FLNT filing — read by section

Item 1. Financial Statements

ITEM 1. FINANCIAL STATEMENTS. 

 FLUENT, INC. 

 CONSOLIDATED BALANCE SHEETS 

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

 (unaudited) 

 September 30, 2024 
 December 31, 2023 
 
 ASSETS: 
 
 Cash and cash equivalents
 $ 6,587 $ 15,804 

 Accounts receivable, net of allowance for credit losses of $ 497 and $ 231 , respectively
 52,635 56,531 

 Prepaid expenses and other current assets
 7,060 6,071 

 Total current assets
 66,282 78,406 

 Restricted cash
 1,255 — 

 Property and equipment, net
 362 591 

 Operating lease right-of-use assets
 2,016 3,395 

 Intangible assets, net
 22,666 26,809 

 Goodwill
 —
 1,261 

 Other non-current assets
 3,364 1,405 

 Total assets 
 $ 95,945 $ 111,867 

 LIABILITIES AND SHAREHOLDERS' EQUITY: 
 
 Accounts payable
 $ 7,902 $ 10,954 

 Accrued expenses and other current liabilities
 27,273 30,534 

 Deferred revenue
 428 430 

 Current portion of long-term debt
 32,582 5,000 

 Current portion of operating lease liability
 2,222 2,296 

 Total current liabilities
 70,407 49,214 

 Long-term debt, net
 500 25,488 

 Convertible Notes, at fair value with related parties
 4,860 — 

 Operating lease liability, net
 152 1,699 

 Other non-current liabilities
 47 1,062 

 Total liabilities 
 75,966 77,463 

 Contingencies (Note 11)
 
 Shareholders' equity: 
 
 Preferred stock — $ 0.0001 par value, 10,000,000 Shares authorized; Shares outstanding — 0 shares for both periods
 — — 

 Common stock — $ 0.0005 par value, 200,000,000 Shares authorized; Shares issued — 17,645,368 and 14,384,936 , respectively; and Shares outstanding — 16,876,773 and 13,616,341 , respectively (Note 8)
 46 43 

 Treasury stock, at cost — 768,595 and 768,595 Shares, respectively (Note 8)
 ( 11,407 ) ( 11,407 ) 

 Additional paid-in capital
 438,705 427,286 

 Accumulated deficit
 ( 407,365 ) ( 381,518 ) 

 Total shareholders' equity
 19,979 34,404 

 Total liabilities and shareholders' equity
 $ 95,945 $ 111,867 

 See notes to consolidated financial statements

 2
 
 Table of Contents 
 
 FLUENT, INC. 

 CONSOLIDATED STATEMENTS OF OPERATIONS 

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

 (unaudited) 

 Three Months Ended September 30, 
 
 Nine Months Ended September 30, 
 
 2024 
 
 2023 
 
 2024 
 
 2023 
 
 Revenue 
 
 $ 
 64,516 
 
 $ 
 66,239 
 
 $ 
 189,216 
 
 $ 
 225,638 
 
 Costs and expenses: 
 
 Cost of revenue (exclusive of depreciation and amortization)
 
 48,861 
 
 50,148 
 
 142,318 
 
 167,960 
 
 Sales and marketing
 
 3,983 
 
 4,426 
 
 13,400 
 
 13,454 
 
 Product development
 
 4,124 
 
 4,511 
 
 13,681 
 
 14,064 
 
 General and administrative
 
 9,067 
 
 8,725 
 
 28,288 
 
 24,991 
 
 Depreciation and amortization
 
 2,369 
 
 2,658 
 
 7,507 
 
 8,112 
 
 Goodwill and intangible assets impairment
 
 — 
 
 29,705 
 
 2,241 
 
 55,405 
 
 Total costs and expenses 
 
 68,404 
 
 100,173 
 
 207,435 
 
 283,986 
 
 Loss from operations 
 
 ( 3,888 
 ) 
 
 ( 33,934 
 ) 
 
 ( 18,219 
 ) 
 
 ( 58,348 
 ) 
 
 Interest expense, net
 
 ( 1,281 
 ) 
 
 ( 936 
 ) 
 
 ( 3,711 
 ) 
 
 ( 2,420 
 ) 
 
 Fair value adjustment of Convertible Notes, with related parties
 
 ( 2,810 
 ) 
 
 — 
 
 ( 2,810 
 ) 
 
 — 
 
 Loss on early extinguishment of debt
 
 — 
 
 — 
 
 ( 1,009 
 ) 
 
 — 
 
 Loss before income taxes 
 
 ( 7,979 
 ) 
 
 ( 34,870 
 ) 
 
 ( 25,749 
 ) 
 
 ( 60,768 
 ) 
 
 Income tax (expense) benefit
 
 35 
 
 1,243 
 
 ( 98 
 ) 
 
 ( 551 
 ) 
 
 Net loss 
 
 ( 7,944 
 ) 
 
 ( 33,627 
 ) 
 
 ( 25,847 
 ) 
 
 ( 61,319 
 ) 
 
 Basic and diluted income (loss) per share: 
 
 Basic
 
 $ 
 ( 0.48 
 ) 
 
 $ 
 ( 2.43 
 ) 
 
 $ 
 ( 1.75 
 ) 
 
 $ 
 ( 4.46 
 ) 
 
 Diluted
 
 $ 
 ( 0.48 
 ) 
 
 $ 
 ( 2.43 
 ) 
 
 $ 
 ( 1.75 
 ) 
 
 $ 
 ( 4.46 
 ) 
 
 Weighted average number of shares outstanding: 
 
 Basic
 
 16,452,273 
 
 13,813,423 
 
 14,783,253 
 
 13,751,910 
 
 Diluted
 
 16,452,273 
 
 13,813,423 
 
 14,783,253 
 
 13,751,910 
 
 See notes to consolidated financial statements

 3
 
 Table of Contents 
 
 FLUENT, INC. 

