IDI [Fluent] 10-Q:

Ticker: IDI, Company: Fluent, Inc., Type: 10-Q, Date: 2019-08-09, XBRL Interactive Financials
Original SEC Filing: Click here


Webplus: IDI/20190809/10-Q/1/000.htm SEC Original: flnt630201910-q.htm





Delaware
 
77-0688094
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
300 Vesey Street, 9th Floor
New York, New York 10282
(Address of Principal Executive Offices) (Zip Code)
(646) 669-7272
(Registrant's Telephone Number, Including Area Code)

(Former name, former address and former fiscal year, if changed since last report)
 
 
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading
Symbol(s)
 
Name of each exchange on which registered
Common Stock, $0.0005 par value per share
 
FLNT
 
The NASDAQ Stock Market, LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  YES    ¨  NO
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    x  YES    ¨  NO
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. 



Large accelerated filer
 
¨
Accelerated filer
x
Non-accelerated filer
 
¨ 
Smaller reporting company
x
Emerging growth company
 
¨
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):    YES  ¨    NO  x

As of August 5, 2019, the registrant had 76,765,952 shares of common stock outstanding.
 



FLUENT, INC.
TABLE OF CONTENTS FOR FORM 10-Q
 
 
 
Page
 
 
 
 
Item 1.
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
 
 
 
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

1


PART I - FINANCIAL INFORMATION
Unless otherwise indicated or required by the context, all references in this Quarterly Report on Form 10-Q to "we," "us," "our," "Fluent," or the "Company," refer to Fluent, Inc. and its consolidated subsidiaries.
ITEM 1. FINANCIAL STATEMENTS.
 
FLUENT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share data)
(unaudited)
 
 
June 30, 2019
 
December 31, 2018
ASSETS:
 
 
 
 
Cash and cash equivalents
 
$
21,836

 
$
17,769

Accounts receivable, net of allowance for doubtful accounts of $461 and $1,751, respectively
 
45,705

 
48,652

Prepaid expenses and other current assets
 
2,493

 
1,971

Total current assets
 
70,034

 
68,392

Restricted cash
 
1,480

 
1,480

Property and equipment, net
 
3,025

 
1,380

Operating lease right-of-use assets
 
10,271

 

Intangible assets, net
 
56,583

 
61,812

Goodwill
 
159,791

 
159,791

Other non-current assets
 
435

 
414

Total assets
 
$
301,619

 
$
293,269

LIABILITIES AND SHAREHOLDERS' EQUITY:
 
 
 
 
Accounts payable
 
$
6,426

 
$
7,855

Accrued expenses and other current liabilities
 
16,654

 
21,566

Deferred revenue
 
646

 
444

Current portion of long-term debt
 
5,380

 
3,500

Current portion of operating lease liability
 
2,184

 

Total current liabilities
 
31,290

 
33,365

Long-term debt, net
 
47,645

 
51,972

Operating lease liability, net
 
9,647

 

Other non-current liabilities
 
766

 
766

Total liabilities
 
89,348

 
86,103

Shareholders' equity:
 
 
 
 
Preferred stock - $0.0001 par value, 10,000,000 shares authorized; 0 shares issued and
outstanding at June 30, 2019 and December 31, 2018
 

 

Common stock - $0.0005 par value, 200,000,000 shares authorized; 78,534,774 and
76,525,581 shares issued at June 30, 2019 and December 31, 2018, respectively;                                   
and 76,749,285 and 75,292,383 shares outstanding at June 30, 2019 and
December 31, 2018, respectively
 
39

 
38

Treasury stock, at cost, 1,785,489 and 1,233,198 shares at June 30, 2019 and
December 31, 2018, respectively
 
(6,351
)
 
(3,272
)
Additional paid-in capital
 
402,192

 
395,769

Accumulated deficit
 
(183,609
)
 
(185,369
)
Total shareholders' equity
 
212,271

 
207,166

Total liabilities and shareholders' equity
 
$
301,619

 
$
293,269

 
See notes to condensed consolidated financial statements

2


FLUENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share and per share data)
(unaudited)
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
Revenue
 
$
70,560

 
$
56,935

 
$
137,121

 
$
112,924

Costs and expenses:
 
 
 
 
 
 
 
 
Cost of revenue (exclusive of depreciation and amortization)
 
49,133

 
35,757

 
93,962

 
73,376

Sales and marketing
 
3,058

 
3,167

 
6,492

 
6,269

Product development
 
2,287

 
1,142

 
4,445

 
1,876

General and administrative
 
10,294

 
8,953

 
20,329

 
15,612

Depreciation and amortization
 
3,306

 
3,338

 
6,623

 
6,669

Spin-off transaction costs
 

 

 

 
7,708

Total costs and expenses
 
68,078

 
52,357

 
131,851

 
111,510

Income from operations
 
2,482

 
4,578

 
5,270

 
1,414

Interest expense, net
 
(1,767
)
 
(1,933
)
 
(3,545
)
 
(4,327
)
Income (loss) before income taxes from continuing operations
 
715

 
2,645

 
1,725

 
(2,913
)
Income tax benefit
 

 

 
35

 

Net income (loss) from continuing operations
 
715

 
2,645

 
1,760

 
(2,913
)
Discontinued operations:
 
 

 
 

 
 
 
 
Loss from operations of discontinued operations, net of $0 income taxes
 

 

 

 
(2,084
)
Loss on disposal of discontinued operations, net of $0 income taxes
 

 

 

 
(19,040
)
Net loss from discontinued operations
 

 

 

 
(21,124
)
Net income (loss)
 
$
715

 
$
2,645

 
$
1,760

 
$
(24,037
)
Basic income (loss) per share:
 
 

 
 

 
 
 
 
Continuing operations
 
$
0.01

 
$
0.03

 
$
0.02

 
$
(0.04
)
Discontinued operations
 
$

 
$

 
$

 
$
(0.28
)
Net income (loss)
 
$
0.01

 
$
0.03

 
$
0.02

 
$
(0.32
)
Diluted income (loss) per share:
 
 
 
