What changed in this filing

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Item 1. Financial Statements

2024-11-15 compared with 2024-08-19 · 289 added, 241 removed, 525 unchanged (50% of the section changed)

2 unchanged sentences

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

June 30, 2024

September 30, 2024

December 31, 2023

24 unchanged sentences

Long-term debt, net

Convertible Notes, at fair value with related parties

Operating lease liability, net

22 unchanged sentences

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

Three Months Ended June 30,

Six Months Ended June 30,

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

Three Months Ended September 30,

Nine Months Ended September 30,

Costs and expenses:

Cost of revenue (exclusive of depreciation and amortization)

46,109 59,540 93,457 117,812

Sales and marketing

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

Product development

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

General and administrative

8,856 3,941 19,221 16,266

Depreciation and amortization

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

Income (loss) from operations

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

Loss from operations

Interest expense, net

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

Fair value adjustment of Convertible Notes, with related parties

Loss on early extinguishment of debt

( 1,009 ) — ( 1,009 ) —

Income (loss) before income taxes

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

Loss before income taxes

Income tax (expense) benefit

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

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:

15,534,989 13,787,995 16,115,293 13,720,643

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

See notes to consolidated financial statements

4 unchanged sentences

Total shareholders'

Balance at March 31, 2024

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

Balance at June 30, 2024

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

251,053 1 — — ( 1 ) — —

Share-based compensation

— — — — 434 — 434

Issuance of pre-funded warrants

— — — — 9,900 — 9,900

— — — — — ( 11,627 ) ( 11,627 )

Balance at June 30, 2024

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

Exercise of pre-funded warrants

Balance at September 30, 2024

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

295,310 1 — — ( 1 ) — —

Share-based compensation

— — — — 1,052 — 1,052

Issuance of pre-funded warrants

— — — — 9,900 — 9,900

— — — — — ( 17,903 ) ( 17,903 )

Balance at June 30, 2024

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

Exercise of pre-funded warrants

Balance at September 30, 2024

Treasury stock

1 unchanged sentence

Total shareholders'

Balance at March 31, 2023

Balance at June 30, 2023

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

Share-based compensation

Balance at June 30, 2023

Balance at September 30, 2023

Balance at December 31, 2022

2 unchanged sentences

Share-based compensation

Balance at June 30, 2023

Balance at September 30, 2023

See notes to consolidated financial statements

1 unchanged sentence

(Amounts in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

$ ( 17,903 ) $ ( 27,692 )

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

4 unchanged sentences

Share-based compensation expense

Fair value adjustment of Convertible Notes, with related parties

Goodwill impairment

4 unchanged sentences

Prepaid expenses and other current assets

( 1,579 ) ( 6,435 )

Other non-current assets

Operating lease assets and liabilities, net

( 168 ) ( 165 )

Accounts payable

( 3,140 ) 7,113

Accrued expenses and other current liabilities

( 1,443 ) ( 9,147 )

Deferred revenue

( 987 ) ( 76 )

Net cash (used in) provided by operating activities

( 13,199 ) 2,051

CASH FLOWS FROM INVESTING ACTIVITIES:

Capitalized costs included in intangible assets

( 3,542 ) ( 2,370 )

Business acquisitions, net of cash acquired

1 unchanged sentence

Net cash used in investing activities

( 3,542 ) ( 3,642 )

CASH FLOWS FROM FINANCING ACTIVITIES:

1 unchanged sentence

Repayments of long-term debt

( 44,475 ) ( 2,500 )

Exercise of stock options

Debt financing costs

( 968 ) ( 237 )

Proceeds from issuance of warrants

Proceeds from exercise of warrants

Proceeds from Convertible Notes, with related parties

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

Net cash (used in) provided by financing activities

7,374 ( 2,973 )

Net decrease in cash, cash equivalents, and restricted cash

( 9,367 ) ( 4,564 )

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

15,804 25,547

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

$ 6,437 $ 20,983

SUPPLEMENTAL DISCLOSURE INFORMATION

Cash paid for interest

$ 1,690 1,434

Cash paid for income taxes

12 unchanged sentences

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

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

The Company has experienced a continued decline in its operating results, driven primarily by the economic environment and continued impact of the imposed regulatory requirements on its owned and operated digital media properties (see Note 11 , Contingencies) .

