What changed in this filing

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Item 1. Financial Statements

2024-08-19 compared with 2024-05-15 · 260 added, 179 removed, 506 unchanged (46% of the section changed)

2 unchanged sentences

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

March 31, 2024

June 30, 2024

December 31, 2023

1 unchanged sentence

$ 4,973 $ 15,804

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

Accounts receivable, net of allowance for credit losses of $ 157 and $ 231 , respectively

55,063 56,531

2 unchanged sentences

67,145 78,406

Restricted cash

Property and equipment, net

39 unchanged sentences

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

$ 58,717 $ 82,145 $ 124,700 $ 159,399

3 unchanged sentences

Sales and marketing

4,605 4,215 9,417 9,028

Product development

4,717 4,615 9,557 9,553

General and administrative

1 unchanged sentence

Depreciation and amortization

Goodwill impairment and write-off of intangible assets

2,567 3,095 5,138 5,454

Goodwill and intangible assets impairment

2,241 — 2,241 25,700

Total costs and expenses

69,095 75,406 139,031 183,813

Loss from operations

Income (loss) from operations

( 10,378 ) 6,739 ( 14,331 ) ( 24,414 )

1 unchanged sentence

( 1,015 ) ( 795 ) ( 2,430 ) ( 1,484 )

Loss before income taxes

Loss on early extinguishment of debt

( 1,009 ) — ( 1,009 ) —

Income tax expense

Income (loss) before income taxes

( 12,402 ) 5,944 ( 17,770 ) ( 25,898 )

Income tax (expense) benefit

775 ( 1,693 ) ( 133 ) ( 1,794 )

Basic and diluted loss per share:

Net income (loss)

( 11,627 ) 4,251 ( 17,903 ) ( 27,692 )

Basic and diluted income (loss) per share:

$ ( 0.75 ) $ 0.31 $ ( 1.11 ) $ ( 2.02 )

Weighted average number of shares outstanding:

7 unchanged sentences

Total shareholders'

Balance at December 31, 2023

Balance at March 31, 2024

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

3 unchanged sentences

— — — — 434 — 434

Issuance of pre-funded warrants

— — — — 9,900 — 9,900

Balance at March 31, 2024

— — — — — ( 11,627 ) ( 11,627 )

Treasury stock

Additional paid-in

Total shareholders'

Balance at June 30, 2024

14,680,246 $ 44 768,595 $ ( 11,407 ) $ 438,237 $ ( 399,421 ) $ 27,453

Balance at December 31, 2023

2 unchanged sentences

295,310 1 — — ( 1 ) — —

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

— — 51,903 ( 236 ) — — ( 236 )

Share-based compensation

— — — — 1,052 — 1,052

Issuance of pre-funded warrants

— — — — 9,900 — 9,900

Balance at March 31, 2023

— — — — — ( 17,903 ) ( 17,903 )

Balance at June 30, 2024

14,680,246 $ 44 768,595 $ ( 11,407 ) $ 438,237 $ ( 399,421 ) $ 27,453

Treasury stock

Additional paid-in

Total shareholders'

Balance at March 31, 2023

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

Share-based compensation

Balance at June 30, 2023

Balance at December 31, 2022

Vesting of restricted stock units and issuance of restricted stock

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

Share-based compensation

Balance at June 30, 2023

See notes to consolidated financial statements

1 unchanged sentence

(Amounts in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

3 unchanged sentences

Non-cash loan amortization expense

Non-cash gain on contingent consideration

Non-cash loss on early extinguishment of debt

Share-based compensation expense

Goodwill impairment

Impairment of intangible assets

Allowance for credit losses

18 unchanged sentences

Business acquisitions, net of cash acquired

Acquisition of property and equipment

Net cash used in investing activities

1 unchanged sentence

CASH FLOWS FROM FINANCING ACTIVITIES:

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

Repayments of long-term debt

1 unchanged sentence

Debt financing costs

( 968 ) ( 237 )