 
 
 
 
 
Continuing operations
 
$
0.01

 
$
0.03

 
$
0.02

 
$
(0.04
)
Discontinued operations
 
$

 
$

 
$

 
$
(0.28
)
Net income (loss)
 
$
0.01

 
$
0.03

 
$
0.02

 
$
(0.32
)
Weighted average number of shares outstanding:
 
 

 
 

 
 
 
 
Basic
 
79,388,383

 
78,196,959

 
79,297,599

 
74,885,746

Diluted
 
81,132,304

 
78,196,959

 
80,443,530

 
74,885,746

 
See notes to condensed consolidated financial statements

3


FLUENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Amounts in thousands, except share data)
(unaudited)

 
 
Common stock
 
Treasury stock
 
Additional paid-in
 capital
 
Accumulated
 deficit
 
Total
shareholders'
 equity
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
Balance at March 31, 2019
 
77,603,189

 
$
39

 
1,554,829

 
$
(4,882
)
 
$
399,208

 
$
(184,324
)
 
$
210,041

Vesting of restricted stock units and
issuance of restricted stock
 
931,585

 

 

 

 

 

 

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

 

 
230,660

 
(1,469
)
 

 

 
(1,469
)
Share-based compensation expense
 

 

 

 

 
2,984

 

 
2,984

Net income
 

 

 

 

 

 
715

 
715

Balance at June 30, 2019
 
78,534,774

 
$
39

 
1,785,489

 
$
(6,351
)
 
$
402,192

 
$
(183,609
)
 
$
212,271

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018
 
76,525,581

 
$
38

 
1,233,198

 
$
(3,272
)
 
$
395,769

 
$
(185,369
)
 
$
207,166

Vesting of restricted stock units and
issuance of restricted stock
 
2,009,193

 
1

 

 

 
(1
)
 

 

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

 

 
552,291

 
(3,079
)
 

 

 
(3,079
)
Reclassification of puttable option from liability to equity
 

 

 

 

 
1,150

 

 
1,150

Share-based compensation expense
 

 

 

 

 
5,274

 

 
5,274

Net income
 

 

 

 

 

 
1,760

 
1,760

Balance at June 30, 2019
 
78,534,774

 
$
39

 
1,785,489

 
$
(6,351
)
 
$
402,192

 
$
(183,609
)
 
$
212,271

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
Common stock
 
Treasury stock
 
Additional paid-in
 capital
 
Accumulated
 deficit
 
Total
shareholders'
 equity
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
Balance at March 31, 2018
 
76,437,209

 
$
38

 
495,918

 
$
(1,672
)
 
$
387,273

 
$
(194,119
)
 
$
191,520

Vesting of restricted stock units and
issuance of restricted stock
 
72,500

 

 

 

 

 

 

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

 

 
729,167

 
(1,581
)
 

 

 
(1,581
)
Share-based compensation expense
 

 

 

 

 
2,738

 

 
2,738

Net income
 

 

 

 

 

 
2,645

 
2,645

Balance at June 30, 2018
 
76,509,709

 
$
38

 
1,225,085

 
$
(3,253
)
 
$
390,011

 
$
(191,474
)
 
$
195,322

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2017
 
61,631,573

 
$
31

 
352,523

 
$
(1,274
)
 
$
392,687

 
$
(167,437
)
 
$
224,007

Issuance of common stock upon direct offering to certain investors, net of issuance costs of $108
 
2,700,000

 
1

 

 

 
13,391

 

 
13,392

Vesting of restricted stock units and
issuance of restricted stock
 
12,178,136

 
6

 

 

 
(6
)
 

 

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

 
872,562

 
(1,979
)
 

 

 
(1,979
)
Share-based compensation expense
 

 

 

 

 
25,439

 

 
25,439

Net loss
 

 

 

 

 

 
(24,037
)
 
(24,037
)
Spin-off of Red Violet
 

 

 

 

 
(41,500
)
 

 
(41,500
)
Balance at June 30, 2018
 
76,509,709

 
$
38

 
1,225,085

 
$
(3,253
)
 
$
390,011

 
$
(191,474
)
 
$
195,322

See notes to condensed consolidated financial statements

4


FLUENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(unaudited)
 
 
Six Months Ended June 30,
 
 
2019
 
2018
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
Net income (loss)
 
$
1,760

 
$
(24,037
)
Net loss from discontinued operations
 

 
21,124

Adjustments to reconcile net income (loss) from continuing operations to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
6,623

 
6,669

Non-cash interest expense and related amortization
 
648

 
1,079

Share-based compensation expense
 
5,229

 
9,262

Provision for bad debt
 
189

 
93

Allocation of expenses to Red Violet
 

 
(325
)
Changes in assets and liabilities:
 
 
 
 
Accounts receivable
 
2,758

 
(1,793
)
Prepaid expenses and other current assets
 
(522
)
 
(173
)
Other non-current assets
 
(21
)
 
541

Operating lease assets and liabilities, net
 
1,560

 

Accounts payable
 
(1,551
)
 
(208
)
Accrued expenses and other current liabilities
 
(3,762
)
 
(2,366
)
Deferred revenue
 
202

 
578

Net cash provided by operating activities from continuing operations
 
13,113

 
10,444

Net cash used in operating activities from discontinued operations
 

 
(5,835
)
Net cash provided by operating activities
 
13,113

 
4,609

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
Acquisition of property and equipment
 
(1,894
)
 
(92
)
Capitalized costs included in intangible assets
 
(978
)
 
(512
)
Capital contributed to Red Violet
 

 
(19,728
)
Net cash used in investing activities from continuing operations
 
(2,872
)
 
(20,332
)
Net cash used in investing activities from discontinued operations
 

 
(1,386
)
Net cash used in investing activities
 
(2,872
)
 
(21,718
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
Proceeds from issuance of shares, net of issuance costs
 

 
13,392

Proceeds from debt obligations, net of debt costs
 

 
67,182

Repayments of long-term debt
 
(3,095
)
 
(67,982
)
Taxes paid related to net share settlement of restricted stock units and issuance of restricted stock
 