 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY 

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

 (unaudited) 

 Common stock 
 
 Treasury stock 
 
 Additional paid-in 
 
 Accumulated 
 
 Total shareholders' 
 
 Shares 
 
 Amount 
 
 Shares 
 
 Amount 
 
 capital 
 
 deficit 
 
 equity 
 
 Balance at June 30, 2024 
 
 14,680,246 
 
 $ 
 44 
 
 768,595 
 
 $ 
 ( 11,407 
 ) 
 
 $ 
 438,237 
 
 $ 
 ( 399,421 
 ) 
 
 $ 
 27,453 
 
 Vesting of restricted stock units and issuance of stock under incentive plans
 
 10,038 
 
 1 
 
 — 
 
 — 
 
 ( 1 
 ) 
 
 — 
 
 — 
 
 Share-based compensation
 
 — 
 
 — 
 
 — 
 
 — 
 
 470 
 
 — 
 
 470 
 
 Exercise of pre-funded warrants
 
 2,955,084 
 
 1 
 
 — 
 
 — 
 
 ( 1 
 ) 
 
 — 
 
 — 
 
 Net loss
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 ( 7,944 
 ) 
 
 ( 7,944 
 )
 
 Balance at September 30, 2024 
 
 17,645,368 
 
 $ 
 46 
 
 768,595 
 
 $ 
 ( 11,407 
 ) 
 
 $ 
 438,705 
 
 $ 
 ( 407,365 
 ) 
 
 $ 
 19,979 
 
 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
 
 305,348 
 
 2 
 
 — 
 
 — 
 
 ( 2 
 ) 
 
 — 
 
 — 
 
 Share-based compensation
 
 — 
 
 — 
 
 — 
 
 — 
 
 1,522 
 
 — 
 
 1,522 
 
 Issuance of pre-funded warrants
 
 — 
 
 — 
 
 — 
 
 — 
 
 9,900 
 
 — 
 
 9,900 
 
 Exercise of pre-funded warrants
 
 2,955,084 
 
 1 
 
 — 
 
 — 
 
 ( 1 
 ) 
 
 — 
 
 — 
 
 Net loss
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 ( 25,847 
 ) 
 
 ( 25,847 
 ) 
 
 Balance at September 30, 2024 
 
 17,645,368 
 
 $ 
 46 
 
 768,595 
 
 $ 
 ( 11,407 
 ) 
 
 $ 
 438,705 
 
 $ 
 ( 407,365 
 ) 
 
 $ 
 19,979 
 
 Common stock 
 
 Treasury stock 
 
 Additional paid-in 
 
 Accumulated 
 
 Total shareholders' 
 
 Shares 
 
 Amount 
 
 Shares 
 
 Amount 
 
 capital 
 
 deficit 
 
 equity 
 
 Balance at June 30, 2023 
 
 14,357,158 
 
 $ 
 43 
 
 768,595 
 
 $ 
 ( 11,407 
 ) 
 
 $ 
 425,491 
 
 $ 
 ( 345,992 
 ) 
 
 $ 
 68,135 
 
 Vesting of restricted stock units and issuance of stock under incentive plans
 
 8,750 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 Share-based compensation
 
 — 
 
 — 
 
 — 
 
 — 
 
 982 
 
 — 
 
 982 
 
 Net income
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 ( 33,627 
 ) 
 
 ( 33,627 
 ) 
 
 Balance at September 30, 2023 
 
 14,365,908 
 
 $ 
 43 
 
 768,595 
 
 $ 
 ( 11,407 
 ) 
 
 $ 
 426,473 
 
 $ 
 ( 379,619 
 ) 
 
 $ 
 35,490 
 
 Balance at December 31, 2022 
 
 14,129,530 
 
 $ 
 42 
 
 716,692 
 
 $ 
 ( 11,171 
 ) 
 
 $ 
 423,384 
 
 $ 
 ( 318,300 
 ) 
 
 $ 
 93,955 
 
 Vesting of restricted stock units and issuance of restricted stock
 
 236,378 
 
 1 
 
 — 
 
 — 
 
 ( 1 
 ) 
 
 — 
 
 — 
 
 Increase in treasury stock resulting from shares withheld to cover statutory taxes
 
 — 
 
 — 
 
 51,903 
 
 ( 236 
 ) 
 
 — 
 
 — 
 
 ( 236 
 ) 
 
 Share-based compensation
 
 — 
 
 — 
 
 — 
 
 — 
 
 3,090 
 
 — 
 
 3,090 
 
 Net loss
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 ( 61,319 
 ) 
 
 ( 61,319 
 ) 
 
 Balance at September 30, 2023 
 
 14,365,908 
 
 $ 
 43 
 
 768,595 
 
 $ 
 ( 11,407 
 ) 
 
 $ 
 426,473 
 
 $ 
 ( 379,619 
 ) 
 
 $ 
 35,490 
 
 See notes to consolidated financial statements

 4
 
 Table of Contents 
 
 FLUENT, INC. 

 CONSOLIDATED STATEMENTS OF CASH FLOWS 

 (Amounts in thousands) 

 (unaudited) 

 Nine Months Ended September 30, 
 
 2024 
 
 2023 
 
 CASH FLOWS FROM OPERATING ACTIVITIES: 
 
 Net loss 
 
 $ 
 ( 25,847 
 ) 
 
 $ 
 ( 61,319 
 ) 
 
 Adjustments to reconcile net loss to net cash provided by operating activities: 
 
 Depreciation and amortization
 
 7,507 
 
 8,112 
 
 Non-cash loan amortization expense
 
 1,202 
 
 330 
 
 Non-cash gain on contingent consideration
 
 ( 250 
 ) 
 
 — 
 
 Non-cash loss on early extinguishment of debt
 
 1,009 
 
 — 
 
 Share-based compensation expense
 
 1,490 
 
 2,958 
 
 Fair value adjustment of Convertible Notes, with related parties
 
 2,810 
 
 — 
 
 Goodwill impairment
 
 1,261 
 
 55,405 
 
 Impairment of intangible assets
 
 980 
 
 — 
 
 Allowance for credit losses
 
 412 
 
 ( 51 
 ) 
 
