Red Violet, Inc. 10-Q

Item 1. Financial Statements. RED VIOLET, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except share data) (unaudited) June 30, 2020 December 31, 2019 ASSETS: Current assets: Cash and cash equivalents $ 13,782 $ 11,776 Accounts receivable, net of allowance for doubtful accounts of $ 53 and $ 40 as of June 30, 2020 and December 31, 2019, respectively 2,691 3,543 Prepaid expenses and other current assets 861 722 Total current assets 17,334 16,041 Property and equipment, net 586 660 Intangible assets, net 26,394 24,034 Goodwill 5,227 5,227 Right-of-use assets 2,395 2,620 Other noncurrent assets 137 289 Total assets $ 52,073 $ 48,871 LIABILITIES AND SHAREHOLDERS' EQUITY: Current liabilities: Accounts payable $ 2,723 $ 2,138 Accrued expenses and other current liabilities 644 1,571 Current portion of operating lease liabilities 521 491 Current portion of long-term loan 702 - Deferred revenue 151 128 Total current liabilities 4,741 4,328 Noncurrent operating lease liabilities 2,192 2,459 Long-term loan 1,450 - Total liabilities 8,383 6,787 Shareholders' equity: Preferred stock—$ 0.001 par value, 10,000,000 shares authorized, and 0 shares issued and outstanding, as of June 30, 2020 and December 31, 2019 - - Common stock—$ 0.001 par value, 200,000,000 shares authorized, 11,707,829 and 11,657,912 shares issued, 11,604,682 and 11,554,765 shares outstanding, as of June 30, 2020 and December 31, 2019 12 12 Treasury stock, at cost, 103,147 shares as of June 30, 2020 and December 31, 2019 ( 1,255 ) ( 1,255 ) Additional paid-in capital 64,806 59,187 Accumulated deficit ( 19,873 ) ( 15,860 ) Total shareholders' equity 43,690 42,084 Total liabilities and shareholders' equity $ 52,073 $ 48,871 See notes to condensed consolidated financial statements 2 RED VIOLET, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands, except share data) (unaudited) Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Revenue $ 7,056 $ 7,245 $ 16,356 $ 12,979 Costs and expenses: Cost of revenue (exclusive of depreciation and amortization) 2,587 3,052 5,879 5,721 Sales and marketing expenses 1,746 2,003 3,922 3,503 General and administrative expenses 4,263 5,396 8,697 7,761 Depreciation and amortization 992 681 1,902 1,299 Total costs and expenses 9,588 11,132 20,400 18,284 Loss from operations ( 2,532 ) ( 3,887 ) ( 4,044 ) ( 5,305 ) Interest income, net - 37 31 77 Loss before income taxes ( 2,532 ) ( 3,850 ) ( 4,013 ) ( 5,228 ) Income taxes - - - - Net loss $ ( 2,532 ) $ ( 3,850 ) $ ( 4,013 ) $ ( 5,228 ) Loss per share: Basic and diluted $ ( 0.22 ) $ ( 0.37 ) $ ( 0.35 ) $ ( 0.51 ) Weighted average number of shares outstanding: Basic and diluted 11,617,342 10,298,613 11,600,278 10,283,232 See notes to condensed consolidated financial statements 3 RED VIOLET, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Amounts in thousands, except share data) (unaudited) Common stock Treasury stock Additional paid-in Accumulated Shares Amount Shares Amount capital deficit Total Balance at March 31, 2019 10,286,613 $ 10 - $ - $ 41,476 $ ( 6,162 ) $ 35,324 Vesting of restricted stock units - - - - - - - Share-based compensation - - - - 3,777 - 3,777 Net loss - - - - - ( 3,850 ) ( 3,850 ) Balance at June 30, 2019 10,286,613 $ 10 - $ - $ 45,253 $ ( 10,012 ) $ 35,251 Balance at March 31, 2020 11,693,162 $ 12 ( 103,147 ) $ ( 1,255 ) $ 61,996 $ ( 17,341 ) $ 43,412 Vesting of restricted stock units 14,667 - - - - - - Share-based compensation - - - - 2,810 - 2,810 Net loss - - - - - ( 2,532 ) ( 2,532 ) Balance at June 30, 2020 11,707,829 $ 12 ( 103,147 ) $ ( 1,255 ) $ 64,806 $ ( 19,873 ) $ 43,690 Common stock Treasury stock Additional paid-in Accumulated Shares Amount Shares Amount capital deficit Total Balance at December 31, 2018 10,266,613 $ 10 - $ - $ 41,052 $ ( 4,784 ) $ 36,278 Vesting of restricted stock units 20,000 - - - - - - Share-based compensation - - - - 4,201 - 4,201 Net loss - - - - - ( 5,228 ) ( 5,228 ) Balance at June 30, 2019 10,286,613 $ 10 - $ - $ 45,253 $ ( 10,012 ) $ 35,251 Balance at December 31, 2019 11,657,912 $ 12 ( 103,147 ) $ ( 1,255 ) $ 59,187 $ ( 15,860 ) $ 42,084 Vesting of restricted stock units 49,917 - - - - - - Share-based compensation - - - - 5,619 - 5,619 Net loss - - - - - ( 4,013 ) ( 4,013 ) Balance at June 30, 2020 11,707,829 $ 12 ( 103,147 ) $ ( 1,255 ) $ 64,806 $ ( 19,873 ) $ 43,690 See notes to condensed consolidated financial statements 4 RED VIOLET, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) (unaudited) Six