than 1.10 to 1.

The opening interest rate of the SLR Credit Facility was 10.81 % [SOFR + CSA + 5.25%].

The Borrower's ability to draw on the SLR Revolver depends on its weekly borrowing base, which is calculated by adding specified percentages established by SLR of the Borrower's eligible accounts receivable and cash less reserves, subject to certain limitations.

On May 15, 2024, the Borrower and SLR entered into a First Amendment to Credit Agreement, pursuant to which, among other things, SLR ( 1 ) waived any required prepayments on the SLR Revolver from the proceeds from the Company’s Private Placement;

( 2 ) required that the Credit Parties (as defined in the SLR Credit Agreement) retain a financial advisor;

( 3 ) increased the minimum excess availability covenant following the Private Placement;

( 4 ) amended the definition of borrowing base (as defined in the SLR Credit Agreement) and ( 5 ) amended certain post-closing obligations.

The SLR Credit Agreement contains restrictive covenants which impose limitations on the way the Company conducts business, including limitations on the amount of additional debt the Company is able to incur and its ability to make certain investments or other restricted payments.

The SLR Credit Agreement is guaranteed by the Company and certain of its direct and indirect subsidiaries and is secured by substantially all of the Company's assets and those of its direct and indirect subsidiaries, including Fluent, LLC.

On March 17, 2024, Fluent, LLC entered into a junior secured promissory note (the "Note Payable") with Freedom Debt Relief, LLC in the principal amount of $ 2,000 in connection with the Berman Settlement Agreement (see Note 10, Contingencies ).

The Note Payable bears interest at a rate per annum equal to one -month CME Term SOFR (defined as the rate published by the CME Group Benchmark Administration Limited) plus 11.0 %.

The opening interest rate of the Note Payable is 16.32 % [SOFR + 11%].

A maximum of $ 1,000 of the borrowings under the Note Payable are secured by substantially all of the assets of Fluent, LLC.

This security interest is subordinate to the security interest under the SLR Credit Agreement.

The Note Payable matures on March 31, 2026 and interest is payable quarterly.

Scheduled principal amortization of the Note Payable is $ 250 per quarter, which will commence with the fiscal quarter ended June 30, 2024.

As of March 31, 2024 , scheduled future maturities of the Citizens Credit Agreement and Note Payable are as follows, not reflective of the debt being accelerated as noted in Note 1 :

March 31, 2024

Remainder of 2024

$ 1,250  

31,250  

Total maturities

$ 32,500  

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2 unchanged sentences

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. 

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 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 

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

As of March 31, 2024 and December 31, 2023 , 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.

However, the exact timing and amount of any valuation allowance release are subject to change, depending upon the level of profitability that the Company is able to achieve and the net deferred tax assets available.

For the three months ended March 31, 2024 , the Company's effective income tax expense rate of 16.9 % differed from the statutory federal income tax rate of 21 % primarily due to state and local tax expense, offset by the benefit of federal research and development credit.

For the three months ended March 31, 2023 , the Company's effective income tax expense rate of 0.3 % primarily represents the projected federal and state cash tax expense expected to result in taxable income for full-year 2023 after the impact of a non-deductible goodwill impairment against pre-tax year-to-date losses, offset by the benefit of federal research and development credits on expected federal cash tax expense.

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

1 unchanged sentence

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

September 30, 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 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.

Common stock, treasury stock and warrants

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 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 

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

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.

As of March 31, 2024 and December 31, 2023 , the balance of unrecognized tax benefits was $ 1,480 .

If the Company’s tax positions are ultimately sustained, the Company’s liability would be reduced by $1,480, all of which would impact the Company’s tax provision.

As of March 31, 2024 , the Company has not accrued any interest or penalties with respect to its uncertain tax positions.

The Company is reasonably certain that all of its uncertain tax positions will reverse within the next twelve months due to the closing of the statute of limitations.

Common stock and treasury stock

Effective at 6:00 p.m.

Eastern Time on April 11, 2024, the Company effected a 1 -for- 6 (the "Reverse Stock Split Ratio") reverse split of the issued shares of the Company’s common stock (the "Reverse Stock Split") pursuant to a certificate of amendment to the Company's Certificate of Incorporation, as amended, filed with the Secretary of State of the State of Delaware on April 11, 2024.

As a result of the Reverse Stock Split, every six shares of common stock issued and outstanding or held by the Company in treasury stock were combined and reclassified into one share of common stock.

No fractional shares were issued as a result of the Reverse Stock Split.

Stockholders who were otherwise entitled to receive a fractional share received an additional fraction of a share of common stock to round up to the next whole share.

The Reverse Stock Split affected all stockholders uniformly and did not alter any stockholder’s percentage ownership interest or any stockholder’s proportionate voting power, except for immaterial adjustments that resulted from the treatment of fractional shares.