 Changes in assets and liabilities, net of business acquisitions: 
 
 Accounts receivable
 
 3,359 
 
 14,700 
 
 Prepaid expenses and other current assets
 
 ( 1,542 
 ) 
 
 ( 4,563 
 ) 
 
 Other non-current assets
 
 280 
 
 228 
 
 Operating lease assets and liabilities, net
 
 ( 242 
 ) 
 
 ( 248 
 ) 
 
 Accounts payable
 
 ( 3,052 
 ) 
 
 5,651 
 
 Accrued expenses and other current liabilities
 
 ( 510 
 ) 
 
 ( 10,869 
 ) 
 
 Deferred revenue
 
 185 
 
 ( 522 
 ) 
 
 Other
 
 ( 1,015 
 ) 
 
 ( 117 
 ) 
 
 Net cash (used in) provided by operating activities 
 
 ( 11,963 
 ) 
 
 9,695 
 
 CASH FLOWS FROM INVESTING ACTIVITIES: 
 
 Capitalized costs included in intangible assets
 
 ( 4,727 
 ) 
 
 ( 4,093 
 ) 
 
 Business acquisitions, net of cash acquired
 
 — 
 
 ( 1,250 
 ) 
 
 Acquisition of property and equipment
 
 ( 1 
 ) 
 
 ( 25 
 ) 
 
 Net cash used in investing activities 
 
 ( 4,728 
 ) 
 
 ( 5,368 
 ) 
 
 CASH FLOWS FROM FINANCING ACTIVITIES: 
 
 Proceeds from issuance of long-term debt, net of debt financing costs
 
 54,617 
 
 — 
 
 Repayments of long-term debt
 
 ( 56,214 
 ) 
 
 ( 8,750 
 ) 
 
 Exercise of stock options
 
 — 
 
 — 
 
 Debt financing costs
 
 ( 1,625 
 ) 
 
 ( 375 
 ) 
 
 Proceeds from issuance of warrants
 
 9,900 
 
 — 
 
 Proceeds from exercise of warrants
 
 1 
 
 — 
 
 Proceeds from Convertible Notes, with related parties
 
 2,050 
 
 — 
 
 Taxes paid related to net share settlement of vesting of restricted stock units
 
 — 
 
 ( 236 
 ) 
 
 Net cash (used in) provided by financing activities 
 
 8,729 
 
 ( 9,361 
 ) 
 
 Net decrease in cash, cash equivalents, and restricted cash 
 
 ( 7,962 
 ) 
 
 ( 5,034 
 ) 
 
 Cash, cash equivalents, and restricted cash at beginning of period
 
 15,804 
 
 25,547 
 
 Cash, cash equivalents, and restricted cash at end of period
 
 $ 
 7,842 
 
 $ 
 20,513 
 
 SUPPLEMENTAL DISCLOSURE INFORMATION 
 
 Cash paid for interest
 
 $ 
 2,661 
 
 2,234 
 
 Cash paid for income taxes
 
 $ 
 44 
 
 114 
 
 Share-based compensation capitalized in intangible assets
 
 $ 
 39 
 
 72 
 
 SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES 
 
 Contingent payments in connection with TAPP consolidation
 
 $ 
 — 
 
 $ 
 2,915 
 
 Long-term debt issuance
 
 $ 
 2,000 
 
 $ 
 — 
 
 Consideration for True North
 
 $ 
 989 
 
 $ 
 — 
 
 See notes to consolidated financial statements

 5
 
 Table of Contents 
 
 FLUENT, INC. 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

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

 (unaudited) 

 1. Summary of significant accounting policies 

 (a) Basis of preparation 

 The accompanying unaudited consolidated financial statements have been prepared by Fluent, Inc., a Delaware corporation (the "Company" or "Fluent"), in accordance with accounting principles generally accepted in the United States ("GAAP" or "U.S. GAAP") and applicable rules and regulations of the Securities and Exchange Commission (the "SEC") regarding interim financial reporting. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations.

 The accompanying unaudited consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods ended September 30, 2024 and 2023 , respectively, but are not necessarily indicative of the results of operations to be anticipated for any future interim periods or for the full year ending December 31, 2024 .

 From time to time, the Company may enter into relationships or investments with other entities, and, in certain instances, the entity in which the Company has a relationship or investment may qualify as a variable interest entity ("VIE"). The Company consolidates a VIE in its financial statements if the Company is deemed to be the primary beneficiary of the VIE. The primary beneficiary is the party that has the power to direct activities that most significantly impact the operations of the VIE and has the obligation to absorb losses or the right to benefits from the VIE that could potentially be significant to the VIE. 

 The information included in this Quarterly Report on Form 10 -Q should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company's Annual Report on Form 10 -K for the year ended December 31, 2023 (" 2023 Form 10 -K") filed with the SEC on April 2, 2024 . The consolidated balance sheet as of December 31, 2023 included herein was derived from the audited financial statements as of that date and included in the 2023 Form 10 -K.

 Going concern 

 In accordance with Accounting Standards Codification ("ASC") 205 - 40, Presentation of Financial Statements – Going Concern, management must evaluate whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern for one year after the date these accompanying unaudited consolidated financial statements are issued (the "issuance date"). As part of this evaluation, management may consider the potential mitigating impact of its plans that have not been fully implemented as of the issuance date if (a) it is probable that management's plans will be effectively implemented on a timely basis, and (b) it is probable that the plans, when implemented, will alleviate the relevant conditions or events that raise substantial doubt about the Company's ability to continue as a going concern within one year after the issuance date. 

 The Company has experienced a 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. 

 6 
 
 Table of Contents 
 
 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. 

 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. 

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

 Principles of consolidation 

 The consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant transactions among the Company and its subsidiaries have been eliminated upon consolidation.

 ( b) Out of period correction 

 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. 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.
 