Months Ended June 30, 2020 2019 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 4,013 ) $ ( 5,228 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 1,902 1,299 Share-based compensation expense 4,563 3,883 Write-off of long-lived assets 104 30 Provision for bad debts 265 326 Noncash lease expenses 225 207 Changes in assets and liabilities: Accounts receivable 587 ( 1,687 ) Prepaid expenses and other current assets ( 139 ) 49 Other noncurrent assets 65 169 Accounts payable 585 44 Accrued expenses and other current liabilities ( 927 ) - Deferred revenue 23 30 Operating lease liabilities ( 237 ) ( 212 ) Net cash provided by (used in) operating activities 3,003 ( 1,090 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment ( 61 ) ( 32 ) Capitalized costs included in intangible assets ( 3,088 ) ( 2,913 ) Net cash used in investing activities ( 3,149 ) ( 2,945 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term loan 2,152 - Net cash provided by financing activities 2,152 - Net increase (decrease) in cash and cash equivalents $ 2,006 $ ( 4,035 ) Cash and cash equivalents at beginning of period 11,776 9,950 Cash and cash equivalents at end of period $ 13,782 $ 5,915 SUPPLEMENTAL DISCLOSURE INFORMATION Cash paid for interest $ - $ - Cash paid for income taxes $ - $ - Share-based compensation capitalized in intangible assets $ 1,056 $ 318 Right-of-use assets obtained in exchange of operating lease liabilities $ - $ 3,042 Operating lease liabilities arising from obtaining right-of-use assets $ - $ 3,387 See notes to condensed consolidated financial statements 5 RED VIOLET, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands, except share data) (unaudited) 1. Summary of significant accounting policies (a) Basis of preparation The accompanying unaudited condensed consolidated financial statements of Red Violet, Inc. (“red violet” or the “Company”), a Delaware corporation, have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission 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 condensed 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, 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, 2020. 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, 2019 (“2019 Form 10-K”). The condensed consolidated balance sheet as of December 31, 2019 included herein was derived from the audited financial statements as of that date included in the 2019 Form 10-K, but does not include all disclosures required by GAAP. The Company has only one operating segment, as defined by Accounting Standards Codification (“ASC”) 280, “ Segment Reporting .” Principles of consolidation The condensed 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) Recently issued accounting standards As an emerging growth company, the Company has left open the opportunity to take advantage of the extended transition period provided to emerging growth companies in Section 13(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), however, it is the Company’s present intention to adopt any applicable new accounting standards timely. In June 2016, FASB issued ASU No. 2016-13 (“ASU 2016-13”), “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” In November 2018, FASB issued ASU No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses,” which amends the scope and transition requirements of ASU 2016-13. Topic 326 requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. Topic 326 became effective for public companies beginning January 1, 2020, and the Company adopted it on a modified retrospective approach. The guidance had no material impact on the Company’s condensed consolidated financial statements and related disclosures. In August 2018, FASB issued ASU No. 2018-15 (“ASU 2018-15”), “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,” which requires an entity (customer) in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. It also requires the entity (customer) to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement, which includes reasonably certain renewals. This guidance will be effective for the Company for annual reporting periods beginning after December 15, 2020, on a retrospective or prospective basis and early adoption is permitted. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements and related disclosures. 