On April 2, 2024, Fluent, LLC, a wholly-owned subsidiary of the Company (the "Borrower") entered into a credit agreement (as amended, the "SLR Credit Agreement") with the Company and certain subsidiaries of the Borrower as guarantors (collectively, the "Credit Parties"), 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 Credit Parties to maintain and comply with certain financial covenants.

Moreover, the borrowings under the SLR Revolver (as defined in Note 5 , Long-term debt, net under the SLR Credit Agreement are limited to a borrowing base, that fluctuates as regularly as weekly based on 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 that have continued into the third quarter of 2024, accounts receivable were insufficient to support the borrowing base needed to fund operations through the end of the third quarter of 2024.

The Company therefore entered into convertible subordinated notes in August 2024 to raise funds (as defined in Note 5 ), further updated its projections to reflect the continued decline in its operating results and entered into the Second Amendment (as defined and discussed in Note 5 ) with SLR on August 19, 2024.

As of September 30, 2024 , the Credit Parties were not in compliance with their financial covenants under the SLR Credit Agreement, which the Borrower had to report by October 31, 2024, and which would have resulted in an event of default.

The Credit Parties then entered into a letter agreement on October 30, 2024 pursuant to which SLR extended the deadline for delivery of the compliance certificate required for the fiscal month ended September 30, 2024 , and the related notice of event of default, to November 19, 2024.

On November 15, 2024, the Credit Parties and SLR entered into the Third Amendment (as defined and discussed in Note 5 ) to the SLR Credit A greement, which, among other things, required that the Company raise at least $7,500 of additional capital by November 29, 2024 .

In addition, the Third Amendment waived non-compliance with the financial covenants as of September 30, 2024 , extended the duration of the call protection applicable to the loans, and modified the cash dominion provisions to remain in effect on an indefinite basis.

The Company will seek to raise additional capital through equity, equity-linked, or subordinated debt financings;

however, whether and when the Company can effect such financings and how much capital it can raise depend on a variety of factors, including, among others, market conditions, the trading price of the Company’s common stock and the Company’s determination as to the appropriate sources of funding for its operations.

There can be no assurance that additional capital will be available by November 29, 2024.

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 12 , 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.

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.

However, the Company has not met its projections for certain recent quarters, so there can be no assurance that the Company will meet its projections in the future.

If during any fiscal quarter, the Credit Parties do not comply with any of their financial covenants, such non-compliance would result in an event of default that would give SLR the right to accelerate maturities.

Additionally, if the Company fails to raise capital in at least the amount required under the Third Amendment by November 29, 2024, such failure would also result in an event of default.

In such case, the Company would not have sufficient funds to repay the SLR Term Loan (as defined herein) and the SLR Revolver (as defined herein).

In addition, even if the Company is able to raise additional capital as required by the Third Amendment , there is no assurance that such capital plus the available cash plus borrowing base on the SLR Revolver will be sufficient to fund operations over the next twelve months.

If needed, the Company will consider implementing other cost-saving measures, but there is no guarantee that such plans would 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.

3 unchanged sentences

( 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.

During the quarter 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 Company corrected this error related to the three months ended March 31, 2024 and prior periods with a write-off of 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, during the quarter ended June 30, 2024.

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 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

13 unchanged sentences

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.

11 unchanged sentences

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

In November 2024, the FASB issued ASU No.

2024 - 03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220 - 40 ):

Disaggregation of Income Statement Expenses , which requires additional disclosures about a public business entity’s costs and expenses on the face of the financial statements.

The ASU follows investor's requests for more detailed information and disclosures of disaggregated financial reporting information about the types of expenses in commonly presented expense captions (such as cost of sales, selling, general, and administrative, and research and development), including purchases of inventory, employee compensation, depreciation, amortization, and depletion.

The new guidance is effective for fiscal years beginning after December 15, 2026 and interim periods beginning after December 15, 2027, and early adoption is permitted.