 7 
 
 Table of Contents 
 
 FLUENT, INC. 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 
 (Amounts in thousands, except share and per share data) 
 (unaudited) 
 
 (c) Reverse stock split 

 On April 11, 2024, the Company effected a 1 -for- 6 reverse split of the issued shares (the "Reverse Stock Split") of the Company's common stock. All historical share amounts disclosed in this Quarterly Report on Form 10 -Q have been retroactively restated to reflect the Reverse Stock Split. No fractional shares were issued as a result of the Reverse Stock Split, as fractional shares of Common Stock were rounded up to the nearest whole share. See Note 8 , Equity, for additional information.

 (d) Recently issued and adopted accounting standards 

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

 In October 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2023 - 06, D isclosure Improvements: Codification Amendments in Response to the SEC ' s Disclosure Update and Simplification Initiatives , which incorporates updates to the Codification to align with SEC disclosure requirements in response to the August 2018 SEC Release No. 33 - 10532. The amendment updates and simplifies certain SEC disclosure requirements that were duplicative, overlapping, or outdated due to changes in other SEC requirements and in U.S. GAAP, International Financial Reporting Standards ("IFRS"), or the overall financial reporting environment. The new guidance is effective for each amendment only if the SEC removes the related disclosure of presentation requirements from its existing regulations by June 30, 2027. The guidance is to be applied prospectively, with early adoption prohibited. The Company is currently evaluating the impact of adopting the ASU on its consolidated financial statements and disclosures.

 In November 2023, the FASB issued ASU No. 2023 - 07, Segment Reporting (Topic 2 80 ): Improvements to Reportable Segment Disclosures, which requires a public entity to disclose significant segment expenses that are regularly provided to the chief operating decision maker ("CODM"), a description of other segment items by reportable segment, and an explanation of any additional measures the CODM uses in deciding how to allocate resources. The new guidance is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, and early adoption is permitted. The guidance will be applied on a retrospective basis, with such disclosures to be made in regard to all prior periods presented in the financial statements. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements and disclosures.

 In December 2023, the FASB issued ASU No. 2023 - 09, Income Taxes (Topic 470 ): Improvements to Income Tax Disclosures , which is designed to increase the transparency and decision-usefulness of income tax disclosures for financial statement users. The ASU follows investors' indication and request for enhanced tax disclosures in order to better assess an entity's operations, related tax risks, jurisdictional tax exposures, and increase transparency regarding tax information through improvements to tax disclosures, specifically rate reconciliation, income taxes paid, and unrecognized tax benefits and certain temporary differences. The new guidance is effective for fiscal years beginning after December 15, 2024 and interim periods within fiscal years beginning after December 15, 2025, and early adoption is permitted. The guidance will be applied on a prospective basis, but retrospective application is permitted. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements and disclosures.

 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.
 
 8 
 
 Table of Contents 
 
 FLUENT, INC. 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 
 (Amounts in thousands, except share and per share data) 
 (unaudited) 
 
 (e) Revenue recognition 

 Data and performance-based marketing 

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

 For each identified performance obligation in a contract with a customer, the Company assesses whether it or the third -party supplier is the principal or agent. In arrangements where 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. As of 
 September 30, 2024 ,
 December 31, 2023 , and
 December 31, 2022 the balance of deferred revenue was 
 $ 428 ,
 $ 430 , and
 $ 1,014 , respectively. The majority of the deferred revenue balance as of 
 December 31, 2023 was recognized as revenue during the
 first quarter of
 2024 .
 
 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. Substantially all amounts included within the unbilled revenue balance are invoiced to customers within the month directly following the period of service. Historical estimates related to unbilled revenue have not differed materially from actual invoiced revenue.

 Sales commissions are recorded at the time revenue is recognized and recorded in sales and marketing in the consolidated statements of operations. The Company has elected to utilize a practical expedient to expense incremental costs incurred related to obtaining a contract.

 9 
 
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 FLUENT, INC. 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 
 (Amounts in thousands, except share and per share data) 
 (unaudited) 
 
 In addition, the Company elected the practical expedient to not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which revenue is recognized at the amount to which the Company has the right to invoice for services performed.

 Commission revenue 

 The Company, acting as the agent, recognizes commission revenue that it expects to receive from the insurance provider from the sale of certain of its health insurance policies, which includes the assumed automatic renewals of such policies once its performance obligation is satisfied. The Company considers its performance obligation related to commissions for both the initial policy sale and future renewals of the policy to be satisfied upon submission by the Company of the initial policy application.

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

 The commission revenue is variable based on a policy's estimated lifetime value ("LTV"), which is 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. Based on this, the commission revenue is recorded upon satisfaction of the performance obligation, which is typically paid monthly by the insurance provider as the consumer renews and pays the insurance provider for the policy over the duration the consumer remains on the policy.

 The Company reassesses the estimated LTV for the health insurance policies on a quarterly or as-needed basis. Adjustments to the LTV may result in an increase or decrease in revenue and the corresponding asset in the period the change is made. 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 

 The preparation of consolidated financial statements in accordance with U.S. GAAP requires the Company's management to make estimates and assumptions relating to the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. Significant items subject to such estimates and assumptions include the allowance for credit losses, useful lives of intangible assets, recoverability of the carrying amounts of goodwill and intangible assets, the portion of revenue subject to estimates for variances between internally-tracked conversions and those confirmed by the customer, the variable commission revenue based on the estimated LTV, purchase accounting, consolidation of variable interest entity, fair value of the Convertible Notes based on input assumptions, and income tax provision. These estimates are often based on complex judgments and assumptions that management believes to be reasonable but are inherently uncertain and unpredictable. Actual results could differ from these estimates.

 (g) Fair value 

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

 10 
 
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 FLUENT, INC. 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 
 (Amounts in thousands, except share and per share data) 
 (unaudited) 
 
 Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820, Fair Value Measurements and Disclosure describes a fair value hierarchy based on the following three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:

 ●
 Level 1 — defined as observable inputs, such as quoted prices in active markets;
 
 ●
 Level 2 — defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and
 
 ● Level 3 — defined as unobservable inputs, for which little or no market data exists, therefore requiring an entity to develop its own assumptions. 