6 2. Loss per share Basic loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the periods. Diluted loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock and is calculated using the treasury stock method for unvested shares. Common equivalent shares are excluded from the calculation in the loss periods as their effects would be anti-dilutive. Three Months Ended June 30, Six Months Ended June 30, (In thousands, except share data) 2020 2019 2020 2019 Numerator: Net loss $ ( 2,532 ) $ ( 3,850 ) $ ( 4,013 ) $ ( 5,228 ) Denominator: Weighted average shares outstanding - Basic and diluted (1) 11,617,342 10,298,613 11,600,278 10,283,232 Loss per share: Basic and diluted: $ ( 0.22 ) $ ( 0.37 ) $ ( 0.35 ) $ ( 0.51 ) (1) A total of 2,189,910 unvested restricted stock units (“RSUs”) have been excluded from the diluted loss per share for the three and six months ended June 30, 2020, and 2,237,000 RSUs have been excluded for the three and six months ended June 30, 2019, as the impact is anti-dilutive. 3. Intangible assets, net Intangible assets other than goodwill consist of the following: June 30, 2020 December 31, 2019 (In thousands) Amortization Period Gross Amount Accumulated Amortization Net Gross Amount Accumulated Amortization Net Software developed for internal use 5-10 years $ 33,834 $ ( 7,440 ) $ 26,394 $ 29,690 $ ( 5,656 ) $ 24,034 The gross amount associated with software developed for internal use represents capitalized costs of internally-developed software, including eligible salaries and staff benefits, share-based compensation, travel expenses incurred by relevant employees, and other relevant costs. Amortization expenses of $ 934 and $ 617 for the three months ended June 30, 2020 and 2019, respectively, and $ 1,784 and $ 1,171 for the six months ended June 30, 2020 and 2019, respectively, were included in depreciation and amortization expense. As of June 30, 2020, intangible assets of $ 4,322 , included in the gross amounts of software developed for internal use, have not started amortization, as they are not ready for their intended use. The Company capitalized costs of software developed for internal use of $ 2,018 and $ 1,651 during the three months ended June 30, 2020 and 2019, respectively, and $ 4,144 and $ 3,231 during the six months ended June 30, 2020 and 2019, respectively. As of June 30, 2020, estimated amortization expense related to the Company’s intangible assets for the remainder of 2020 through 2025 and thereafter are as follows: (In thousands) Year June 30, 2020 Remainder of 2020 $ 1,939 2021 4,728 2022 4,725 2023 4,648 2024 4,157 2025 and thereafter 6,197 Total $ 26,394 4. Goodwill Goodwill represents the cost in excess of the fair value of the net assets acquired in a business combination. As of June 30, 2020 and December 31, 2019, the balance of goodwill of $ 5,227 was as a result of the acquisition of Interactive Data, LLC, a wholly-owned subsidiary of red violet, effective on October 2, 2014. 7 In accordance with ASC 350, “Intangibles - Goodwill and Other,” goodwill is tested at least annually for impairment, or when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable, by assessing qualitative factors or performing a quantitative analysis in determining whether it is more likely than not that its fair value exceeds the carrying value. The measurement date of the Company’s annual goodwill impairment test is October 1 . As of June 30, 2020 and December 31, 2019, no goodwill impairment charges were recorded. 5. Revenue recognition On January 1, 2018, the Company adopted ASC 606, “Revenue from Contracts with Customers,” (“Topic 606”) using the modified retrospective method applied to all contracts that were not completed contracts at the date of initial application. Revenue is recognized when control of goods or services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company’s performance obligation is to provide on demand solutions to its customers by leveraging its proprietary technology and applying machine learning and advanced analytics to its massive data repository. The pricing for the customer contracts is based on usage, a monthly fee, or a combination of both. Available within Topic 606, the Company has applied the portfolio approach practical expedient in accounting for customer revenue as one collective group, rather than individual contracts. Based on the Company’s historical knowledge of the contracts contained in this portfolio and the similar nature and characteristics of the customers, the Company has concluded the financial statement effects are not materially different than if accounting for revenue on a contract by contract basis. Revenue is recognized over a period of time since the