Proceeds from issuance of warrants

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

Net cash used in financing activities

Net cash (used in) provided by financing activities

7,374 ( 2,973 )

Net increase (decrease) in cash and cash equivalents

Net decrease in cash, cash equivalents, and restricted cash

( 9,367 ) ( 4,564 )

Cash and cash equivalents at beginning of period

Cash, cash equivalents, and restricted cash at beginning of period

15,804 25,547

Cash and cash equivalents at end of period

Cash, cash equivalents, and restricted cash at end of period

$ 6,437 $ 20,983

1 unchanged sentence

Cash paid for interest

$ 1,690 1,434

Cash paid for income taxes

3 unchanged sentences

Long-term debt issuance

Consideration for True North

See notes to consolidated financial statements

6 unchanged sentences

Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations.

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

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

6 unchanged sentences

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 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 Company has experienced a continued 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) .

On April 2, 2024, Fluent, LLC, a wholly-owned subsidiary of the Company, as Borrower, entered into a credit agreement (as amended, the "SLR Credit Agreement") with the Company 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 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.

Moreover, the borrowings under the SLR Revolver (as defined in Note 5 ) under the SLR Credit Agreement are limited to a borrowing base, that fluctuates as regularly as weekly based on the Company's eligible accounts receivable, as further described in Note 5 .

As a result of the continued decline in financial performance of the Company's owned and operated digital media properties throughout the second quarter of 2024, the Company's accounts receivable were 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 (as defined in Note 7 , Equity ), further updated its projections to reflect the continued decline in its operating results, and entered into the First Amendment (as defined and discussed in Note 5 ) with SLR on May 15, 2024.

The Company and SLR then entered into two letter agreements pursuant to which SLR extended the deadline for delivery of the compliance certificate required for the fiscal month ended June 30, 2024, and the related notice of event of default, to August 21, 2024.

On August 19, 2024, the Company and SLR entered into the Second Amendment (as defined and discussed in Note 5 ) to the SLR Credit Agreement, which, among other things, required that the Company raise $ 2,000 in additional capital.

To raise the capital, the Company entered into convertible subordinated notes, as described in Note 12 , Subsequent Events , below, raising an aggregate $2,050 .

In addition, among other things, the Second Amendment waived non-compliance with the financial covenant as of June 30, 2024 , modified the financial covenant through December 31, 2025, ended the requirement to engage a financial advisor, and increased the interest rate margin from 5.25 % to 5.75 %.

Additionally, given the continued challenges the Company has faced achieving profitability, the Company made a reduction in workforce during the second quarter of 2024 and continues 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.

Initial measures included divesting a non-core business unit (see Note 11 , Variable Interest Entity ), transferring another business unit (see Note 3 , Intangible assets, net ), and reviewing additional other business units to determine the impact of potential divestments.

While based on current projections, the Company expects to be in compliance with the new financial covenants for each of the quarters in the twelve months following the issuance date of this Quarterly Report on Form 10 -Q, if during any fiscal quarter, the Company does not comply with any of its financial covenants, such non-compliance would result in an event of default that would give SLR the right to accelerate maturities.

In such case, the Company likely would not have sufficient funds to repay the SLR Term Loan and the SLR Revolver.

In addition, while we believe the proceeds from the sale of the Convertible Notes (as defined and discussed in Note 12 , Subsequent Events ) will provide sufficient liquidity for any anticipated cash needs, there is no assurance that the Company's available cash plus borrowing base will be sufficient to fund operations over the next twelve months.

Further, if needed, the Company will consider implementing other cost saving measures, but there is no guarantee that the plans will be successfully executed or have the expected benefits.

As a result, management concluded that there is substantial doubt about the Company's ability to continue as a going concern for one year after the date of this Quarterly Report on Form 10 -Q.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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

Principles of consolidation

1 unchanged sentence

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

(b) Reverse stock split

( b) Out of period correction

During the three months ended June 30, 2024, the Company determined that unauthorized changes made to submitted policies by third parties related to the sale of certain health insurance policies led to higher attrition of sold policies than expected.