(3,079
)
 
(1,979
)
Net cash (used in) provided by financing activities
 
(6,174
)
 
10,613

Net increase (decrease) in cash, cash equivalents and restricted cash
 
4,067

 
(6,496
)
Cash, cash equivalents and restricted cash at beginning of period
 
19,249

 
16,564

Cash, cash equivalents and restricted cash at end of period
 
$
23,316

 
$
10,068

SUPPLEMENTAL DISCLOSURE INFORMATION
 
 
 
 
Cash paid for interest
 
$
2,810

 
$
3,342

Cash paid for income taxes
 
$

 
$

Share-based compensation capitalized in intangible assets
 
$
45

 
$
283

Non-cash additions to property and equipment
 
$
122

 
$

Reclassification of puttable option from liability to equity
 
$
1,150

 
$

 See notes to condensed consolidated financial statements

5


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

1. Summary of significant accounting policies
(a) Basis of preparation and liquidity
The accompanying unaudited condensed 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 ("US 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 US 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, 2019.
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, 2018 ("2018 Form 10-K") filed with the SEC on March 18, 2019.
The condensed consolidated balance sheet as of December 31, 2018 included herein was derived from the audited financial statements as of that date included in the 2018 Form 10-K.
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.
Spin-off of Red Violet
On March 26, 2018, Fluent completed the previously announced spin-off (the "Spin-off") of its risk management business from its performance marketing business by way of a distribution of all the shares of common stock of Fluent's wholly-owned subsidiary, Red Violet, Inc. ("Red Violet"), to Fluent's shareholders of record as of March 19, 2018 and certain warrant holders. See Note 3, Discontinued operations, for details.
Reclassifications
During the year ended December 31, 2018, the Company reviewed the classification of certain expenses presented in the consolidated statement of operations in an effort to bring added transparency and conformity to its reporting. As a result of this review, the Company made a number of changes to classification of operating expenses. Expenses for prior periods have been reclassified to conform to the current period presentation. For the three and six months ended June 30, 2018, the reclassifications had no effect on income from operations, net income (loss) from continuing operations, or net income (loss).
The following table summarizes the reclassification activity for the three months ended June 30, 2018:
(in thousands)
 
As previously reported
 
Category expansion
 
Operating costs and expenses reclassification
 
As currently reported
Cost of revenue (exclusive of depreciation and amortization)
 
$
33,893

 
$

 
$
1,864

 
$
35,757

Sales and marketing
 
3,678

 
(118
)
 
(393
)
 
3,167

Product development
 

 
1,142

 

 
1,142

General and administrative
 
11,448

 
(1,024
)
 
(1,471
)
 
8,953


6

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


The following table summarizes the reclassification activity for the six months ended June 30, 2018:
(in thousands)
 
As previously reported
 
Category expansion
 
Operating costs and expenses reclassification
 
As currently reported
Cost of revenue (exclusive of depreciation and amortization)
 
$
69,556

 
$

 
$
3,820

 
$
73,376

Sales and marketing
 
7,684

 
(599
)
 
(816
)
 
6,269

Product development
 

 
1,876

 

 
1,876

General and administrative
 
19,893

 
(1,277
)
 
(3,004
)
 
15,612

During 2018, the Company reclassified certain trade-related accruals from accounts payable (previously trade accounts payable) to accrued expenses and other current liabilities. The following table summarizes the reclassification activity for the six months ended June 30, 2018, within cash flows from operating activities on the condensed consolidated statements of cash flows:
(in thousands)
 
As previously reported
 
Reclassification
 
As currently reported
Accounts payable
 
$
1,328

 
$
(1,536
)
 
$
(208
)
Accrued expenses and other current liabilities
 
(3,902
)
 
1,536

 
(2,366
)
Immaterial Correction of an Error
During the year ended December 31, 2018, the Company identified an error in its calculation of basic and diluted weighted average shares outstanding, in which shares that had vested but were subject to deferred delivery were not included in both the basic and diluted calculations. As a result, basic and diluted loss per share as previously reported for three and six months ended June 30, 2018 was overstated by an immaterial amount. For the three and six months ended June 30, 2018, the changes to basic and diluted weighted average shares outstanding resulted in corresponding changes to basic and diluted income (loss) per share as follows:
 
 
Three Months Ended
June 30, 2018
 
Six Months Ended
June 30, 2018
(In thousands, except share data)
 
As previously reported
 
As currently reported
 
As previously reported
 
As currently reported
Weighted average number of shares outstanding:

 
 
 
 
 
 
 
 
Basic
 
75,282,042

 
78,196,959

 
71,318,930

 
74,885,746

Diluted
 
78,196,959

 
78,196,959

 
71,318,930

 
74,885,746

Basic and diluted income (loss) per share:
 
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
 
Continuing operations
 
$
0.04

 
$
0.03

 
$
(0.04
)
 
$
(0.04
)
Discontinued operations
 
$

 
$

 
$
(0.30
)
 
$
(0.28
)
Net income (loss)
 
$
0.04

 
$
0.03

 
$
(0.34
)
 
$
(0.32
)
Diluted:
 
 
 
 
 
 
 
 
Continuing operations
 
$
0.03

 
$
0.03

 
$
(0.04
)
 
$
(0.04
)
Discontinued operations
 
$

 
$

 
$
(0.30
)
 
$
(0.28
)
Net income (loss)
 
$
0.03

 
$
0.03

 
$
(0.34
)
 
$
(0.32
)

7

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


(b) Recently issued and adopted accounting standards
In February 2016, the FASB issued Accounting Standards Update ("ASU") No. 2016-02 ("ASU 2016-02"), Leases (Topic 842), and additional changes, modifications, clarifications or interpretations thereafter, which generally require companies to recognize operating and financing lease liabilities and corresponding right-of-use assets on the balance sheet. Effective January 1, 2019, the Company adopted ASU 2016-02 using a modified retrospective approach, utilizing transition guidance introduced in ASU 2018-11, Leases: Targeted Improvements, and elected the ‘package of practical expedients,’ which permitted the Company not to reassess prior conclusions about lease identification, classification and initial direct costs.