The Reverse Stock Split did not change the number of authorized shares of common stock or the par value per share of the common stock.

The Reverse Stock Split reduced the number of issued and outstanding shares of common stock from 81,571,864 shares to 13,660,598 shares and reduced the issued shares of common stock held by the Company in treasury stock from 4,611,569 shares to 768,595 shares.

The common stock began trading on a reverse split-adjusted basis at the opening of trading on The Nasdaq Capital Market on April 12, 2024 under the same symbol (FLNT) with a new CUSIP number ( 34380C 201 ).

As of the effective time of the Reverse Stock Split, the number of shares available for issuance under the Company’s equity incentive plans and the number of shares issuable pursuant to each outstanding equity award immediately prior to the Reverse Stock Split were reduced proportionately at the Reverse Stock Split Ratio, and the exercise price for each outstanding stock option was increased in inverse proportion to the Reverse Stock Split Ratio.

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.

As of March 31, 2024 and December 31, 2023 , the number of issued shares of common stock was 14,429,193 and 14,384,936 , respectively, which included shares of treasury stock of 768,595 and 768,595 , respectively.

For the three months ended March 31, 2024 , the change in the number of issued shares of common stock was the result of an aggregate 44,257 shares of common stock issued upon vesting of RSUs, in which no shares of common stock were withheld to cover statutory taxes upon such vesting.

Treasury stock

As of March 31, 2024 and December 31, 2023 , the Company held shares of treasury stock of 768,595 and 768,595 , respectively, with a cost of $ 11,407 and $ 11,407 , 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 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. 

For the three months ended March 31, 2024 , no shares of common stock were withheld to cover statutory taxes owed by certain employees for this purpose, all of which were taken into treasury stock.

See Note 8 , Share-based compensation.

Share-based compensation

On June 8, 2022, 

the stockholders of the Company approved the Fluent, Inc.

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

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

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

946,071  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.

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 2,570,421 shares of the Company's common stock.

As of March 31, 2024 , the Company had 1,173,248 shares of common stock available for grants pursuant to the 2022 Plan, which includes 1,286,607 shares of common stock previously available for issuance under the 2018 Stock Incentive Plan.

In October 2022, the Company issued to certain of its senior officers and employees, 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.

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;

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 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.

As of March 31, 2024 , 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 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:

5 unchanged sentences

Fair value lower range

$ 2.81  

$ 1.58  

$ 1.46  

$ 4.34  

$ 16.86 $ 9.48 $ 8.76 $ 26.04

Fair value higher range

$ 2.86  

$ 1.61  

$ 1.49  

$ 4.43  

$ 17.16 $ 9.66 $ 8.94 $ 26.58

Exercise price

$ 4.72  

$ 2.56  

$ 2.33  

$ 6.33  

$ 28.32 $ 15.36 $ 13.98 $ 37.98

Expected term (in years)

1.0 - 1.3  

1.0 - 1.6  

1.0 - 1.5  

1.0 - 1.3  

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 %  

2.61 % 1.85 % 1.05 % 1.18 %

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:

For the three months ended March 31, 2024 , details of stock option activity were as follows:

Number of options

3 unchanged sentences

Outstanding as of December 31, 2023

2,139,000  

$ 4.37  

( 308,000 )  

Outstanding as of September 30, 2023

1,831,000  

$ 4.32  

Options exercisable as of September 30, 2023

1,088,000  

$ 3.88  

302,333 $ 25.68 5.4 $ —

Outstanding as of March 31, 2024

302,333 $ 25.68 5.2

Options exercisable as of March 31, 2024

284,333 $ 24.91 5.1

The aggregate intrinsic value amounts in the table above represent the difference between the closing price of the Company's common stock at the end of the reporting period and the corresponding exercise prices, multiplied by the number of in-the-money stock options as of the same date.

For the 

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

For the three months ended March 31, 2024 , the unvested balance of stock options was as follows:

Number of stock options

2 unchanged sentences

Unvested as of December 31, 2023

897,000  

$ 4.91  

( 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 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.

123,833 $ 29.72 5.4

( 105,833 ) — —

Unvested as of March 31, 2024

18,000 $ 37.98 6.9

Compensation expense recognized for stock options of $ 0 and $ 0 for the three months ended March 31, 2024 and 2023 , respectively, was recorded in sales and marketing, product development, and general and administrative expenses in the consolidated statements of operations.