This determination was the result of the lower-than-expected monthly commission receipts based on the Company’s total policies written, after known constraints.

We have corrected this error related to the three months ended March 31, 2024 and prior periods with a write-off of for the total maximum impact to the accounts receivable and an associated offset to revenue of $ 1,958 , or $ 0.13 and $ 0.12 per share (basic and diluted), respectively.

The Company assessed the impact of this out-of-period adjustment and concluded that it was not material to the financial statements previously issued for the interim period, and the cumulative adjustment during the quarter ended June 30, 2024 is not expected to be material to the annual financial statements for 2024.

The out-of-period adjustment is included in the Fluent operating segment.

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.

1 unchanged sentence

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.

See Note 7 , Equity, for additional information.

(d) Recently issued and adopted accounting standards

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

13 unchanged sentences

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.

The guidance will 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 evaluating the impact of adopting this ASU on its consolidated financial statements and disclosures.

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.

Improvements to Income Tax Disclosures , which is 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 guidance will 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

(e) Revenue recognition

Data and performance-based marketing

14 unchanged sentences

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

March 31, 2024 and

June 30, 2024 ,

December 31, 2023 , and

December 31, 2022 the balance of deferred revenue was

6 unchanged sentences

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

As of March 31, 2024 and December 31, 2023 , unbilled revenue included in accounts receivable was $ 18,623 and $ 21,488 , respectively.

As of June 30, 2024 , December 31, 2023 , and December 31, 2022 unbilled revenue included in accounts receivable was $ 20,482 , $ 21,488 , and $ 26,878 , respectively.

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

8 unchanged sentences

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.

The commission revenue is variable based on a policy's estimated lifetime value ("LTV"), which is based on the amount of time the Company expects the policy will remain effective based on 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.

2 unchanged sentences

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

As described in (b) above, due to the higher attrition of policies sold the Company reassessed its estimated LTV for the health insurance policies by increasing the constraints applied for the amount of consideration deemed probable and led to a change of estimate

(f) Use of estimates

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

3 unchanged sentences

Actual results could differ from these estimates.

(f) Fair value

(g) 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.

6 unchanged sentences

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

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

Restricted cash includes a separately maintained cash account, as required under the terms of a lease agreement the Company entered into on October 10, 2018 for office space in New York City.

As of June 30, 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.

1 unchanged sentence

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

As of March 31, 2024 , certain non-financial assets have been measured at fair value subsequent to their initial recognition.

As of June 30, 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.

See Note 4 , Goodwill .

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, RSUs, restricted stock, warrants (including the Pre-Funded Warrants, as defined in Note 7 below) and deferred common stock.

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

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

Three Months Ended March 31,

For the three and six months ended June 30, 2024 and 2023 , basic and diluted income (loss) per share were as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Net income (loss)

$ ( 11,627 ) $ 4,251 $ ( 17,903 ) $ ( 27,692 )

8 unchanged sentences

15,534,989 13,792,108 16,115,293 13,720,643

Basic and diluted loss per share:

Basic and diluted income (loss) per share:

$ ( 0.75 ) $ 0.31 $ ( 1.11 ) $ ( 2.02 )

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,

Based on exercise prices compared to the average stock prices for the three and six months ended June 30, 2024 and 2023 , certain stock equivalents, including RSUs and stock options, have been excluded from the diluted weighted average share calculations due to their anti-dilutive nature.

Three Months Ended June 30,

Six Months Ended June 30,

Restricted stock units

8 unchanged sentences

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

Amortization period (in years) March 31, 2024

Amortization period (in years) June 30, 2024

December 31, 2023

10 unchanged sentences

2 - 5 1,768 1,768

128,042 126,227

Total gross amount

125,192 126,227

Accumulated amortization:

24 unchanged sentences

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.

the acquisition of a 100 % interest in True North Loyalty, LLC, (the "True North Acquisition"), effective January 1, 2022 ( see Note 11 , Variable Interest Entity);

and the consolidation of TAPP Influencers Corp.