The guidance will be applied on a prospective basis to financial statements issued for reporting periods after the effective date, or retrospectively to any and 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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

Revenue is generated when there is a transfer of control of a good or service for a consideration amount the Company is expected to be entitled to.

Revenue is recognized when a company has satisfied its performance obligations to a customer and can reasonably expect and measure the payment.

The Company's performance obligations are 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.

These Company performance obligations have the customer simultaneously receiving and consuming the benefits provided.

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.

Based on historical performance 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.

The Company has 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.

1 unchanged sentence

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.

In arrangements where the Company 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, the Company is considered to have acted as the principal.

For performance obligations in which the Company 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 the Company, is primarily responsible for the performance and deliverable to the customer, and the Company solely arranges for the third -party supplier to provide services to the customer, the Company is considered to have acted as the agent.

For performance obligations in which the Company 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.

June 30, 2024 ,

September 30, 2024 ,

December 31, 2023 , and

4 unchanged sentences

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 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.

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 corresponding amounts are recorded as unbilled revenue within accounts receivable on the consolidated balance sheets.

As of September 30, 2024 , December 31, 2023 , and December 31, 2022, unbilled revenue included in the Company's accounts receivable was $ 17,299 , $ 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.

3 unchanged sentences

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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.

3 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 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.

The commission revenue is variable based on a policy's estimated lifetime value ("LTV"), which is 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.

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

Due to the higher attrition of policies sold, the Company reassessed its estimated LTV for the health insurance policies by increasing the constraints applied to the amount of consideration deemed probable which led to a reduction of estimated LTV during the quarter ended June 30, 2024.

(f) Use of estimates

1 unchanged sentence

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.

2 unchanged sentences

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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

3 unchanged sentences

● 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)

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.

See Note 5 , Long-term debt, net .

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

As of June 30, 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.

See Note 4 , Goodwill .

See Note 6 , Fair Value Measurements , for further details.

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.

Basic income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding and restricted stock units ("RSUs") that have vested but not been delivered during the period.

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 8 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 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)

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

Three Months Ended September 30,

Nine Months Ended September 30,

$ ( 7,944 ) $ ( 33,627 ) $ ( 25,847 ) $ ( 61,319 )

11 unchanged sentences

$ ( 0.48 ) $ ( 2.43 ) $ ( 1.75 ) $ ( 4.46 )

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,

Based on exercise prices compared to the average stock prices for the three and nine months ended September 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 September 30,

Nine Months Ended September 30,

Restricted stock units

8 unchanged sentences

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

Amortization period (in years) June 30, 2024

Amortization period (in years) September 30, 2024

December 31, 2023

43 unchanged sentences

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 results of this approach indicated that this long-lived asset was not recoverable and required that an impairment loss related to its customer relationships 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 $ 2,495 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

The Company completed its quarterly triggering event assessment for the three months ended of September 30, 2024 and determined that no triggering event had occurred requiring further impairment assessment of its long-lived assets.

Amortization expenses of $ 2,299 and $ 2,559 for the three months ended September 30, 2024 and 2023 , respectively, and $ 7,277 and $ 7,810 for the nine months ended September 30, 2024 and 2023 , respectively, are included in depreciation and amortization expenses in the consolidated statements of operations.

As of September 30, 2024 , intangible assets with a carrying amount of $ 601 , 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, 2024 , estimated amortization expenses related to the Company's intangible assets for the remainder of 2024 and through 2029 and thereafter are as follows:

September 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 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.

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

In accordance with ASC 350, Intangibles - Goodwill and Other, goodwill is to be 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 had been set to October 1, but with no remaining goodwill for the fiscal year ended December 31, 2024 , the annual testing will not be performed.

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.

6 unchanged sentences

Long-term debt, net

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

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

September 30, 2024

December 31, 2023

2 unchanged sentences

Note Payable due 2026

Convertible Notes, with related parties

Long-term debt, net

4 unchanged sentences

$ 5,360 $ 25,488

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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.

On April 2, 2024, the Company repaid the $ 30,000 aggregate principal amount of the term loan ("Citizens 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 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.

On April 2, 2024, Fluent, LLC entered into the SLR Credit Agreement with certain of its subsidiaries and the Company, as guarantors, 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 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.