As of January 1, 2019, the adoption of ASU 2016-02 resulted in the recording of right-of-use assets and operating lease liabilities of $10,866 and $11,138, respectively, on the condensed consolidated balance sheets. The difference between the right-of-use assets and operating lease liabilities was recorded as a write-off of the previously recognized deferred rent liability included in accrued expenses and other current liabilities on the condensed consolidated balance sheets. ASU 2016-02 did not impact the Company's condensed consolidated statements of operations or condensed consolidated statements of cash flows. The accounting for financing leases, previously referred to as capital leases, was unchanged as a result of the adoption of ASU 2016-02.
Subsequent to the adoption of Accounting Standards Codification ("ASC") 842, the Company will continue to recognize, on a discounted basis, its minimum commitments under noncancelable operating leases on its condensed consolidated balance sheets. ASC 842 also provides practical expedients for an entity’s ongoing accounting. The Company has elected the short-term lease recognition exemption for all leases that qualify. Accordingly, the Company will not recognize right-of-use assets or lease liabilities for qualifying leases, including existing short-term leases in effect at the transition date, and will recognize those payments on the consolidated statements of operations on a straight-line basis over the lease term. Additionally, the Company has elected the practical expedient to not separate lease and non-lease components for all of its leases. See Note 4, Lease commitments, for additional disclosures.

In January 2016, FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses, and additional changes, modifications, clarifications or interpretations thereafter, which require a reporting entity to estimate credit losses on certain types of financial instruments, and present assets held at amortized cost and available-for-sale debt securities at the amount expected to be collected. The new guidance is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.
(c) Revenue recognition
Revenue is recognized when control of goods or services is transferred to customers, in amounts that reflect the consideration the Company expects to be entitled to in exchange for those goods or services. The Company's performance obligation is typically to (a) deliver data records, based on predefined qualifying characteristics specified by the customer or (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.
The Company applies the practical expedient related to the review of a portfolio of contracts in reviewing the terms of customer contracts as one collective group, rather than by individual contract. Based on historical knowledge of the contracts contained in this portfolio and the similar nature and characteristics of the customers, the Company has concluded the financial statement effects are not materially different than accounting for revenue on a contract-by-contract basis.
Revenue is recognized upon satisfaction of the associated performance obligations. The Company's customers simultaneously receive and consume the benefits provided as the Company satisfies its performance obligations. Furthermore, the Company elected the "right to invoice" practical expedient available within ASC 606-10-55-18 as the measure of progress, since the Company has a right to payment from a customer in an amount that corresponds directly with the value of the performance completed to date. The Company's revenue arrangements do not contain significant financing components. The Company has further concluded that revenue does not require disaggregation.

If a customer pays consideration before the Company's performance obligations are satisfied, such amounts are classified as deferred revenue on the condensed consolidated balance sheets. As of June 30, 2019 and December 31, 2018, the balance of deferred revenue was $646 and $444, respectively. The majority of the deferred revenue balance as of December 31, 2018 was recognized into revenue during the first quarter of 2019.
 
If there is a delay between the period in which revenue is recognized and when customer invoices are issued, revenue is recognized and related amounts are recorded as unbilled revenue in accounts receivable on the condensed consolidated balance sheets. As of

8

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


June 30, 2019 and December 31, 2018, unbilled revenue included in accounts receivable totaled $23,740 and $25,545, 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. The majority of invoices included within the unbilled revenue balance are issued within the month directly following the period of service. Historical estimates related to unbilled revenue are not materially different from actual revenue billed.
 
Sales commissions are recorded at the time revenue is recognized and recorded in sales and marketing expenses. The Company has elected to utilize a practical expedient to expense incremental costs incurred related to obtaining a contract.
 
In addition, the Company elected the practical expedient to not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which revenue is recognized at the amount to which the Company has the right to invoice for services performed.
(d) Cash, cash equivalents and restricted cash
As of June 30, 2019 and 2018, the Company's cash, cash equivalents and restricted cash balances consist of the following:
 
Six Months Ended June 30,
(In thousands)
2019
 
2018
Cash and cash equivalents
$
21,836

 
$
10,068

Restricted cash
1,480

 

Total cash, cash equivalents and restricted cash
$
23,316

 
$
10,068

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 during the period, in addition to restricted stock units ("RSUs") and restricted common stock that are vested but not delivered. Diluted income (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock are exercised or converted into common stock, and is calculated using the treasury stock method for stock options, restricted stock units, restricted stock, warrants and deferred common stock. Common equivalent shares are excluded from the calculation in loss periods, as their effects would be anti-dilutive.

9

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


For the three and six months ended June 30, 2019 and 2018, basic and diluted income (loss) per share was as follows:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In thousands, except share data)
 
2019
 
2018
 
2019
 
2018
Numerator:
 
 
 
 

 
 
 
 
Net income (loss) from continuing operations
 
$
715

 
$
2,645

 
$
1,760

 
$
(2,913
)
Net loss from discontinued operations
 

 

 

 
(21,124
)
Net income (loss)
 
$
715

 
$
2,645

 
$
1,760

 
$
(24,037
)
Denominator:
 
 

 
 

 
 
 
 
Weighted average shares outstanding
 
76,487,160

 
75,282,042

 
76,056,652

 
71,318,930

Weighted average restricted shares vested not delivered
 
2,901,223

 
2,914,917

 
3,240,947

 
3,566,816

Total basic weighted average shares outstanding
 
79,388,383

 
78,196,959

 
79,297,599

 
74,885,746

Dilutive effect of assumed conversion of restricted stock units
 
1,408,277

 

 
882,263

 

Dilutive effect of assumed conversion of warrants
 
329,808

 

 
262,567

 

Dilutive effect of assumed conversion of stock options
 
5,836

 

 
1,101

 

Total weighted average diluted shares outstanding
 
81,132,304

 
78,196,959

 
80,443,530

 
74,885,746

Basic and diluted income (loss) per share: (1)
 
 

 
 

 
 
 
 
Basic:
 
 
 
 
 
 
 
 
Continuing operations
 
$
0.01

 
$
0.03

 
$
0.02

 
$
(0.04
)
Discontinued operations
 
$

 
$

 
$

 
$
(0.28
)
Net income (loss)
 
$
0.01

 
$
0.03

 
$
0.02

 
$
(0.32
)
Diluted:
 
 
 
 
 
 
 
 
Continuing operations
 
$
0.01

 
$
0.03

 
$
0.02

 
$
(0.04
)
Discontinued operations
 
$

 
$

 
$

 
$
(0.28
)
Net income (loss)
 
$
0.01

 
$
0.03

 
$
0.02

 
$
(0.32
)
 
(1)Income (loss) per share tables may contain summation differences due to rounding.