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

During the second quarter of 2024, the Company determined that the effects of the expected decline in operations due to the impact of certain client relationships constituted a triggering event for the All Other reporting unit.

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

The results of this approach indicated that this long-lived asset was not recoverable and an impairment loss related to its customer relationships was to be calculated.

The Company determined that based on the facts and circumstances, the remaining balance was impaired and recorded a non-cash impairment charge of its customer relationship intangible of $ 383 as of June 30, 2024 .

As of June 30, 2024 , the Company had recorded a $ 597 impairment charge on its software developed for internal use which related to an immaterial business unit under the Fluent reporting unit that had met the held for sale criteria as of June 30, 2024 .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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

Amortization expenses of $ 2,495 and $ 2,995 for the three months ended June 30, 2024 and 2023 , respectively, and $ 4,978 and $ 5,251 for the six months ended June 30, 2024 and 2023 , respectively, are included in depreciation and amortization expenses in the consolidated statements of operations.

As of June 30, 2024 , intangible assets with a carrying amount of $ 653 , included in the gross amount of software developed for internal use, have not commenced amortization, as they are not ready for their intended use.

As of June 30, 2024 , estimated amortization expenses related to the Company's intangible assets for the remainder of 2024 and through 2029 and thereafter are as follows:

June 30, 2024

Remainder of 2024

1 unchanged sentence

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.

As of June 30, 2024 , the total balance of goodwill was $ 0 , which represented a decrease of $ 1,261 from the balance as of December 31, 2023 , as a result of a non-cash impairment charge.

In accordance with ASC 350, Intangibles - Goodwill and Other, goodwill is assessed at least annually for impairment, or when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable, by assessing qualitative factors or performing a quantitative analysis in determining whether it is more likely than not that its fair value exceeds the carrying value.

The measurement date of the Company's annual goodwill impairment test is set to October 1.

The Company conducted an interim test of the fair value of the All Other reporting unit's goodwill for potential impairment related to the triggering event.

The Company applied solely the income approach to determine the fair value of the All Other reporting unit.

The results of this approach indicated that the carrying value exceeded its fair value by 58%.

The Company therefore concluded that the goodwill was impaired as of June 30, 2024 and recorded a non-cash impairment charge for its remaining balance of $ 1,261 .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1 unchanged sentence

Long-term debt, net

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

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

June 30, 2024

December 31, 2023

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

$ 28,981 $ 30,488

Citizens Credit Facility due 2025 (less unamortized discount and financing costs of $ 0 and $ 762 , respectively)

New Credit Facility due 2029 (less unamortized discount and financing costs of $ 987 and $ 0 , respectively)

Note Payable due 2026

4 unchanged sentences

Long-term debt, net (non-current)

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.

$ 750 $ 25,488

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 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.

Citizens Credit Facility

On April 2, 2024, the Company repaid the $ 30,000 aggregate principal amount of the term loan ("Term Loan") due on September 30, 2025, resulting in a loss due to the early extinguishment of debt of $ 1,009 , which was 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.

On April 2, 2024, Fluent, LLC, as Borrower, entered into the SLR Credit Agreement with the Company and SLR as administrative agent, lead arranger and bookrunner, 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.

As of June 30, 2024 , the SLR Credit Facility had an outstanding principal balance of $ 32,274 (of which $ 12,274 relates to the SLR Revolver) and matures on April 2, 2029.

The Company used a portion of the net proceeds of the SLR Credit Facility to repay the outstanding Term Loan under the credit agreement dated March 31, 2021 ( the "Citizens Credit Agreement"), by and among Fluent, LLC, as Borrower, certain subsidiaries of the Borrower as guarantors, the lenders thereto, and Citizens Bank, N.A.

("Citizens Bank").

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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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.