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

 2. Income (loss) per share 

 Basic income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding 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 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, 
 
 2024 
 2023 
 2024 
 2023 
 
 Numerator: 
 
 Net loss
 $ ( 7,944 ) $ ( 33,627 ) $ ( 25,847 ) $ ( 61,319 ) 

 Denominator: 
 
 Weighted average shares outstanding
 16,164,301 13,526,824 14,495,341 13,466,371 

 Weighted average restricted shares vested not delivered
 287,972 286,599 287,912 285,539 

 Total basic weighted average shares outstanding 
 16,452,273 13,813,423 14,783,253 13,751,910 

 Dilutive effect of assumed conversion of restricted stock units
 — — — — 

 Total diluted weighted average shares outstanding 
 16,452,273 13,813,423 14,783,253 13,751,910 

 Basic and diluted income (loss) per share: 
 
 Basic 
 $ ( 0.48 ) $ ( 2.43 ) $ ( 1.75 ) $ ( 4.46 ) 

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

 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, 
 
 2024 
 2023 
 2024 
 2023 
 
 Restricted stock units
 993,623 916,563 993,623 916,563 

 Stock options
 397,668 305,167 397,668 305,167 

 Total anti-dilutive securities
 1,391,291 1,221,730 1,391,291 1,221,730 

 11 
 
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 FLUENT, INC. 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 

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

 (unaudited) 
 
 3. Intangible assets, net 

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

 Amortization period (in years) September 30, 2024 
 December 31, 2023 
 
 Gross amount:
 
 Software developed for internal use
 3 $ 23,997 20,175 

 Acquired proprietary technology
 3 - 5 15,792 16,972 

 Customer relationships
 5 - 10 36,686 39,168 

 Trade names
 4 - 20 16,657 16,657 

 Domain names
 20 195 195 

 Databases
 5 - 10 31,292 31,292 

 Non-competition agreements
 2 - 5 1,768 1,768 

 Total gross amount
 126,387 126,227 

 Accumulated amortization:
 
 Software developed for internal use
 ( 15,474 ) ( 12,142 ) 

 Acquired proprietary technology
 ( 14,943 ) ( 15,132 ) 

 Customer relationships
 ( 35,800 ) ( 37,249 ) 

 Trade names
 ( 7,507 ) ( 6,893 ) 

 Domain names
 ( 85 ) ( 77 ) 

 Databases
 ( 28,144 ) ( 26,157 ) 

 Non-competition agreements
 ( 1,768 ) ( 1,768 ) 

 Total accumulated amortization 
 ( 103,721 ) ( 99,418 ) 

 Net intangible assets:
 
 Software developed for internal use
 8,523 8,033 

 Acquired proprietary technology
 849 1,840 

 Customer relationships
 886 1,919 

 Trade names
 9,150 9,764 

 Domain names
 110 118 

 Databases
 3,148 5,135 

 Total intangible assets, net 
 $ 22,666 $ 26,809 

 The gross amounts associated with software developed for internal use primarily represent capitalized costs of internally developed software. The amounts relating to acquired proprietary technology, customer relationships, trade names, domain names, databases, and non-competition agreements primarily represent the fair values of intangible assets acquired as a result of the acquisition of Fluent, LLC, effective December 8, 2015; the acquisition of Q Interactive, LLC, effecti ve June 8, 2016; the acquisition of substantially all the assets of AdParlor Holdings, Inc. and certain of its affiliates, effective July 1, 2019 ( the "AdParlor Acquisition"); the acquisition of a 50 % interest in Winopoly, LLC, effective April 1, 2020; the acquisition of a 100 % interest in True North Loyalty, LLC, (the "True North Acquisition"), effective January 1, 2022 ( see Note 12 , Variable Interest Entity ); and the consolidation of TAPP Influencers Corp. ("TAPP") effective January 9, 2023 ( see Note 12 , Variable Interest Entity ).

 During the second quarter of 2024, the Company determined that the effects of the expected decline in operations due to the impact of certain client relationships constituted a triggering event for the All Other reporting unit. The Company conducted an interim test of recoverability of its long-lived assets, which compared the projected undiscounted cash flows to the carrying value of the asset group. The results of this approach indicated that this long-lived asset was not recoverable and 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 .

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 FLUENT, INC. 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 

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

 (unaudited) 
 
 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.

 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 was disposed of as of September 30, 2024 .

 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:

 Year 
 September 30, 2024 
 
 Remainder of 2024
 $ 2,536 

 2025
 6,982 

 2026
 4,329 

 2027
 2,248 

 2028
 828 

 2029 and thereafter
 5,743 

 Total
 $ 22,666 

 4. Goodwill 

 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 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. The Company conducted an interim test of the fair value of the All Other reporting unit's goodwill for potential impairment related to the triggering event. The Company applied solely the income approach to determine the fair value of the All Other reporting unit. The results of this approach indicated that the carrying value exceeded its fair value by 58%. The Company therefore concluded that the goodwill was impaired as of June 30, 2024 and recorded a non-cash impairment charge for its remaining balance of $ 1,261 .

 13 
 
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 FLUENT, INC. 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 

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

 (unaudited) 
 
 5. Long-term debt, net 

 Long-term debt, net of unamortized discount and financing costs, related to the 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 
 
 Citizens Credit Facility due 2025 (less unamortized discount and financing costs of $ 0 and $ 762 , respectively)
 $ — $ 30,488 

 New Credit Facility due 2029 (less unamortized discount and financing costs of $ 1,154 and $ 0 , respectively)
 31,332 — 

 Note Payable due 2026
 1,750 — 

 Convertible Notes, with related parties
 4,860 — 

 Long-term debt, net
 37,942 30,488 

 Less: Current portion of long-term debt
 ( 32,582 ) ( 5,000 ) 

 Long-term debt, net (non-current)
 $ 5,360 $ 25,488 

 Citizens Credit Facility 

 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 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 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"). 