The following potentially dilutive securities were excluded from the calculation of diluted income (loss) per share, as their effects would have been anti-dilutive for the periods presented:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
Restricted stock units
 
110,000

 
3,750,003

 
1,740,502

 
6,664,920

Stock options
 
2,060,000

 
2,623,776

 
2,060,000

 
2,623,776

Warrants
 
1,350,000

 
137,000

 
1,350,000

 
137,000

Total anti-dilutive securities
 
3,520,000

 
6,510,779

 
5,150,502

 
9,425,696

3. Discontinued operations
As a result of the Spin-off on March 26, 2018, the financial results of Red Violet are reflected in the Company's condensed consolidated financial statements as discontinued operations and, therefore, are presented as loss from discontinued operations on the condensed consolidated statements of operations, and cash activity from discontinued operations on the condensed consolidated statements of cash flows. Further, the Company's additional paid-in capital was decreased by the net assets of Red Violet, as reflected in the condensed consolidated statements of changes in shareholders' equity.


10

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


For the six months ended June 30, 2018, the financial results of operations of Red Violet were as follows:
(In thousands)
 
Six Months Ended June 30, 2018
Revenue
 
$
3,325

Cost of revenue (exclusive of depreciation and amortization)
 
2,017

Sales and marketing expenses
 
1,089

General and administrative expenses
 
1,852

Depreciation and amortization
 
451

Loss from operations of discontinued operations, net of $0 income taxes
 
(2,084
)
Loss on disposal of discontinued operations, net of $0 income taxes
 
(19,040
)
Net loss from discontinued operations
 
$
(21,124
)

For the six months ended June 30, 2018, included in the net loss from discontinued operations is a loss on disposal of discontinued operations of $19,040, of which an aggregate of $16,030 represented non-cash charges. The loss on disposal of discontinued operations consisted of the following:
(In thousands)
 
Six Months Ended June 30, 2018
Share-based compensation expense (1)
 
$
15,548

Write-off of unamortized debt costs (2)
 
284

Write-off of certain prepaid expenses
 
198

Spin-off related professional fees
 
2,012

Spin-off related employee compensation
 
998

Loss on disposal of discontinued operations
 
$
19,040

(1)
As discussed and defined in Note 10, Share-based compensation, share-based compensation expense represents non-cash expense incurred in connection with the Acceleration of certain previously outstanding but unvested stock options, RSUs and restricted stock and additional Spin-off Grants, in connection with the Spin-off.
(2)
As discussed in Note 7, Long-term debt, net, in connection with the Spin-off, the Company repaid the Promissory Notes to certain investors, which resulted in a write-off of unamortized debt costs of $284.  

In addition, during the first quarter of 2018, in connection with the Spin-off of Red Violet, an aggregate of $7,708 was recognized in costs and expenses from continuing operations as spin-off transaction costs, and included non-cash share-based compensation expense of $5,409 as a result of 2,041,000 shares of Transaction Grants (as defined in Note 10, Share-based compensation), and employee cash compensation of $2,299.
4. Lease commitments

At the inception of a contract, the Company determines whether the contract is or contains a lease based on the facts and circumstances present. Operating leases with terms greater than one year are recognized on the condensed consolidated balance sheets as Operating lease right-of-use assets, Current portion of operating lease liability, and Operating lease liability, net. Financing leases with terms greater than one year are recognized on the condensed consolidated balance sheets as Property and equipment, net, Accrued expenses and other current liabilities, and Other non-current liabilities. The Company has elected not to recognize leases with terms of one year or less on the condensed consolidated balance sheets.

Lease obligations and their corresponding assets are recorded based on the present value of lease payments over the expected lease term. As the interest rate implicit in lease contracts is typically not readily determinable, the Company utilizes the appropriate incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Certain adjustments to the right-of-use asset may be required for items such as initial direct costs paid or incentives received. The components of a lease are split into three categories: lease components, non-lease components and non-components; however, the Company has elected to combine lease and non-lease components into a single component. Rent expense associated with operating leases is recognized over the expected term on a straight-line basis. In connection with financing leases, depreciation of the underlying asset is recognized over the expected term on a straight-line basis and interest expense is recognized as incurred.


11

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


The Company has entered into a number of noncancelable operating and financing lease agreements for certain offices and furniture, fixtures and office equipment. These leases have original lease periods expiring between 2021 and 2025. Although certain leases include options to renew, the Company does not assume renewals in the determination of the lease term unless the renewals are deemed to be reasonably assured at lease commencement. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.