All amounts owed under the SLR 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 Applicable Margin will be reduced to 5.0 % when the Company's 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 %), which increased to 10.86 % (SOFR + CSA+ 5.25% ) as of June 30, 2024 .

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.

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

Debt issuance costs and debt discount costs, net of accumulated amortization, related to the issuance of the SLR Revolver was $ 1,050 and $ 430 , respectively, as of June 30, 2024 .

The amounts are included in other non-current assets in the Company's consolidated balance sheets.

The Company amortizes these costs over the life of the related debt.

On May 15, 2024, the Borrower and SLR entered into a First Amendment to Credit Agreement (the "First Amendment"), pursuant to which SLR, among other things, ( 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 to assist in preparing the Company's projections;

( 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.

As of June 30, 2024 , the Company was not in compliance with its financial covenants under the SLR Credit Agreement, which the Company had to report by July 31, 2024, and which would have resulted in an event of default, however, on July 31, 2024, the Company and SLR entered into a letter agreement pursuant to which SLR extended the deadline for delivery of the compliance certificate required for the fiscal month ended June 30, 2024, and the related notice of event of default, to August 16, 2024.

On August 14, 2024, the parties entered into a second letter agreement pursuant to which SLR extended the deadline for delivery of the same compliance certificate and related notice of event of default to August 21, 2024.

On August 19, 2024, the Borrower, SLR, and the other parties thereto entered into the Second Amendment to Credit Agreement (the "Second Amendment"), which, among other things, required that the Company raise $2,000 in additional capital.

To raise the capital, the Company entered into convertible subordinated notes, as described in Note 12 , Subsequent Events , below, raising an aggregate $ 2,050 .

In addition, among other things, the Second Amendment waived non-compliance with the financial covenant as of June 30, 2024 , modified the financial covenant through December 31, 2025, ended a requirement to engage a financial advisor , and increased the interest rate margin from 5.25 % to 5.75 %.

While based on current projections, the Company expects to be in compliance with the new financial covenants during the next twelve months, if during any fiscal quarter, the Company does not comply with any of its financial covenants, such non-compliance would result in an event of default that would give SLR the right to accelerate maturities.

Accordingly, all borrowings under the Credit Agreement have been classified as current as of June 30, 2024 .

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%].

The opening interest rate of the Note Payable was 16.32 % (SOFR + 11 %), which increased to 16.33 % (SOFR + 11% ) as of June 30, 2024 .

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

1 unchanged sentence

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

Scheduled principal amortization of the Note Payable is $ 250 per quarter, which commenced with the fiscal quarter ended June 30, 2024, but was subsequently paid upon receipt of the invoice and applied as of July 17, 2024.

As of June 30, 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 :

June 30, 2024

Remainder of 2024

5 unchanged sentences

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.

As of June 30, 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.

Release of some or all of the valuation allowance would result in the recognition of certain deferred tax assets and an increase in deferred tax benefit for any period in which such a release may be recorded.

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

For the three months ended March 31, 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.

For the six months ended June 30, 2024 , the Company's effective income tax expense rate of 0.8 % differed from the statutory federal income tax rate of 21 % primarily due to state and local tax expense and losses for which no tax benefit is recognized as such amounts are fully offset with a valuation allowance.

For the six months ended June 30, 2023 , the Company's effective income tax expense rate of 6.9 % primarily represents the projected federal and state cash tax expense expected to result in taxable income for full-year 2023 after the impact of a non-deductible goodwill impairment against pre-tax year-to-date losses, offset by the benefit of federal research and development credits 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.

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

As of June 30, 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.

As of June 30, 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.

10 unchanged sentences

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

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.

As of June 30, 2024 and December 31, 2023 , the number of issued shares of common stock was 14,680,246 and 14,384,936 , respectively, which included shares of treasury stock of 768,595 and 768,595 , respectively.

For the six months ended June 30, 2024 , the change in the number of issued shares of common stock was the result of 295,310 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.