As of September 30, 2024 , the SLR Credit Facility had an outstanding principal balance of $ 32,486 (of which $ 12,486 relates to the SLR Revolver) and matures on April 2, 2029.

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

("Citizens Bank").

4 unchanged sentences

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 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.

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 a margin (the "Applicable Margin") of 5.25 % which was increased to 5.75 % pursuant to the Second Amendment to the SLR Credit Agreement (the "Second Amend ment").

The Applicable Margin will be reduced to 5.0 % when the Borrower'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 11.03 % (SOFR + CSA+ 5.75 %) as of September 30, 2024 .

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

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 .

Debt issuance costs and debt discount costs, net of accumulated amortization, related to the issuance and amendments of the SLR Revolver was $ 903 and $ 827 , respectively, as of September 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 was 16.32 % (SOFR + 11 %), which increased to 16.33 % (SOFR + 11% ) as of June 30, 2024 .

On May 15, 2024, the Credit Parties and SLR entered into the First Amendment to the SLR 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 (as defined herein) (see Note 8 , Equity) ( 4 ) amended the definition of borrowing base (as defined in the SLR Credit Agreement), and ( 5 ) amended certain post-closing obligations.

On August 19, 2024, the Credit Parties and SLR entered into 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 below, raising an aggregate $ 2,050 .

In addition, SLR waived non-compliance with the financial covenants as of June 30, 2024, modified the financial covenants through December 31, 2025, ended a requirement to engage a financial advisor, increased the Applicable Margin from 5.25 % to 5.75 %, and waived any required prepayments from the proceeds from the convertible subordinated notes financing.

As of September 30, 2024 , the Credit Parties were not in compliance with their financial covenants under the SLR Credit Agreement, which the Borrower had to report by October 31, 2024 , and which would have resulted in an event of default;

however, on October 30, 2024 , the Credit Parties 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 September 30, 2024 , and the related notice of event of default, to November 19, 2024.

On November 15, 2024 , the Credit Parties and SLR entered into the Third Amendment to the SLR Credit Agreement, which, among other things, required that the Company raise at least $7,500 of additional capital by November 29, 2024 .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

Based on current projections, the Company expects to be in compliance with the new financial covenants during the next twelve months.

However, the Company has not met its projections for certain recent quarters, so there can be no assurance that the Company will meet its projections in the future.

I f during any fiscal quarter, the Credit Parties do not comply with any of their financial covenants, such non-compliance would result in an event of default that would give SLR the right to accelerate maturities.

Additionally, if the Company fails to raise capital in at least the amount required under the Third Amendment by November 29, 2024, such failure would also 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 September 30, 2024 .

On March 17, 2024, Fluent, LLC entered into a junior secured promissory note (the "Note Payable") with Freedom Debt Relief, LLC ("FDR") in the principal amount of $ 2,000 in connection with the Berman Settlement Agreement (see Note 11 , Contingencies ).

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

The opening interest rate of the Note Payable was 16.32 % (SOFR + 11 %), which decreased to 16.17 % (SOFR + 11% ) as of September 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 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

Convertible Notes, with related parties

On August 19, 2024, the Company entered into a Securities Purchase Agreement (the "Securities Purchase Agreement") with certain of the Company's officers and directors and the largest stockholder (the "Purchasers") to sell convertible subordinated promissory notes (the "Convertible Notes") in aggregate principal amount of $ 2,050 .

The Convertible Notes mature on April 2, 2029, and bear interest at 13 % per annum payable quarterly in kind or may be paid in cash (subject to payment conditions in the Subordination Agreement (as defined below)) beginning December 31, 2024.

Subject to certain payment conditions in the Subordination Agreement, 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 stockholder approval without the consent of the applicable holder.

Each holder of the Convertible Notes 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.

The "Conversion Amount" is the sum of all or any portion of the outstanding principal amount of the Convertible Note, as designated by the holder upon exercise of its right of conversion, plus all accrued and unpaid interest.

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.

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

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

The Subordination Agreements provide that the Company may not make any payment of principal or interest on the Convertible Notes unless certain conditions are met.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

The Convertible Notes are accounted for at fair value due to the election of the fair value option ("FVO") in accordance with ASC 825, Financial Instruments ("ASC 825" ).