For the three and six months ended June 30, 2019, the components of lease costs are as follows:
(In thousands)
Three Months Ended June 30, 2019
 
Six Months Ended June 30, 2019
Operating leases:
 
 
 
Rent expense
$
502

 
$
991

Financing lease:
 
 
 
Leased furniture, fixtures and office equipment depreciation expense
73

 
97

Interest expense
11

 
22

Short-term leases:
 
 
 
Rent expense
32

 
257

Total lease costs
$
618

 
$
1,367


As of June 30, 2019, the weighted average lease term and discount rate of the Company's leases are as follows:
 
June 30, 2019
 
Operating Leases
 
Financing Lease
Weighted average remaining lease term
6.3 years

 
6.4 years

Weighted average discount rate
5.0
%
 
5.0
%

As of June 30, 2019, scheduled future maturities of the Company's lease liabilities are as follows:
(In thousands)
June 30, 2019
Year
Operating Leases
 
Financing Lease
Remainder of 2019
$
1,092

 
$
76

2020
2,186

 
157

2021
2,136

 
157

2022
2,077

 
158

2023
2,222

 
169

Thereafter
4,109

 
312

Total undiscounted cash flows
13,822

 
1,029

Less: imputed interest
(1,991
)
 
(154
)
Present value of lease liabilities
$
11,831

 
$
875



12

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


For the three and six months ended June 30, 2019, supplemental cash flow information related to leases are as follows:
(In thousands)
Three Months Ended June 30, 2019
 
Six Months Ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
 
 
Operating cash flows provided by operating leases (1)
$
(472
)
 
$
(297
)
Operating cash flows used for financing lease
$
11

 
$
24

Lease liabilities related to the acquisition of right-of-use assets:
 
 
 
Operating leases
$
48

 
$
117

(1) For the three and six months ended June 30, 2019, the Company received a cash reimbursement of $640 for tenant improvements made to its New York City corporate headquarters.
5. Intangible assets, net
Intangible assets, other than goodwill, consist of the following: 
(In thousands)
 
Amortization  period
 
June 30, 2019
 
December 31, 2018
Gross amount:
 
 
 
 

 
 

Software developed for internal use
 
3 years
 
$
3,775

 
$
3,037

Acquired proprietary technology
 
5 years
 
11,459

 
11,459

Customer relationships
 
7-10 years
 
34,986

 
34,986

Trade names
 
20 years
 
16,357

 
16,357

Domain names
 
20 years
 
191

 
191

Databases
 
5-10 years
 
31,292

 
31,292

Non-competition agreements
 
2-5 years
 
1,768

 
1,768

Total gross amount
 
 
 
99,828

 
99,090

Accumulated amortization:
 
 
 
 

 
 

Software developed for internal use
 
 
 
(1,425
)
 
(1,282
)
Acquired proprietary technology
 
 
 
(8,127
)
 
(6,987
)
Customer relationships
 
 
 
(16,810
)
 
(14,417
)
Trade names
 
 
 
(2,913
)
 
(2,504
)
Domain names
 
 
 
(34
)
 
(29
)
Databases
 
 
 
(12,377
)
 
(10,573
)
Non-competition agreements
 
 
 
(1,559
)
 
(1,486
)
Total accumulated amortization
 
 
 
(43,245
)
 
(37,278
)
Net intangible assets:
 
 
 
 

 
 

Software developed for internal use
 
 
 
2,350

 
1,755

Acquired proprietary technology
 
 
 
3,332

 
4,472

Customer relationships
 
 
 
18,176

 
20,569

Trade names
 
 
 
13,444

 
13,853

Domain names
 
 
 
157

 
162

Databases
 
 
 
18,915

 
20,719

Non-competition agreements
 
 
 
209

 
282

Total intangible assets, net
 
 
 
$
56,583

 
$
61,812

 
The gross amounts associated with software developed for internal use primarily represent capitalized costs for 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 ("Fluent LLC"), effective on December 8, 2015 (the "Fluent LLC Acquisition"), and the acquisition of Q Interactive, LLC, effective on June 8, 2016 (the "Q Interactive Acquisition").

13

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


 
Amortization expense of $3,127 and $3,213 for the three months ended June 30, 2019 and 2018 and $6,252 and $6,421 for the six months ended June 30, 2019 and 2018, respectively, were included in depreciation and amortization expenses in the condensed consolidated statements of operations. As of June 30, 2019, intangible assets with a carrying amount of $897, included in the gross amount of software developed for internal use, have not commenced amortization, as they are not ready for their intended use.

As of June 30, 2019, estimated amortization expenses related to the Company's intangible assets for the remainder of 2019 through 2024 and thereafter are as follows:
(In thousands)
 
 
Year
 
June 30, 2019
Remainder of 2019
 
$
6,394

2020
 
12,637

2021
 
9,231

2022
 
8,148

2023
 
3,967

2024 and thereafter
 
16,206

Total
 
$
56,583

6. Goodwill
Goodwill represents the cost in excess of fair value of net assets acquired in a business combination. As of June 30, 2019, the total balance of goodwill was $159,791, as a result of the acquisition of Interactive Data, LLC effective on October 2, 2014, the Fluent LLC Acquisition and the Q Interactive Acquisition.
In accordance with ASC Topic 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.
For the six months ended June 30, 2019, there were no events or changes in circumstances to indicate that goodwill is impaired.
7. Long-term debt, net
Long-term debt, net, related to the Refinanced Term Loan (as defined below) consisted of the following:
(In thousands)
 
June 30, 2019
 
December 31, 2018
Principal amount
 
$
57,225

 
$
60,320

Less: Unamortized debt issuance costs
 
(4,200
)
 
(4,848
)
Long-term debt, net
 
53,025

 
55,472

Less: Current portion of long-term debt
 
(5,380
)
 
(3,500
)
Long-term debt, net (non-current)
 
$
47,645

 
$
51,972

Refinanced Term Loan
In connection with the Spin-off of Red Violet, Fluent LLC refinanced and fully repaid the existing term loans (the "Term Loans") and certain promissory notes (the "Promissory Notes"), which had been entered into on December 8, 2015, with a new term loan in the amount of $70.0 million ("Refinanced Term Loan"), pursuant to a Limited Consent and Amendment No. 6 ("Amendment No. 6") to its Credit Agreement (the "Credit Agreement"), effective on March 26, 2018 (the "Refinancing").
 