As of June 30, 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 a cash payment or forfeit shares of common stock upon vesting to satisfy federal and state statutory tax withholding obligations associated with equity awards.

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

For the three months ended March 31, 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.

For the six months ended June 30, 2024 , no shares of common stock were withheld to cover statutory taxes owed by certain employees for this purpose.

See Note 8 , Share-based compensation .

On May 13, 2024, the Company entered into Securities Purchase Agreements (the "Purchase Agreements") with certain accredited investors (the "Purchasers"), pursuant to which the Company sold 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 "Private Placement").

The Purchasers included 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 aggregate gross proceeds for the Private Placement totaled $ 10,000 , before deducting offering expenses payable by the Company of $ 100 .

The Pre-Funded Warrants, which terminated when exercised in full, had an exercise price of $ 0.0005 per share of common stock and became immediately exercisable upon stockholder approval of the Private Placement.

In connection with the Private Placement, the Company entered into Support Agreements with three of the Purchasers, the Company's largest stockholders, who agreed to vote all of their beneficially owned shares of the Company's common stock in favor of the corporate actions required for stockholder approval.

Stockholder approval of the Private Placement was obtained on July 2, 2024, at a special meeting of the Company's stockholders.

As of June 30, 2024 , none of the Pre-Funded Warrants had been exercised.

All of the Pre-Funded Warrants have been exercised as of the date of this report.

The issuance of the shares upon exercise 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.

The Pre-Funded Warrants were reflected in the Company's stockholder's equity within additional paid-in-capital as of June 30, 2024 in accordance with ASC 815 - 40, Derivatives and Hedging.

A contract should be classified as an equity agreement if it is both indexed to its own stock and classified in stockholder's equity in its financial position.

The Pre-Funded Warrants met the requirements of being classified as equity because (i) they had a fixed share limit and the Company has sufficient authorized and unissued shares (ii) they required physical or net share settlement, and (iii) no cash payments or settlement top-off was required by the Company.

Share-based compensation

1 unchanged sentence

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.

As of June 30, 2024 , the Company had 591,953 shares of common stock available for grants pursuant to the 2022 Plan, which includes 240,461 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.

1 unchanged sentence

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.

In January 2019, 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 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.

As of June 30, 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.

22 unchanged sentences

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

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

For the six months ended June 30, 2024 , details of stock option activity were as follows:

Number of options

4 unchanged sentences

302,333 $ 25.68 5.4 $ —

Outstanding as of March 31, 2024

16,667 3.36 9.9 —

Options exercisable as of March 31, 2024

( 20,666 ) — — —

Outstanding as of June 30, 2024

298,334 $ 25.15 5.2

Options exercisable as of June 30, 2024

263,668 $ 25.65 4.8

( 1 ) On June 3, 2024, one employee of the Company was granted stock options that vest equally over four annual installments and are exercisable for ten years after the grant date.

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

For the six months ended June 30, 2024 , the unvested balance of stock options was as follows:

Number of stock options

4 unchanged sentences

16,667 3.36 9.9

Unvested as of March 31, 2024

( 105,834 ) — —

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.

Unvested as of June 30, 2024

34,666 $ 21.34 8.2

( 1 ) On June 3, 2024, one employee of the Company was granted stock options that vest equally over four annual installments and are exercisable for ten years after the grant date.

Compensation expense recognized for stock options was $ 1 and $ 0 for both the three months ended June 30, 2024 and 2023 , respectively, and $ 1 and $ 0 for both the six months ended June 30, 2024 and 2023 , respectively.

As of June 30, 2024 , there was $ 59 of unrecognized share-based compensation with respect to outstanding stock options.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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Restricted stock units and restricted stock

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

For the six months ended June 30, 2024 , details of unvested RSU activity were as follows:

Number of units

8 unchanged sentences

( 95,177 ) 14.22

Unvested as of March 31, 2024

Unvested as of June 30, 2024

993,975 17.55

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.

As discussed in Note 7 , Equity , 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 June 30, 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 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.