Within ASC 825, the FVO can be elected for debt host financial instruments containing embedded features which would otherwise be required to be bifurcated from the debt-host and recognized as separate derivative liabilities subject to initial and subsequent periodic estimated fair value measurements under ASC 815.

Notwithstanding, ASC 825 - 10 - 15 - 4 provides for the FVO election, to the extent not otherwise prohibited by ASC 825 - 10 - 15 - 5, to be afforded to financial instruments, wherein bifurcation of an embedded derivative is not necessary, and the financial instrument is initially measured at its issue-date estimated fair value and then subsequently remeasured at estimated fair value on a recurring basis at each reporting period date.

Within ASC 825 - 10 - 45 - 5, the estimated fair value adjustments are recognized as a component of other comprehensive income with respect to the portion of the fair value adjustment attributed to a change in the instrument-specific credit risk, with the remaining amount of the fair value adjustment recognized as other income (expense) within the consolidated statement of operations.

As then provided by ASC 825 - 10 - 50 - 30 (b), the estimated fair value adjustment is presented in a respective single line item within other income (expense) in the consolidated statements of operations, as the Company concluded that the change in fair value of the Convertible Notes was not attributable to instrument specific credit risk.

The Company then elected to not present the interest expense for the Convertible Notes separately.

The initial fair value was determined to be greater than the principal balance of the Convertible Notes.

The Company noted that the transaction was entered into with certain of the Company's officers and directors and the largest stockholder and was required under the Second Amendment for liquidity needs.

Further, the Company reviewed the valuation and determined it was appropriate.

As a result, based on ASC 825 - 10, the Company recorded a day one unrealized loss on the Convertible Notes of $ 2,110 .

As of September 30, 2024 , the principal balance of the Convertible Notes was $ 2,050 , with a fair value of $ 4,860 .

The Company recognized an additional increase in fair value of $ 700 for the three and nine months ended September 30, 2024 , which was recognized as after current period other income (loss) from operations.

For the three and nine months ended September 30, 2024 , accrued interest was paid in kind.

As of September 30, 2024 , scheduled future maturities of the Company's debt are as follows, not reflective of the debt being accelerated as noted in Note 1 :

September 30, 2024

Remainder of 2024

2 unchanged sentences

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

Fair Value Measurement

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 September 30, 2024 , the Company regards the fair value of its long-term debt to approximate its carrying value.

The following tables present the Company’s fair value hierarchy for assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2024 and December 31, 2023 :

September 30, 2024

December 31, 2023

Restricted cash

$ 1,255 — — $ — — —

Long term debt, net (1)

— 34,236 — — 30,488 —

Convertible Notes, with related parties

— — 4,860 — — —

Contingent consideration in connection with TAPP consolidation (2)

— — 958 — — 1,950

Consideration for True North Sale (3)

— 489 — — — —

Inclusive of the credit facilities and notes payable.

The debt fair value does not include debt issuance costs or debt discount.

See Note 5 , Long-term debt, net.

Balance recorded in prepaid and other expenses and other non-current assets with changes to the balance as a result of adjustment of the fair value related to the initial discount rate and payments made.

See Note 12 , Variable Interest Entity , for initial assumptions of the fair value.

( 3 ) Relates to the remaining net working capital and contribution margin owed based upon a discounted rate of average borrowing rates over the expected time frame to be earned.

See Note 12 , Variable Interest Entity .

Convertible Notes, with related parties

The Company issued the Convertible Notes on August 19, 2024 and elected the fair value option, see Note 5 , Long-term debt, net .

The following is a reconciliation of the fair value from the issuance date of such notes to September 30, 2024 :

Fair value as of August 19, 2024

Loss on change in fair value reported in the consolidated statement of operations

Fair value as of September 30, 2024

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

As the Convertible Notes mature on April 2, 2029, and bear interest at 13 % per annum paid in kind but may be converted into shares of the Company’s common stock ( the "call option"), the estimated fair value is computed as the sum of (a) the present value of the expected interest and principal payments using the discounted cash flow method based on an estimated discount rate and (b) the fair value of the call option computer using the Black-Scholes model.