performance obligation is delivered in a series. The Company’s customers simultaneously receive and consume the benefits provided by the Company’s performance as and when provided. Furthermore, the Company has elected the “right to invoice” practical expedient, available within Topic 606, as its measure of progress, since it has a right to payment from a customer in an amount that corresponds directly with the value of its performance completed-to-date. The Company's revenue arrangements do not contain significant financing components. For the three months ended June 30, 2020 and 2019, 79 % and 62 % of total revenue was attributable to customers with pricing contracts, respectively, versus 21 % and 38 % attributable to transactional customers, respectively. For the six months ended June 30, 2020 and 2019, 73 % and 64 % of total revenue was attributable to customers with pricing contracts, respectively, versus 27 % and 36 % attributable to transactional customers, respectively. Pricing contracts are generally annual contracts or longer, with auto renewal. If a customer pays consideration before the Company transfers services to the customer, those amounts are classified as deferred revenue. As of June 30, 2020 and December 31, 2019, the balance of deferred revenue was $ 151 and $ 128 , respectively, all of which is expected to be realized in the next 12 months. In relation to the deferred revenue balance as of December 31, 2019, $ 37 and $ 128 was recognized into revenue during the three and six months ended June 30, 2020, respectively. As of June 30, 2020, $ 3,105 of revenue is expected to be recognized in the future for outstanding performance obligations, primarily related to pricing contracts that have a term of more than 12 months. $ 1,204 of revenue will be recognized in the remainder of 2020, $ 1,820 in 2021, $ 65 in 2022, and $ 16 in 2023 and thereafter. The actual timing of recognition may vary due to factors outside of the Company’s control. The Company excludes variable consideration related entirely to wholly unsatisfied performance obligations and contracts and recognizes such variable consideration based upon the right to invoice the customer. Sales commissions are incurred and recorded on an ongoing basis over the term of the customer relationship. These costs are recorded in sales and marketing expenses. 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 the Company recognizes revenue at the amount to which it has the right to invoice for services performed. 6. Income taxes The Company is subject to federal and state income taxes in the United States. The Company’s tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items arising in that quarter. In each quarter, the Company updates its estimate of the annual effective tax rate, and if its estimated annual tax rate changes, the Company makes a cumulative adjustment in that quarter. The Company’s effective income tax rate differed from the statutory federal income tax rate of 21 % for the three and six months ended June 30, 2020 and 2019 . For the three and six months ended June 30, 2020 and 2019, the effective income tax rate was 0 %, and the difference is primarily the result of the full valuation allowance applied against the Company’s deferred tax assets. 8 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 at the reporting date. 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. The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. All of the Company’s income tax filings since 2016 remain open for tax examinations. The Company does no t have any unrecognized tax benefits as of June 30, 2020 and December 31, 2019. 7. Common stock and treasury stock Common stock As of June 30, 2020 and December 31, 2019, the number of issued shares of common stock was 11,707,829 and 11,657,912 , respectively, which included shares of treasury stock of 103,147 and 103,147 , respectively. The change in the number of issued shares of common stock was due to an aggregate of 49,917 shares of common stock issued as a result of the vesting of RSUs. Treasury stock As of June 30, 2020 and December 31, 2019, the Company held 103,147 shares of treasury stock, with a cost of $ 1,255 , as a result of the shares withheld to pay withholding taxes upon the vesting of RSUs. 8. Share-based compensation On March 22, 2018, the board of directors of the Company and Fluent, Inc., in its capacity as sole stockholder of the Company at that time, approved the Red Violet, Inc. 2018 Stock Incentive