For the six months ended June 30, 2024 , there was a net increase in the vested not delivered balance because 4,752 shares were deferred due to timing of delivery of certain shares, slightly offset by 3,265 deferred shares that were delivered.

As of June 30, 2024 , 291,419 outstanding RSUs were vested not delivered.

Compensation expense recognized for RSUs of $ 433 and $ 960 for the three months ended June 30, 2024 and 2023 , respectively, and $ 1,051 and $ 2,108 for the six months ended June 30, 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 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,

As of June 30, 2024 , unrecognized share-based compensation expense associated with the granted RSUs and stock options amounted to $ 3,046 , which is expected to be recognized over a weighted average period of 1.6 years.

For the three and six months ended June 30, 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 June 30,

Six Months Ended June 30,

Sales and marketing

$ 57 $ 129 $ 141 $ 296

Product development

55 136 100 327

General and administrative

311 671 782 1,434

Share-based compensation expense

423 936 1,023 2,057

Capitalized in intangible assets

1 unchanged sentence

$ 434 $ 960 $ 1,052 $ 2,108

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.

As of June 30, 2024 and December 31, 2023 , the Company recorded a liability of $ 29 and $ 22 , respectively, related to PSUs that are to be settled in cash.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3 unchanged sentences

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.

As of June 30, 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,

Summarized financial information concerning the Company's segments for the three and six months ended June 30, 2024 and 2023 are shown in the following tables below:

Three Months Ended June 30,

Six Months Ended June 30,

Fluent segment revenue (1) :

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( 770 ) 149 ( 303 ) ( 66 )

( 7,811 ) 9,834 ( 9,193 ) ( 18,960 )

Depreciation and amortization

2,567 3,095 5,138 5,454

Total loss from operations

7 unchanged sentences

$ 98,495 $ 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.

As of June 30, 2024 , long-lived assets are all located in the United States.

For the six months ended June 30, 2024 , 22 % of the Company's consolidated revenue was earned from customers located in Israel.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14 unchanged sentences

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

On August 12, 2024, Fluent filed its required compliance report.

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.

12 unchanged sentences

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.

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 (the "True North Conveyance").

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 received was $ 989 , 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 $ 168 , and (iii) a continued share of the True North contribution margin of an additional amount at fair value of $ 321 .

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

In accordance with ASC 810, Consolidation ("ASC 810" ), the Company determined that based upon the receivable for the consideration to be received, True North was deemed a VIE.

Further, as the majority membership owner of Caspian remained a full-time employee of the Company, under the de facto agent guidance, it was determined that the Company was the primary beneficiary of Caspian and therefore should consolidate Caspian's operations going forward.

As a result, no gain or loss was to be recognized on the True North Conveyance.

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

It was also determined that True North did not meet the discontinued operations criterion under ASC 205 - 20, Discontinued Operations .

January 9, 2023, the Company entered into employment agreements with certain key employees of TAPP, an influencer-based business that uses an application to utilize its relationships 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 in TAPP, 100 % of the net assets and results of the operations of TAPP are attributable to non-controlling interests.

As a result of significant influence over TAPP's key employees and 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.

Therefore, the Company consolidates the TAPP operations.

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.

The deemed fair value of the consideration was $ 4,165 , which consisted of $ 1,250 of initial cash and $ 2,915 which was contingent based upon achievement of specified revenue and media margin targets over three years.

The deemed fair value of the consideration was $ 4,165 , which consisted of $ 1,250 of initial cash and $ 2,915 contingent upon the achievement of specified revenue and media margin targets over three years.

The fair value of assets acquired, which excluded the immaterial net-working capital, were determined to be the publisher contracts of $ 1,100 , which were valued using the 'with or without' method, a variation of the income approach, to be amortized over a period of one year and industry-based trade secrets of $ 1,510 , which were valued using the excess earnings method, a variation of the income approach, to be amortized over a period of four years.

1 unchanged sentence

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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.