 14 
 
 Table of Contents 
 
 FLUENT, INC. 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 
 (Amounts in thousands, except share and per share data) 
 (unaudited) 
 
 There is no principal amortization prior to maturity under the SLR Credit Agreement except for certain mandatory prepayments to be made with the net cash proceeds of certain asset sales, casualty events, and other extraordinary receipts and upon the occurrence of certain other events, in each case subject to certain reinvestment rights, thresholds and other exceptions. Unfunded commitments will be subject to an unused facility fee, which will be payable monthly in arrears, as of the month following the closing, at a rate of 0.50 % per annum. All amounts owed under the 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 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 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 the Borrower. 

 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 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 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 . 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.

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 FLUENT, INC. 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 
 (Amounts in thousands, except share and per share data) 
 (unaudited) 
 
 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 .

 Note Payable 

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

 The Note Payable matures on March 31, 2026 and interest is payable quarterly. Scheduled principal amortization of the Note Payable is $ 250 per quarter, which commenced with the fiscal quarter ended June 30, 2024, but was subsequently paid upon receipt of the invoice from FDR and applied as of July 17, 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.

 16 
 
 Table of Contents 
 
 FLUENT, INC. 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 
 (Amounts in thousands, except share and per share data) 
 (unaudited) 
 
 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.

 Maturities 

 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 :

 Year 
 September 30, 2024 

 Remainder of 2024
 $ 5,420 

 2025
 1,000 

 2026
 250 

 2027
 — 

 2028
 — 

 2029
 29,616 

 Total maturities 
 $ 36,286 

 17 
 
 Table of Contents 
 
 FLUENT, INC. 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 
 (Amounts in thousands, except share and per share data) 
 (unaudited) 
 
 6. Fair Value Measurement 

 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 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 
 
 Level 1 
 Level 2 
 Level 3 
 Level 1 
 Level 2 
 Level 3 
 
 Assets: 
 
 Restricted cash
 $ 1,255 — — $ — — — 

 Liabilities: 
 
 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 — — — — 

 ( 1 ) 
 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. 

 ( 2 ) 
 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 : 

 Amount 
 
 Fair value as of August 19, 2024 
 $ 4,160 

 Loss on change in fair value reported in the consolidated statement of operations 
 700 

 Fair value as of September 30, 2024 
 $ 4,860 

 18 
 
 Table of Contents 
 
 FLUENT, INC. 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 

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

 (unaudited) 
 
 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: 

 Assumptions 
 September 30, 2024 
 
 Face value of principal payable 
 $ 2,050 

 Strike price 
 3.01 

 Value of common stock 
 3.66 

 Expected term (years) 
 4.5 

 Volatility 
 79.0 % 

 Risk free rate 
 3.8 % 

 Discount rate 
 16.8 % 

 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 . 

 Amount 
 
 Fair value as of December 31, 2023
 $ 1,950 

 Payment for annual bonus
 ( 1,083 ) 

 Adjustment to compensation expense
 91 

 Fair value as of September 30, 2024
 $ 958 

 The fair value of certain long-lived non-financial assets and liabilities may be required to be measured on a nonrecurring basis in certain circumstances, including when there is evidence of impairment. As of September 30, 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. 

 7. Income taxes 

 The Company is subject to federal and state income taxes in the United States. The tax provision for interim periods is determined using an estimate of the Company's annual effective tax rate ("AETR"). The Company updates its estimated AETR on a quarterly basis and, if the estimate changes, a cumulative adjustment is made. 

 As of 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 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. 

 19 
 
 Table of Contents 
 
 FLUENT, INC. 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 

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

 (unaudited) 
 
 The Company assesses its income tax positions and records tax benefits for all years subject to examination based upon its evaluation of the facts, circumstances, and information available as of the reporting dates. For those tax positions where it is more-likely-than- not that a tax benefit will be sustained, the Company has recorded the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where it is not more-likely-than- not that a tax benefit will be sustained, no tax benefit has been recognized in the Company's financial statements.

 As of 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 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.

 8. Equity 

 Common stock 

 Effective at 6:00 p.m. Eastern Time on April 11, 2024, the Company effected a 1 -for- 6 (the "Reverse Stock Split Ratio") reverse split of the issued shares of the Company's common stock (the "Reverse Stock Split") pursuant to a certificate of amendment to the Company's Certificate of Incorporation, as amended, filed with the Secretary of State of the State of Delaware on April 11, 2024. As a result of the Reverse Stock Split, every six shares of common stock issued and outstanding or held by the Company in treasury stock were combined and reclassified into one share of common stock. No fractional shares were issued as a result of the Reverse Stock Split. Stockholders who were otherwise entitled to receive a fractional share received an additional fraction of a share of common stock to round up to the next whole share. The Reverse Stock Split affected all stockholders uniformly and did not alter any stockholder's percentage ownership interest or any stockholder's proportionate voting power, except for immaterial adjustments that resulted from the treatment of fractional shares. The Reverse Stock Split did not change the number of authorized shares of common stock or the par value per share of the common stock.

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

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

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

 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.

 20 
 
 Table of Contents 
 
 FLUENT, INC. 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 

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

 (unaudited) 
 
 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 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 .

 Warrants 

 On May 13, 2024, the Company entered into Securities Purchase Agreements (the "Purchase Agreements") with certain accredited investors (the "Purchasers"), pursuant to which the Company sold pre-funded warrants (the "Pre-Funded Warrants") to purchase up to 2,955,084 shares of the Company's common stock, at a purchase price of $ 3.384 per Pre-Funded Warrant (the "Private Placement"). The Purchasers included three individuals who are officers and/or directors of the Company and a principal stockholder of the Company. No underwriting discounts or commissions were paid with respect to the Private Placement.