Plan (the “2018 Plan”). A total of 3,000,000 shares of common stock were authorized to be issued under the 2018 Plan. The primary purpose of the 2018 Plan is to attract, retain, reward and motivate certain individuals by providing them with an opportunity to acquire or increase a proprietary interest in the Company and to incentivize them to expend maximum effort for the growth and success of the Company, so as to strengthen the mutuality of the interests between such individuals and the stockholders of the Company. On June 3, 2020, stockholders of the Company approved an amendment to the 2018 Plan to increase the number of shares of common stock authorized for issuance under the 2018 Plan from 3,000,000 shares to 4,500,000 shares . As of June 30, 2020, there were 1,533,624 shares of common stock available for future issuance under the 2018 Plan, as amended. Details of unvested RSU activity during the six months ended June 30, 2020 were as follows: Number of units Weighted average grant-date fair value Unvested as of December 31, 2019 2,237,827 $ 8.88 Granted 11,000 $ 21.82 Vested and delivered ( 49,917 ) $ 7.71 Vested not delivered ( 4,000 ) $ 6.10 Forfeited ( 5,000 ) $ 7.25 Unvested as of June 30, 2020 2,189,910 $ 8.98 9 On September 5, 2018 and January 16, 2019, the Company granted an aggregate of 1,487,500 RSUs and 90,000 RSUs, respectively, subject to both time- and performance-based requirements, to certain of its employees and directors, at a grant date fair value of $ 7.69 per share and $ 7.25 per share, respectively, with a three-year vesting period. Such RSU grants shall not vest unless and until the Company has, for any fiscal quarter in which the RSUs are outstanding, (i) gross revenue determined in accordance with the Company’s reviewed or audited financial statements in excess of $ 7.0 million for such fiscal quarter, (ii) positive adjusted EBITDA, as determined based on amounts derived from the Company’s reviewed or audited financial statements for such fiscal quarter, and (iii) the participant continues to provide services to the Company either as an employee, director or consultant on the last day of the quarter that the performance criteria are met (collectively, the “2018 Performance Criteria”). Provided the 2018 Performance Criteria are met, the RSUs will vest in accordance with the time-based requirements contained in the award agreement over three years. In the event of a change of control, all RSUs which have not vested on the date of such change of control shall immediately vest even if the 2018 Performance Criteria have not been met. As of June 30, 2019, the Company determined that the 2018 Performance Criteria were met and one-third of the applicable awards vested and shares underlying such awards were issued in August 2019. The remaining shares underlying such awards are expected to vest and be issued in accordance with their time-based vesting requirement. As a result of meeting the 2018 Performance Criteria as of June 30, 2019, the Company recognized a total of $ 953 and $ 5,684 of share-based compensation expense relating to RSUs with the 2018 Performance Criteria for the three months ended June 30, 2020 and 2019, respectively, and $ 1,924 and $ 5,684 for the six months ended June 30, 2020 and 2019, respectively. On August 28, 2019 and October 28, 2019, the Company granted an aggregate of 681,000 RSUs, subject to both time- and performance-based requirements, to certain employees, at a grant date fair value of $ 11.42 per share and $ 16.42 per share, respectively, with time vesting periods of either three or four years. On April 17, 2020, the Company granted an aggregate of 11,000 RSUs, subject to both time- and performance-based requirements, to certain employees, at a grant date fair value of $ 21.82 per share, with time vesting periods of either three or four years. Such RSU grants shall not vest unless and until the Company has, for any fiscal quarter in which the RSUs are outstanding, (i) gross revenue determined in accordance with the Company’s reviewed or audited financial statements in excess of (a) $ 10.0 million for such fiscal quarter and positive adjusted EBITDA of at least $ 1.5 million, as determined based on amounts derived from the Company’s reviewed or audited financial statements for such fiscal quarter for 267,000 RSUs, and (b) $ 12.5 million for such fiscal quarter and positive adjusted EBITDA of at least $ 2.0 million, as determined based on amounts derived from the Company’s reviewed