Both approaches are based on the following assumptions:

September 30, 2024

Face value of principal payable

Value of common stock

Expected term (years)

Risk free rate

Discount rate

Contingent Consideration

In connection with the contingent consideration received related to the consolidation of TAPP, the Company had to determine the fair value of the identified assets acquired and liabilities assumed.

The Company determined that the estimated fair value of the net assets acquired, excluding the net working capital, was a Level 3 measurement, as certain inputs to determine fair value were unobservable.

See Note 12 , Variable Interest Entity .

Fair value as of December 31, 2023

Payment for annual bonus

Adjustment to compensation expense

Fair value as of September 30, 2024

As of September 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.

See Note 4 , Goodwill.

The Company is subject to federal and state income taxes in the United States.

1 unchanged sentence

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

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.

As of September 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 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.

For the nine months ended September 30, 2024 , the Company's effective income tax rate of 0.4 % 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 nine months ended September 30, 2023 , the Company's effective income tax rate of 0.9 % 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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 June 30, 2024 and December 31, 2023 , the balance of unrecognized tax benefits was $ 1,480 .

As of September 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 June 30, 2024 , the Company has not accrued any interest or penalties with respect to its uncertain tax positions.

As of September 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.

9 unchanged sentences

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.

As of September 30, 2024 and December 31, 2023 , the number of issued shares of common stock was 17,645,368 and 14,384,936 , respectively, which included shares of treasury stock of 768,595 and 768,595 , respectively.

For the nine months ended September 30, 2024 , the increase in the number of issued shares of common stock was the result of the exercise of 2,955,084 shares related to the warrants, as described below, and 305,348 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 September 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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

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

See Note 9 , Share-based compensation .

6 unchanged sentences

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.

As of September 30, 2024 , all of the Pre-Funded Warrants had been exercised.

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 as amended.

The settlement of the Pre-Funded Warrants was reflected in the Company's stockholder's equity within common stock and additional paid-in-capital as of September 30, 2024 .

In accordance with ASC 815 - 40, Derivatives and Hedging, a contract is 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 had 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

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2022 Omnibus Equity Incentive Plan (the "2022 Plan") that authorized for issuance 2,570,421 shares of the Company's common stock.

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.

As of September 30, 2024 , the Company had 488,254 shares of common stock available for grants pursuant to the 2022 Plan, which includes 262,517 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, RSUs (time-based vesting), long-term incentive grants (performance and time-based vesting RSUs), or performance share units ("PSUs") (achievement of performance targets settled in cash) under the 2022 Plan.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

Stock options

2 unchanged sentences

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

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.

As of September 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.

20 unchanged sentences

2.61 % 1.85 % 1.05 % 1.18 %

On September 9, 2024, the Compensation Committee of the Company's Board of Directors approved the grant of stock options to the Company's Chief Financial Officer in connection with his employment agreement.

Subject to continuing service, 50% of the shares subject to these stock options will vest when the average closing price of the Company's common stock is equal to three times the exercise price of the option for ten consecutive trading days, and the remaining 50% of the shares subject to these stock options will vest when the average closing price of the Company's common stock is equal to five times the exercise price of the option for ten consecutive trading days.

Notwithstanding the foregoing, the options will immediately vest upon the occurrence of certain conditions such as a change in control.

The fair value of the stock option granted was estimated at the trading day of the date of the grant using a Monte Carlo simulation model.

The key assumptions utilized to calculate the grant-date fair value for the award is summarized below:

Issuance Date

September 9, 2024

Fair value lower range

Fair value higher range

Exercise price

Expected term (in years)

Expected volatility

Dividend yield

Risk-free rate

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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

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

Number of options

6 unchanged sentences

(41,333 ) — — —

Outstanding as of June 30, 2024

Outstanding as of September 30, 2024

397,667 $ 21.74 5.8

Options exercisable as of June 30, 2024

Options exercisable as of September 30, 2024

249,001 $ 25.78 4.6

( 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.