The Refinanced Term Loan is guaranteed by the Company and its direct and indirect subsidiaries, and secured by substantially all of the assets of the Company and its direct and indirect subsidiaries, including Fluent LLC, in each case, on an equal and ratable basis. The Refinanced Term Loan accrues interest at the rate of either, at Fluent's option, (a) LIBOR (subject to a floor of 0.50%) plus 7.00% per annum, or (b) the base rate (generally equivalent to the U.S. prime rate) plus 6.0% per annum, payable in cash. Interest under the

14

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


Refinanced Term Loan is payable monthly. Scheduled principal amortization of the Refinanced Term Loan is $875 per quarter, commencing with the fiscal quarter ended June 30, 2018. The Refinanced Term Loan matures on March 26, 2023.
On March 26, 2018, proceeds from the Refinanced Term Loan were utilized to repay, in full, the outstanding principal amount plus accrued PIK interest of the Term Loans and Promissory Notes of $55,586 and $11,425, respectively. Prepayment premiums and unamortized debt costs associated with the Term Loans of $2,818 and $3,136, respectively, were capitalized in the balance of the Refinanced Term Loan and are being amortized over the remaining period of the Refinanced Term Loan. In addition, refinancing costs paid to third parties of $193 were recognized in loss on disposal of discontinued operations. See Note 3, Discontinued operations.
The Credit Agreement, as amended, requires the Company to maintain and comply with certain financial and other covenants, commencing with the fiscal quarter ended June 30, 2018. In addition, the Credit Agreement, as amended, includes certain prepayment provisions, including mandatory quarterly principal prepayments of the Refinanced Term Loan with a portion of the Company's excess cash flow, as defined in the Credit Agreement. For the three months ended June 30, 2019, the quarterly prepayment resulting from excess cash flow was $1,880. As of June 30, 2019, this amount was reclassified to the current portion of long-term debt and will be paid during the third quarter. As of June 30, 2019, the Company was in compliance with all of the financial and other covenants under the Credit Agreement.
Maturities
As of June 30, 2019, scheduled future maturities of the Refinanced Term Loan, including the required principal prepayment based on a portion of the Company's quarterly excess cash flow of $1,880 for the second quarter of 2019 and excluding potential future additional principal prepayments, are as follows:
(In thousands)
 
 
Year
 
 

Remainder of 2019
 
$
3,630

2020
 
3,500

2021
 
3,500

2022
 
3,500

2023
 
43,095

Total maturities
 
$
57,225

Fair value
As of June 30, 2019, the fair value of long-term debt is considered to approximate its carrying value, as the Refinanced Term Loan has a variable interest rate. This fair value assessment represents a Level 2 measurement.
8. 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. The Company updates its estimated annual effective tax rate on a quarterly basis and, if the estimate changes, makes a cumulative adjustment. 
The Company recorded a full valuation allowance against net deferred tax assets as of June 30, 2019 and December 31, 2018, 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 some portion of these allowances. Based on current income from continuing operations and anticipated future earnings, the Company believes there is a reasonable possibility that within the next 12 months sufficient positive evidence may become available to allow a conclusion to be reached that a significant portion, if not all, of the valuation allowance will be released. 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.

15

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


For the six months ended June 30, 2019 and 2018, the Company's effective income tax benefit rate of 2.0% and 0.0% differed from the statutory federal income tax rates of 21% and 34%, respectively, with such differences resulting primarily from the application of the full valuation allowance against the Company's deferred tax assets.
 
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 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 June 30, 2019 and December 31, 2018, the balance of unrecognized tax benefits was $1,480. The unrecognized tax benefits, if recognized, would result in an increase to net operating losses that would be subject to a valuation allowance and, accordingly, result in no impact to the Company’s annual effective tax rate. As of June 30, 2019, the Company has not accrued any interest or penalties with respect to its uncertain tax positions.
The Company does not anticipate a significant increase or reduction in unrecognized tax benefits within the next twelve months.
9. Common stock, treasury stock and warrants
Common stock
 
As of June 30, 2019 and December 31, 2018, the number of issued shares of common stock was 78,534,774 and 76,525,581, respectively, which included shares of treasury stock of 1,785,489 and 1,233,198, respectively.
 
For the six months ended June 30, 2019, the change in the number of issued shares of common stock was a result of an aggregate 2,009,193 shares of common stock issued upon vesting of RSUs, including 552,291 shares of common stock withheld to cover statutory taxes upon such vesting, which are reflected in treasury stock, discussed below.
Treasury stock
As of June 30, 2019 and December 31, 2018, the Company held shares of treasury stock of 1,785,489 and 1,233,198, with a cost of $6,351 and $3,272, respectively.
The Company's share-based incentive plans, discussed in Note 10, Share-based compensation, allow employees to forfeit shares of common stock to satisfy federal and state statutory tax withholding obligations associated with equity awards. The forfeited shares of common stock may be taken into treasury stock by the Company or sold on the open market. For the six months ended June 30, 2019, 552,291 shares of common stock were withheld to cover statutory taxes owed by certain employees for this purpose and taken into treasury stock.
Warrants
As of June 30, 2019 and December 31, 2018, warrants to purchase an aggregate of 2,398,776 and 2,498,776 shares of common stock were outstanding, respectively, with exercise prices ranging from $3.75 to $6.00 per share.

On July 9, 2018 the Company entered into First Amendments (the "First Amendments") to the Amendments to Warrants and Agreements to Exercise ("Amended Whitehorse Warrants") with (i) H.I.G. Whitehorse SMA ABF, L.P. regarding 46,667 warrants to purchase common stock of the Company, par value $0.0005 per share, at an exercise price of $3.00 per share; (ii) H.I.G. Whitehorse SMA Holdings I, LLC regarding 66,666 warrants to purchase common stock of the Company at an exercise price of $3.00 per share; and (iii) Whitehorse Finance, Inc. regarding 186,667 warrants to purchase common stock of the Company at an exercise price of $3.00 per share. In November 2017, the Amended Whitehorse Warrants were exercised and the Company issued an aggregate of 300,000 shares of common stock of the Company (the "Warrant Shares") to the warrant holders. Pursuant to the First Amendments, the warrant holders have the right, but not the obligation, to require the Company to purchase from these warrant holders the 300,000 Warrant Shares at $3.8334 per share (the "Put Right"), which may be exercised during the period commencing January 1, 2019 and ending December 15, 2019. In accordance with ASC 480, Distinguishing Liabilities from Equity, the Put Right has historically been classified within other current liabilities on the condensed consolidated balance sheets because the market price of the Company's common stock has been lower than the exercise price of $3.8334 per share. During the first quarter of 2019, the last reported sale price of the