or audited financial statements for such fiscal quarter for 425,000 RSUs, and (ii) the recipient continues to provide services to the Company either as an employee, director or consultant on the last day of the quarter that the performance criteria is met (collectively, the “2019 Performance Criteria”). Provided the respective 2019 Performance Criteria are met, the RSUs will vest in accordance with the time-based requirements contained in the award agreement over three or four years . In the event of a change of control, all RSUs which have not vested on the date of such change of control shall immediately vest even if the 2019 Performance Criteria have not been met. As of the respective grant dates, the Company determined that it is probable that the 2019 Performance Criteria will be met and therefore, began to record the related amortization expense on the grant dates. The Company recognized a total of $ 1,411 and $ 2,800 of share-based compensation expense relating to RSUs with the 2019 Performance Criteria for the three and six months ended June 30, 2020, respectively. As of June 30, 2020, unrecognized share-based compensation expense associated with the granted RSUs amounted to $ 10,086 , which is expected to be recognized over a remaining weighted average period of 1.8 years. Share-based compensation was allocated to the following accounts in the condensed consolidated financial statements for the three and six months ended June 30, 2020 and 2019: Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2020 2019 2020 2019 Sales and marketing expenses $ 155 $ 89 $ 309 $ 176 General and administrative expenses 2,187 3,520 4,254 3,707 Share-based compensation expense 2,342 3,609 4,563 3,883 Capitalized in intangible assets 468 168 1,056 318 Total $ 2,810 $ 3,777 $ 5,619 $ 4,201 10 9. Related party transactions Services Agreement On August 7, 2018, the Company entered into a services agreement with Mr. Michael Brauser (the “Consultant”), a greater than 10 % stockholder, pursuant to which, the Consultant will be providing recommendations on organizational and capital structure, future financing needs and future acquisitions or strategic transactions (“Services Agreement”), for a term of one year , automatically renewing for additional one-year periods unless either party provides written notice to the other of its intent not to renew not fewer than 30 days prior to the expiration of the then-current term. Under the Services Agreement, the Consultant receives cash compensation of $ 30 per month and is entitled to participate in the Company’s incentive compensation plan. The Company recognized consulting service fees relating to the Services Agreement of a total of $ 90 during the three months ended June 30, 2020 and 2019, and $ 180 during the six months ended June 30, 2020 and 2019. In addition, amortization of share-based compensation expense of $ 338 and $ 1,115 in relation to the RSUs with the 2018 Performance Criteria previously granted to the Consultant was recognized during the three months ended June 30, 2020 and 2019, respectively, and $ 679 and $ 1,115 recognized during the six months ended June 30, 2020 and 2019, respectively. 10. Long-term loan On May 5, 2020, the Company received funding under a promissory note dated May 5, 2020 (the “Promissory Note”) evidencing an unsecured non-recourse loan in the principal amount of $ 2,152 under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) (the “Loan”). The Loan to the Company is being made through Legacy Bank of Florida (the “Lender”). Long-term loan as of June 30, 2020 consists of the following: (In thousands) June 30, 2020 Principal amount $ 2,152 Included in condensed consolidated balance sheet: Current portion of long-term loan $ 702 Long-term loan (non-current) 1,450 $ 2,152 The Loan has a two-year term and matures on May 5, 2022 . The interest rate on the Loan is 1.0 % per annum. Pursuant to the Promissory Note, payments shall be deferred for the first six months of the term of the Loan, followed by 18 approximately equal monthly installments of principal and interest. The Promissory Note contains customary events of default relating to, among other things, payment defaults, and breach of representations and warranties, or other provisions of the Promissory Note. As a result of the passage of the Paycheck Protection Program Flexibility Act of 2020 on June 5, 2020, the U.S. Small Business Administration (“SBA”), provided updated guidance that payments can be deferred until