 The aggregate gross proceeds for the Private Placement totaled $ 10,000 , before deducting offering expenses payable by the Company of $ 100 . The Pre-Funded Warrants, which terminated when exercised in full, had an exercise price of $ 0.0005 per share of common stock and became immediately exercisable upon stockholder approval of the Private Placement. In connection with the Private Placement, the Company entered into Support Agreements with three of the Purchasers, the Company's largest stockholders, who agreed to vote all of their beneficially owned shares of the Company's common stock in favor of the corporate actions required for stockholder approval. Stockholder approval of the Private Placement was obtained on July 2, 2024, at a special meeting of the Company's stockholders. 

 As of 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.

 9. Share-based compensation 

 On June 8, 2022, the stockholders of the Company approved the Fluent, Inc. 2022 Omnibus Equity Incentive Plan (the "2022 Plan") that authorized for issuance 2,570,421 shares of the Company's common stock. 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.

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 FLUENT, INC. 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 

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

 (unaudited) 
 
 Stock options 

 In January 2019, the Compensation Committee of the Company's Board of Directors approved the grant of stock options to certain Company executives, which were issued on February 1, 2019, December 20, 2019, March 1, 2020, and March 1, 2021. Subject to continuing service, 50 % of the shares subject to these stock options will vest if the Company's stock price remains above 125.00 %, 133.33 %, 133.33 % and 133.33 %, respectively, of the exercise price for 20 consecutive trading days, and the remaining 50 % of the shares subject to these stock options will vest if the Company's stock price remains above 156.25 %, 177.78 %, 177.78 % and 177.78 %, respectively, of the exercise price for 20 consecutive trading days; provided, that no shares will vest prior to the first anniversary of the grant date.

 As of 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. The fair value of the stock options granted was estimated at the trading day before the date of grant using a Monte Carlo simulation model. The key assumptions utilized to calculate the grant-date fair values for these awards are summarized below:

 Issuance Date 
 February 1, 2019 
 December 20, 2019 
 March 1, 2020 
 March 1, 2021 
 
 Fair value lower range
 $ 16.86 $ 9.48 $ 8.76 $ 26.04 

 Fair value higher range
 $ 17.16 $ 9.66 $ 8.94 $ 26.58 

 Exercise price
 $ 28.32 $ 15.36 $ 13.98 $ 37.98 

 Expected term (in years)
 1.0 - 1.3 1.0 - 1.6 1.0 - 1.5 1.0 - 1.3 

 Expected volatility
 65 % 70 % 70 % 80 % 

 Dividend yield
 — % — % — % — % 

 Risk-free rate
 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
 $ 15.59 

 Exercise price
 $ 2.75 

 Expected term (in years)
 3.0 - 4.3 

 Expected volatility
 65 % 

 Dividend yield
 — % 

 Risk-free rate
 3.7 % 

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 FLUENT, INC. 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 

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

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

 Number of options 
 Weighted average exercise price per share 
 Weighted average remaining contractual term (in years) 
 Aggregate intrinsic value 
 
 Outstanding as of December 31, 2023
 302,333 $ 25.68 5.4 $ — 

 Granted (1) 
 136,667 3.06 9.8 114 

 Exercised
 — — — — 

 Forfeited
 (41,333 ) — — — 

 Outstanding as of September 30, 2024
 397,667 $ 21.74 5.8 
 $ 114 

 Options exercisable as of September 30, 2024
 249,001 $ 25.78 4.6 
 $ — 

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

 Number of stock options 
 Weighted average exercise price per share 
 Weighted average remaining contractual term (in years) 
 
 Unvested as of December 31, 2023
 123,833 $ 29.72 5.4 

 Granted (1) 
 136,667 3.06 9.8 

 Forfeited
 ( 6,000 ) — — 

 Vested
 ( 105,834 ) — — 

 Unvested as of September 30, 2024
 148,666 $ 5.66 9.6 

 ( 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.

 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.

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 Table of Contents 
 
 FLUENT, INC. 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 

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

 (unaudited) 
 
 Restricted stock units and restricted stock 

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

 Number of units 
 Weighted average grant-date fair value 
 
 Unvested as of December 31, 2023
 731,538 $ 25.95 

 Granted
 697,211 3.62 

 Vested and delivered
 ( 305,348 ) 10.40 

 Withheld as treasury stock (1) 
 — — 

 Vested not delivered (2) 
 3,833 10.60 

 Forfeited
 ( 133,611 ) 11.59 

 Unvested as of September 30, 2024
 993,623 17.40 

 ( 1 )
 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 September 30, 2024 , there were 768,595 outstanding shares of treasury stock.
 
 ( 2 )
 Vested not delivered represents vested RSUs with delivery deferred to a future time. 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 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, 
 
 2024 
 2023 
 2024 
 2023 
 
 Sales and marketing
 22 $ 123 $ 163 $ 419 

 Product development
 74 158 174 485 

 General and administrative
 364 680 1,146 2,114 

 Share-based compensation expense
 460 961 1,483 3,018 

 Capitalized in intangible assets
 10 21 39 72 

 Total share-based compensation
 $ 470 $ 982 $ 1,522 $ 3,090 

 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.

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 FLUENT, INC. 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 

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

 (unaudited) 
 
 10. Segment information 

 The Company identifies operating segments as components of an entity for which discrete financial information is available and is regularly reviewed by the CODM, in making decisions regarding resource allocation and performance assessment. The profitability measure employed by CODM is earnings before interest, taxes, depreciation, and amortization ("EBITDA"). As of September 30, 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 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, 
 
 2024 
 2023 
 2024 
 2023 
 
 Fluent segment revenue (1) : 
 
 United States
 $ 42,674 $ 44,041 $ 117,644 $ 127,149 

 International
 19,460 20,060 63,233 92,199 

 Fluent segment revenue
 $ 62,134 $ 64,101 $ 180,877 $ 219,348 

 All Other segment revenue (1) : 
 
 United States
 $ 2,382 $ 2,138 $ 8,339 $ 6,290 

 International
 — — — — 

 All Other segment revenue
 $ 2,382 $ 2,138 $ 8,339 $ 6,290 

 Segment EBITDA 
 
 Fluent segment EBITDA
 $ ( 1,700 ) $ ( 28,879 ) $ ( 10,590 ) $ ( 47,773 ) 

 All Other segment EBITDA
 181 ( 2,397 ) ( 122 ) ( 2,463 ) 

 Total EBITDA
 ( 1,519 ) ( 31,276 ) ( 10,712 ) ( 50,236 ) 

 Depreciation and amortization
 2,369 2,658 7,507 8,112 

 Total loss from operations
 $ ( 3,888 ) $ ( 33,934 ) $ ( 18,219 ) $ ( 58,348 ) 

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

 September 30, 
 December 31, 
 
 2024 2023 

 Total assets: 
 
 Fluent
 $ 84,873 $ 97,629 

 All Other
 11,072 14,238 

 Total assets
 $ 95,945 $ 111,867 
 
 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.