As of March 31, 2024 , there was $ 0 of unrecognized share-based compensation with respect to outstanding stock options.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1 unchanged sentence

Restricted stock units and restricted stock

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

For the three months ended March 31, 2024 , details of unvested RSU activity were as follows:

Number of units

1 unchanged sentence

Unvested as of December 31, 2023

4,223,156  

$ 5.37  

3,487,110  

$ 0.89  

731,538 $ 25.95

Vested and delivered

( 1,106,852 )  

$ 3.09  

( 44,257 ) 22.57

Withheld as treasury stock (1)

( 311,417 )  

$ 1.82  

Vested not delivered (2)

( 19,592 )  

$ 1.41  

( 773,030 )  

$ 1.49  

Unvested as of September 30, 2023

5,499,375  

$ 4.09  

As discussed in Note 7 , Common stock, treasury stock and warrants, 

the increase in treasury stock was due to shares withheld to cover statutory withholding taxes upon the delivery of shares following vesting of RSUs.

As of September 30, 2023 , there were 

4,611,569  

outstanding shares of treasury stock.

( 211,505 ) 10.57

( 26,104 ) 7.98

Unvested as of March 31, 2024

449,673 34.50

As discussed in Note 7 , Common stock and treasury stock, the treasury stock was related to shares withheld to cover statutory withholding taxes upon the delivery of shares following the vesting of RSUs.

As of March 31, 2024 , there were 768,595 outstanding shares of treasury stock.

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

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 September 30, 2023 , 

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

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.

For the three months ended March 31, 2024 , there was a net increase in the vested not delivered balance as a result of 214,770 shares that were deferred due to timing of delivery of certain shares, slightly offset by 3,265 deferred shares that were delivered.

As of March 31, 2024 , 501,437 outstanding RSUs were vested not delivered.

Compensation expense recognized for RSUs of $ 618 and $ 1,148 for the three months ended March 31, 2024 and 2023 , respectively, was recorded in sales and marketing, product development and general and administrative in the consolidated statements of operations, and intangible assets, net in the consolidated balance sheets.

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

As of September 30, 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 

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,

As of March 31, 2024 , unrecognized share-based compensation expense associated with the granted RSUs and stock options amounted to $ 2,223 , which is expected to be recognized over a weighted average period of 1.1 years.

For the three months ended March 31, 2024 and 2023 , share-based compensation for the Company's stock options, RSUs, and common stock awards were allocated to the following accounts in the consolidated financial statements:

Three Months Ended March 31,

Sales and marketing

4 unchanged sentences

Total share-based compensation

$ 3,090  

$ 2,720  

As of September 

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

$ 618 $ 1,148

As of March 31, 2024 and December 31, 2023 , the Company recorded a liability of $ 22 and $ 22 , respectively, related to PSUs that are to be settled in cash.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1 unchanged sentence

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 September 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 

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,

The Company identifies operating segments as components of an entity for which discrete financial information is available and is regularly reviewed by the CODM, in making decisions regarding resource allocation and performance assessment.

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

As of March 31, 2024 , the Company had two operating segments and 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 months ended March 31, 2024 and 2023 are shown in the following tables below:

Three Months Ended March 31,

Fluent segment revenue (1) :

United States

44,041  

$ 53,853  

$ 127,149  

$ 169,197  

$ 40,316 $ 42,908

International

20,060  

33,209  

92,199  

99,841  

22,862 32,330

Fluent segment revenue

64,101  

87,062  

219,348  

269,038  

$ 63,178 $ 75,238

All Other segment revenue (1 ):

United States

$ 1,984  

$ 6,290  

$ 7,360  

$ 2,805 $ 2,016

International

All Other segment revenue

$ 1,984  

$ 6,290  

$ 7,432  

$ 2,805 $ 2,016

Segment EBITDA

Fluent segment EBITDA

$ ( 28,879 )  

$ 4,192  

$ ( 47,773 )  

$ ( 1,849 ) $ ( 28,579 )

All Other segment EBITDA

( 2,397 )  

( 167 )  

( 2,463 )  

( 31,276 )  

( 50,236 )  

( 1,382 ) ( 28,794 )

Depreciation and amortization

10,037  

Total income (loss) from operations

$ ( 33,934 )  

$ ( 58,348 )  

Total loss from operations

$ ( 3,953 ) $ ( 31,153 )

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

1 unchanged sentence

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

September 30,

Total assets:

$ 99,807  

$ 168,486  

12,283  

15,483  

$ 112,090  

$ 183,969  

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

For the 

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.

$ 87,782 $ 97,629

15,795 14,238

$ 103,577 $ 111,867

As of March 31, 2024 , long-lived assets are all located in the United States.

For the three months ended March 31, 2024 , the Company identified an international customer within the Fluent segment with revenue in the amount of $ 6,669 which represents 10 % of consolidated revenue.

In addition, 23 % of the Company’s revenue is earned from customers located in Israel.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

Contingencies

2 unchanged sentences

In determining whether a loss should be accrued, the Company evaluates, among other factors, the degree of probability and the ability to reasonably estimate the amount of any such loss.

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. 

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.

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)

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

On October 6, 2020, the Company received notice from the Pennsylvania Office of the Attorney General ("PAAG") that it was reviewing the Company’s business practices relating to telemarketing.