( 1 ) Balance includes the stock options granted on June 3, 2024 to one employee of the Company totaling 16,667 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 six months ended June 30, 2024 , the unvested balance of stock options was as follows:

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

Number of stock options

5 unchanged sentences

( 6,000 ) — —

Unvested as of June 30, 2024

( 105,834 ) — —

( 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.

Unvested as of September 30, 2024

148,666 $ 5.66 9.6

Compensation expense recognized for stock options was $ 4 and $ 0 for the three months ended September 30, 2024 and 2023 , respectively, and $ 5 and $ 0 for the nine months ended September 30, 2024 and 2023 , respectively.

As of September 30, 2024 , there was $ 264 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 six months ended June 30, 2024 , details of unvested RSU activity were as follows:

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

Number of units

7 unchanged sentences

( 133,611 ) 11.59

( 95,177 ) 14.22

Unvested as of June 30, 2024

Unvested as of September 30, 2024

993,623 17.40

As discussed in Note 8 , 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.

As of September 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 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.

For the nine months ended September 30, 2024 , there was a change in the vested not delivered balance due to a net 568 shares that were deferred due to timing of delivery of certain shares, along with 3,265 shares that elected deferred delivery.

As of September 30, 2024 , 286,099 outstanding RSUs were vested not delivered.

Compensation expense recognized for RSUs of $ 466 and $ 982 for the three months ended September 30, 2024 and 2023 , respectively, and $ 1,517 and $ 3,090 for the nine months ended September 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 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,

As of September 30, 2024 , unrecognized share-based compensation expense associated with the granted RSUs and stock options amounted to $ 2,734 , which is expected to be recognized over a weighted average period of 2.1 years.

For the three and nine months ended September 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 September 30,

Nine Months Ended September 30,

Sales and marketing

9 unchanged sentences

$ 470 $ 982 $ 1,522 $ 3,090

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.

As of September 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 June 30, 2024 , the Company had two operating segments and two corresponding reporting units, "Fluent" and "All Other," and one reportable segment.

As of September 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 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,

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

Three Months Ended September 30,

Nine Months Ended September 30,

Fluent segment revenue (1) :

22 unchanged sentences

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

September 30,

Total assets:

2 unchanged sentences

$ 95,945 $ 111,867

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.

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

For the nine months ended September 30, 2024 , 20 % of the Company's consolidated revenue was earned from customers located in Israel.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5 unchanged sentences

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 January 28, 2020, the Company 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.

1 unchanged sentence

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").

On May 26, 2023, the Company 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.

On July 17, 2023, the FTC filed its Complaint for Civil Penalties, Permanent Injunction, Monetary Relief, and Other Relief and, together with the Company, 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 August 12, 2024, Fluent filed its required compliance report.

On August 12, 2024, the Company filed its required compliance report.

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

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.

1 unchanged sentence

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.

The Company was involved in a Telephone Consumer Protection Act class action, Daniel Berman v.

Freedom Financial Network , which was originally filed in 2018.

3 unchanged sentences

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.

To satisfy its obligations under the Berman Settlement Agreement, the Company made a cash payment of $ 1,100 on March 15, 2024 and entered into the $ 2,000 Note Payable provided by co-defendant, FDR, as discussed in Note 5 , Long-term debt, net .

Variable Interest Entity

2 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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").

2 unchanged sentences

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.

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

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

Initially, as the majority membership owner of Caspian remained a full-time employee of the Company and had the power to unilaterally make significant decisions at True North, it was determined that the Company was the primary beneficiary of Caspian and therefore should consolidate Caspian's operations going forward, under the de facto agent guidance.

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 .

On September 1, 2024, Caspian’s operating agreement was amended to require the consent of multiple members rather than a majority interest for major decisions.

As a result, the Company determined that it was no longer the primary beneficiary, and under ASC 810, True North was no longer consolidated as of September 1, 2024.

No gain or loss was recognized for the three months ended September 30, 2024 .

The Company will have no continued business relationship with True North apart from receiving the remaining consideration owed by True North.

The Company’s total exposure to True North consists solely of the carrying amount of the receivable related to the True North Conveyance which is recorded as other non-current assets totaling $ 489 as of September 30, 2024 .

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.

10 unchanged sentences

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

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 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