 25 
 
 Table of Contents 
 
 FLUENT, INC. 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 

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

 (unaudited) 
 
 11. Contingencies 

 In the ordinary course of business, the Company is subject to loss contingencies that cover a range of matters. An estimated loss from a loss contingency, such as a legal proceeding or claim, is accrued if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. In determining whether a loss should be accrued, the Company evaluates, among other factors, the degree of probability and the ability to reasonably estimate the amount of any such loss. The Company does not accrue liabilities when the likelihood that the liability has been incurred is probable but the amount cannot be reasonably estimated.

 On 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. On January 12, 2023, the Company made an initial proposal of $ 5,000 for the civil monetary penalty contingent on successful negotiation of the remaining outstanding terms. The Company accrued the same amount for the year ending December 31, 2022. On May 26, 2023, 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 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. 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. After the Company and the PAAG were unable to reach agreement on a proposed Assurance of Voluntary Compliance, the Commonwealth of Pennsylvania filed a complaint for permanent injunction, civil penalties, and other relief in the United States District Court for the Western District of Pennsylvania on November 2, 2022. On May 18, 2023, the parties entered into a settlement and jointly filed a Consent Petition of Final Decree, wherein the Company agreed to injunctive relief and to pay the PAAG $ 250 for investigatory costs, all of which was paid as of June 30, 2023. 

 The Company was involved in a Telephone Consumer Protection Act class action, Daniel Berman v. Freedom Financial Network , which was originally filed in 2018. On May 31, 2023, the p arties entered into an Amended Class Action Settlement Agreement (the "Berman Settlement Agreement"), which included injunctive provisions and payment to plaintiffs of $ 9,750 for legal fees and a consumer redress fund, of which the Company was responsible for $ 3,100 due upon final approval of the settlement. That amount had been accrued as of December 31, 2022. On July 28, 2023, the Court preliminarily approved the Berman Settlement Agreement. The final approval of the Berman Settlement Agreement was filed on February 23, 2024. 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 .

 12. Variable Interest Entity 

 A VIE is an entity that either (i) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support, or (ii) has equity investors who lack the characteristics of a controlling financial interest. The primary beneficiary is the party that has the power to direct activities that most significantly impact the operations of the VIE and has the obligation to absorb losses or the right to benefits from the VIE that could potentially be significant to the VIE. The Company assesses whether it is the primary beneficiary of a VIE at the inception of the arrangement and as of the reporting date.

 26 
 
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 FLUENT, INC. 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 

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

 (unaudited) 
 
 True North 

 On May 1, 2024 , the Company and Caspian Ventures, LLC ("Caspian") entered into a membership interest purchase agreement pursuant to which the Company conveyed 100 % of the membership interests of True North Loyalty, LLC and its direct and indirect subsidiaries (collectively, "True North") to Caspian (the "True North Conveyance"). True North is a subscription-based business that utilizes call center operations and other media channels to market third -party recurring revenue services to consumers. The deemed fair value of the consideration received was $ 989 , which consisted of (i) the forgiveness of a $ 500 deferred payment owed by the Company in connection with the True North Acquisition on January 1, 2022, ( ii) a share of the True North contribution margin after the closing until the Company has received an amount equal to the closing net working capital of approximately $ 168 , and (iii) a continued share of the True North contribution margin of an additional amount at fair value of $ 321 . The True North founder who entered into an employment agreement in connection with the True North Acquisition has remained an employee of the Company after the closing of the True North Conveyance. 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. 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 .

 TAPP 

 On
 January 9, 2023, the Company entered into employment agreements with certain key employees of TAPP, an influencer-based business that uses an application to utilize its relationships with influencers to bring consumers to advertising clients. The Company is also a customer of TAPP and accounts for the majority of TAPP's revenues. As a result of significant influence over TAPP's key employees and financial performance, the Company determined that TAPP qualified as a VIE in which the Company has a variable interest and that the Company is the primary beneficiary. Therefore, the Company consolidates the TAPP operations. As the Company does
 not have an equity interest in TAPP,
 100 % of the net assets and results of the operations of TAPP are attributable to non-controlling interests.
 
 As the Company gained control of TAPP, in accordance with ASC 805, Business Combinations, it was then determined that TAPP constituted a business. The deemed fair value of the consideration was $ 4,165 , which consisted of $ 1,250 of initial cash and $ 2,915 contingent upon the achievement of specified revenue and media margin targets over three years. The fair value of assets acquired, which excluded the immaterial net-working capital, were determined to be the publisher contracts of $ 1,100 , which were valued using the 'with or without' method, a variation of the income approach, to be amortized over a period of one year and industry-based trade secrets of $ 1,510 , which were valued using the excess earnings method, a variation of the income approach, to be amortized over a period of four years. The amount of the purchase price in excess of the fair value of the net assets acquired was recorded as goodwill in the amount of $ 1,555 and primarily represents workforce and expected cash flow generation for the TAPP business that does not qualify for separate recognition as intangible assets included within the Fluent operating segment. For tax purposes, the value of the acquisition payments is treated as ordinary compensation for services rendered, deductible when paid and included in the employees' wages.

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 Table of Contents
Fluent, Inc. 10-Q

Item 1. Financial Statements