the loan forgiveness is determined, or if the Company does not apply for forgiveness, then 10 months after the Covered Period (as defined below) ends. The Loan may be forgiven partially or fully if the Loan proceeds are used for covered payroll, rent and utility costs incurred during the 24-week period that commenced on the date of funding (the “Covered Period”), and if at least 60 % of the proceeds are used for covered payroll costs. Any forgiveness of the Loan will be subject to approval by the SBA and the Lender. The Company will be required to apply for such forgiveness within 10 months after the Covered Period. Because the Loan exceeds $ 2,000 , the Company anticipate the U.S. Department of Treasury will audit the loan. Although the Company intends to use the proceeds of the Loan for such covered purposes, it can provide no assurance that the Company will obtain forgiveness of the Loan in whole or in part. Considering the Loan was effective in May 2020, the fair value of the Loan approximates its carrying amount as of June 30, 2020. 11. Leases On January 1, 2019, the Company adopted Leases (Topic 842) using the modified retrospective method applied to all leases existing at the date of initial application. The Company elected the practical expedients to not reassess whether any existing contracts are or contain leases, not reassess the lease classification for any existing leases, and not reassess initial direct costs for any existing leases, upon the adoption of Leases (Topic 842). The Company leases its corporate headquarters of 21,020 rentable square feet in accordance with a non-cancelable 89 -month operating lease agreement as amended and effective in January 2017. The Company also leases an additional office space of 6,003 rentable square feet in accordance with a non-cancellable 90 -month operating lease agreement entered into in April 2017, with an option to extend for additional 60 months. The extension option is not included in the determination of the lease term as it is not reasonably certain to be exercised. 11 For the three and six months ended June 30, 2020 and 2019, a summary of the Company’s lease information is shown below: Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2020 2019 2020 2019 Lease cost: Operating lease costs $ 168 $ 168 $ 336 $ 336 Other information: Cash paid for operating leases $ 175 $ 170 $ 350 $ 341 Right-of-use assets obtained in exchange for operating lease liabilities $ - $ - $ - $ 3,042 Weighted average discount rate for operating leases (1) - - - 8 % (1) The Company used 8.0 %, its estimated incremental borrowing rate for similar secured assets, as the discount rate for the leases to determine the present value of the lease payments because the implicit rate in each lease is not readily determinable. The discount rate was calculated on the basis of information available as of January 1, 2019, the application date. As of June 30, 2020, the weighted average remaining operating lease term was 4.3 years. As of June 30, 2020, scheduled future maturities and present value of the operating lease liabilities are as follows: (In thousands) Year June 30, 2020 Remainder of 2020 $ 355 2021 724 2022 743 2023 765 2024 542 2025 and thereafter 77 Total maturities $ 3,206 Present value included in condensed consolidated balance sheet: Current portion of operating lease liabilities $ 521 Noncurrent operating lease liabilities 2,192 Total operating lease liabilities $ 2,713 Difference between the maturities and the present value of operating lease liabilities $ 493 12. Commitments and contingencies (a) Capital commitment The Company incurred data costs of $ 2,171 and $ 1,867 for the three months ended June 30, 2020 and 2019, respectively, and $ 4,303 and $ 3,555 for the six months ended June 30, 2020 and 2019, respectively, under certain data licensing agreements. As of June 30, 2020, material capital commitments under certain data licensing agreements were $ 10,762 , shown as follows: (In thousands) Year June 30, 2020 Remainder of 2020 $ 3,495 2021 5,615 2022 1,652 Total $ 10,762 (b) Contingencies The Company establishes accruals for those contingencies where the incurrence of a loss is probable and can be reasonably estimated, and it discloses the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued, if such disclosure is necessary for the Company’s financial statements to not be misleading. To estimate whether a loss contingency should be accrued by a charge to income, the Company evaluates, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of the loss. The Company does not record liabilities when the likelihood that the liability has been incurred is probable, but the amount cannot be reasonably estimated . 