Sale of Convertible Notes

On August 19, 2024, the Company entered into Securities Purchase Agreements (the "Securities Purchase Agreements") with certain accredited and/or sophisticated investors (the "Purchasers") to sell convertible subordinated promissory notes (the "Convertible Notes") in aggregate principal amount of $ 2,050 .

The Convertible Promissory Notes mature on April 2, 2029, bear interest at 13 % per annum payable quarterly in cash (subject to payment conditions in the Subordination Agreement described below) or in kind.

Subject to the payment conditions in the Subordination Agreement described below, the Company may prepay the Convertible Notes in whole or in part at any time upon ten days’ written notice;

provided that, no prepayment will be permitted prior to the stockholder approval described below without the consent of the applicable holder.

Each holder of a Convertible Note is entitled to convert the Conversion Amount (as defined below) into shares of the Company’s common stock at a conversion price equal to the lesser of (i) $ 3.01 , and (ii) the greater of (A) the consolidated closing bid price of the Company’s Common Stock as reported on Nasdaq on the applicable conversion date and (B) $ 1.00 , in each case subject to adjustments for stock splits, recapitalizations and the like.

However, the applicable conversion price will in no event be lower than the price established by clause (ii) above unless and until the Company’s stockholders have approved matters related to the issuance of common stock upon conversion of the Convertible Notes, which vote is expected to take place at the Company’s 2024 annual meeting of stockholders.

The Convertible Notes are subject to additional limits on conversion until stockholder approval is obtained, including an aggregate limit on the number of shares that may be issued upon conversion to 19.99 % of the Company’s outstanding shares of common stock and provisions to prevent a change of control as defined in the rules of the Nasdaq Stock Market.

The Company has agreed to use its reasonable efforts to secure stockholder approval at such meeting, including providing a recommendation FOR approval by the Company’s board of directors.

Holders of the Convertible Notes will be permitted to vote on such stockholder approval, but may not vote any shares obtained from conversion of the Convertible Notes prior to such vote.

No underwriting discounts or commissions were paid with respect to the Convertible Notes.

The purchasers of the Convertible Notes include our Chairman of the Board and Chief Strategy Officer Ryan Schulke, our Chief Executive Officer Donald Patrick, our interim Chief Financial Officer Ryan Perfit, our Chief Customer Officer and member of the board of directors Matthew Conlin, and Dr.

Phillip Frost, a beneficial owner of approximately 22 % of common stock prior to the Convertible Note transaction.

In certain cases the Convertible Notes were purchased by affiliates of such persons.

In connection with the Second Amendment and the Purchase Agreements, the Company, SLR and the purchasers of the Convertible Notes entered into a Second Amendment Subordination Agreement dated August 19, 2024 ( the "Subordination Agreement").

The Subordination Agreement confirms the subordinated nature of the Convertible Notes and restricts payments to and remedies of the holders of the Convertible Notes for so long as the SLR Credit Agreement has indebtedness outstanding.

The Subordination Agreement provides that the Company may not make any payment of principal or interest on the Convertible Notes unless the conditions set forth in either in clause (i) or clause (ii) below are satisfied:

(i) (a) no event of default under the SLR Credit Agreement exists before or immediately after giving effect to such payment, (b) the Borrower has demonstrated to the satisfaction of SLR compliance with certain financial covenants on a pro forma basis after giving effect to the payment, and (c) SLR’s receipt of the Company’s audited financial statements for the fiscal year ending December 31, 2024.

(ii) (a) no event of default under the SLR Credit Agreement exists before or immediately after giving effect to such payment, (b) the Company has raised equity capital excluding the proceeds from the sale of the Convertible Notes prior to June 30, 2025 and the payments made in respect of the Convertible Notes do not exceed an amount that equals the positive difference of the amount of such equity raise and $ 7,000,000 , and (c) the Borrower has demonstrated to the satisfaction of SLR compliance with certain financial covenants on a pro forma basis after giving effect to the payment.

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