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

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.

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 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 terms.

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.

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.

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

On October 6, 2020, the Company received notice from the Pennsylvania Office of the Attorney General ("PAAG") that it was reviewing the Company’s business practices relating to telemarketing.

On May 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 had 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  

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.

Business acquisition

True North Acquisition

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 (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.

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

On May 31, 2023, the p arties entered into an Amended Class Action Settlement Agreement (the "Berman Settlement Agreement"), which included injunctive provisions and payment to plaintiffs of $ 9,750 for legal fees and a consumer redress fund, of which the Company was responsible for $ 3,100 due upon final approval of the settlement.

That amount had been accrued as of December 31, 2022.

On July 28, 2023, the Court preliminarily approved the Berman Settlement Agreement.

The final approval of the Berman Settlement Agreement was filed on February 23, 2024.

The Company made a cash payment of $ 1,100 on March 15, 2024 and entered into a $ 2,000 interest-bearing note provided by co-defendant, Freedom Financial Network, as discussed in Note 5 , Long-term debt, net, to satisfy its obligations under the Berman Settlement Agreement.

Variable Interest Entity

1 unchanged sentence

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 influencers 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.

The Company assesses whether it is 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 that uses as an application to utilize its relationship with influencers 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 has 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 does not have an equity interest in TAPP, 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.

1 unchanged sentence

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 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.

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’ wages.

Subsequent Events

On May 1, 2024, the Company and Caspian Ventures, LLC (“Caspian”) entered into a membership interest purchase agreement pursuant to which the Company conveyed 100 % of the membership interests of True North Loyalty, LLC and its direct and indirect subsidiaries (collectively, "True North") to Caspian.

True North is a subscription-based business that utilizes call center operations and other media channels to market third -party recurring revenue services to consumers.

The deemed fair value of the consideration to be received was approximately $ 1,100 , which consisted of (i) the forgiveness of a $ 500 deferred payment owed by the Company in connection with the True North Acquisition on January 1, 2022, ( ii) a share of the True North contribution margin after the closing until the Company has received an amount equal to the closing net working capital of approximately $ 130 , and (iii) a continued share of the True North contribution margin of an additional amount of approximately $ 500 .

The True North founder who entered into an employment agreement in connection with the True North Acquisition will remain an employee of the Company after the closing.

As of March 31, 2024 , the Company determined that the True North sale did not meet the criteria of a discontinued operation under ASC 205 - 20, Discontinued operations nor was it considered held for sale under the guidance, and as a result, it was properly reflected in the results.

The Company is in the process of evaluating any additional financial impacts of this transaction.

Private Placement

On May 13, 2024, the Company entered into a Securities Purchase Agreements (the “Purchase Agreements”) with certain accredited investors (the "Purchasers") to sell pre-funded warrants (the "Pre-Funded Warrants") to purchase up to 2,955,084 shares of the Company's common stock, at a purchase price of $3.384 per Pre-Funded Warrant.

The Pre-Funded Warrants will have an exercise price of $ 0.005 per share of common stock, will be immediately exercisable after stockholder approval of the Private Placement and will terminate when exercised in full.

The aggregate gross proceeds for the Private Placement are to total $ 10,000 , before deducting offering expenses payable by the Company.

The exercise of the Pre-Funded Warrants is subject to stockholder approval expected in July.

The Company will be obligated to use its reasonable best efforts to obtain stockholder approval of the exercise of the Pre-Funded Warrants in accordance with the rules of the Nasdaq Stock Market at a special meeting of the Company's’ stockholders.

The Purchasers included, among others, three individuals who are officers and/or directors of the Company and a principal stockholder of the Company.

No underwriting discounts or commissions were paid with respect to the Private Placement.

The issuance of the Pre-Funded Warrants was made in reliance upon the exemption from registration under Section 4 (a)( 2 ) of the Securities Act of 1933, as amended, and Rule 506 of Regulation D promulgated thereunder.

Support Agreements

In connection with the Private Placement, the Company entered into Support Agreements with certain principal stockholders of the Company on May 13, 2024 ( the "Support Agreements").

Pursuant to the Support Agreements, the stockholders party thereto agreed to vote shares of the Company’s common stock beneficially owned by them in favor of certain actions subject to Stockholder Approval (as defined in the Purchase Agreements) at any meeting of stockholders of the Company and to vote against or decline to consent to any proposal or any other corporate action or agreement that would result in a breach by the Company of the Purchase Agreements or impede, delay or otherwise adversely affect the consummation of the transactions contemplated by the Purchase Agreements or any similar agreements entered into by the Company and the party stockholders in connection with the consummation of the transactions contemplated by the Purchase Agreements.

Each of the parties to the Support Agreements is also a purchaser in the Private Placement.

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