12 The Company may be involved in litigation from time to time in the ordinary course of business. The Company does not believe that the ultimate resolution of any such matters will have a material adverse effect on its business, financial condition, results of operations or cash flows. However, the results of such matters cannot be predicted with certainty and the Company cannot assure you that the ultimate resolution of any legal or administrative proceeding or dispute will not have a material adverse effect on its business, financial condition, results of operations and cash flows . (c) Covid-19 update In December 2019, a novel strain of coronavirus, now known as Covid-19, was reported in Wuhan, China and has since extensively impacted the global health and economic environment. In March 2020, the World Health Organization characterized Covid-19 as a pandemic. The Company has taken numerous steps, and will continue to take further actions as appropriate, in its approach to minimizing the impact of the Covid-19 pandemic. To ensure the health and well-being of its employees, beginning in March 2020, the Company instructed employees at its offices to work from home on a temporary basis. During the second quarter of 2020, the Company implemented cost containment strategies across all areas of the organization, including continued curtailment of Company travel and partnering with suppliers, landlords and vendors for price concessions and payment deferrals during this interim period. As a result of preventative and protective actions taken by federal, state and local governments, including the implementation of stay-at-home orders and social distancing policies which resulted in significantly reduced commercial activity, and certain temporary government-imposed moratoria on collection customers’ activities, the Company experienced reduced transactional volume. In addition, the Company took a proactive customer-centric approach working with customers who were impacted by Covid-19. Customers who had minimum contractual commitments and requested concessions because they were temporarily unable to meet their minimum contractual commitments as a result of Covid-19 were granted reductions, or eliminations where applicable, of minimums on a month-to-month basis during the second quarter. The end date of the customer’s agreement was extended by one month for each month of the temporary concession. In April 2020, the Company provided concessions to a total of 124 customers, representing $ 130 reduction of minimum committed spend. In May 2020, the Company provided concessions to a total of 123 customers, representing $ 129 reduction of minimum committed spend. In June 2020, the Company provided concessions to a total of 72 customers, representing $ 83 reduction of minimum committed spend. Beginning April 1, 2020, the Company elected, under Section 2302 of the CARES Act, to defer payment of the employer portion of Social Security payroll tax. Under the CARES Act, employers can forgo timely payment of the employer portion of Social Security taxes that would otherwise be due from March 27, 2020 through December 31, 2020, without penalty or interest charges. Employers must pay 50% of the deferred amount by December 31, 2021, and the remainder by December 31, 2022. On May 5, 2020, the Company received the Loan under the CARES Act as discussed in Note 10 above. The Company will continue to assess the CARES Act and other applicable government legislation aimed at assisting businesses during the Covid-19 pandemic. In accordance with best practices and guidance from the Centers for Disease Control and Prevention, the Company implemented protective safeguards, including daily temperature checks, mandatory wearing of masks, social distancing, plexiglass protective barriers, and an entire office HVAC UV-C system. The Company began its first phase of employees returning to the Boca Raton, Florida office in June 2020. The Company will continue to assess the need and timing of additional employees returning to the office. Given the dynamic nature of this health emergency, the full impact of the Covid-19 pandemic on the Company’s ongoing business, results of operations and overall financial performance cannot be reasonably estimated at this time. 13