16

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


Company's common stock was higher than the exercise price, resulting in the reclassification of the Put Right totaling $1,150 from other current liabilities to equity, and now remains within additional paid-in capital on the condensed consolidated balance sheet as of June 30, 2019.
10. Share-based compensation
As of June 30, 2019, the Company maintains two share-based incentive plans: the Cogint, Inc. 2015 Stock Incentive Plan (the "2015 Plan") and the Fluent, Inc. 2018 Stock Incentive Plan (the "2018 Plan") which, combined, authorize the issuance of 21,174,929 shares of common stock. As of June 30, 2019, there were 3,879,683 shares of common stock reserved for issuance under the 2018 Plan. The primary purpose of the 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.
Spin-off of Red Violet
On March 8, 2018, the Company's Compensation Committee approved the acceleration (the "Acceleration") of stock options, RSUs and restricted stock held by certain employees, consultants and directors, including only those employees who were to continue with Red Violet upon completion of the Spin-off, subject to such employees still being employed or providing services on March 12, 2018 (the "Acceleration Date"). An aggregate of 5,157,998 shares were accelerated, including 47,500 stock options, 4,960,498 RSUs (inclusive of 500,000 shares to Marlin Capital and 2,500,000 to Michael Brauser), and 150,000 shares of restricted stock. Share-based compensation expense of $14,667 resulting from the Acceleration was recognized in loss on disposal of discontinued operations during the first quarter of 2018.
In connection with the Spin-off of Red Violet, common stock awards comprised of an aggregate of 304,000 shares were granted to certain employees of Red Violet ("Spin-off Grants") during the first quarter of 2018, and related share-based compensation expense of $881 was recognized in loss on disposal of discontinued operations. Additionally, an aggregate of 2,041,000 shares of common stock, subject to deferred delivery over a three-year period, were granted to certain Fluent employees as a result of the Spin-off ("Transaction Grants"), and related share-based compensation expense of $5,409 was recognized in costs and expenses as part of the Spin-off transaction costs during the first quarter of 2018.
In total, share-based compensation expense of $15,548, which resulted from the Acceleration and Spin-off Grants in connection with the Spin-off, was recognized in loss on disposal of discontinued operations during the first quarter of 2018. See Note 3, Discontinued operations.
Stock options
On January 31, 2019, the Compensation Committee of the Company's Board of Directors approved the grant of stock options to certain officers, which were issued on February 1, 2019 under the 2018 Plan. Subject to continuing service, 50% of the shares subject to these stock options will vest if the Company's stock price remains above 125% 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% 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 June 30, 2019, the first condition has been met; therefore, subject to continuing service, 50% of the shares subject to these stock options will vest on February 1, 2020. 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 range of the fair value of the stock options that were awarded is $2.81 to $2.86 per share. The key assumptions utilized to calculate the grant-date fair values for these awards are summarized below:
Key Assumptions
Exercise price
 
$
4.72

Expected term
 
1.0 - 1.3 years

Expected volatility
 
65
%
Dividend yield
 
%
Risk-free rate
 
2.61
%

17

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


For the six months ended June 30, 2019, details of stock option activity were as follows:
 
 
Number of
options
 
Weighted average exercise price per
share
 
Weighted average
remaining
contractual term
 
Aggregate
intrinsic
value
Outstanding as of December 31, 2018
 
112,000

 
$
13.98

 
2.8 years
 
$

Granted
 
2,064,000

 
$
4.72

 
9.6 years
 
 
Forfeited
 
(56,000
)
 
$
4.72

 
 
 
 
Outstanding as of June 30, 2019
 
2,120,000

 
$
5.20

 
9.2 years
 
$
1,303

Options exercisable as of June 30, 2019
 
112,000

 
$
13.98

 
2.3 years
 
$
5


The aggregate intrinsic value amounts in the table above represent the difference between the closing price of the Company's common stock on June 28, 2019 of $5.38 and the corresponding exercise prices, multiplied by the number of in-the-money stock options as of the same date.

For the three and six months ended June 30, 2019, compensation expense recognized for stock options of $1,252 and $2,103, respectively, was recorded in sales and marketing and general and administrative expenses in the condensed consolidated statements of operations. For the three and six months ended June 30, 2018, compensation expense recognized for stock options of $0 and $243, respectively, was recorded in discontinued operations in the condensed consolidated statements of operations. As of June 30, 2019, there was $3,597 of unrecognized share-based compensation with respect to outstanding stock options.
Restricted stock units and restricted stock
For the six months ended June 30, 2019, details of unvested RSU and restricted stock activity were as follows:
 
 
Number of units
 
Weighted average
grant-date fair value
Unvested as of December 31, 2018
 
3,831,965

 
$
7.95

Granted
 
1,835,930

 
$
4.89

Vested and delivered
 
(1,456,902
)
 
$
4.03

Withheld as treasury stock (1)
 
(552,291
)
 
$
4.18

Vested not delivered (2)
 
95,915

 
$
4.78

Forfeited
 
(153,961
)
 
$
3.54

Unvested as of June 30, 2019
 
3,600,656

 
$
7.76

(1)
As discussed in Note 9, the increase in treasury stock was due to shares withheld to cover statutory withholding taxes upon the delivery of shares following vesting of RSUs and issuance of restricted stock. As of June 30, 2019, there were 1,785,489 outstanding shares of treasury stock.
(2)
Vested not delivered represents vested RSUs with delivery deferred to a future time. For the six months ended June 30, 2019, there was a net decrease of 95,915 shares included in vested not delivered as a result of the delivery of Spin-off Grants of 740,334 shares, partially offset by the net activity from vesting of RSUs with deferred delivery of 644,419 shares. As of June 30, 2019, there were 2,814,002 outstanding RSUs included in vested not delivered.
The Company recognized compensation (included in sales and marketing, product development, general and administrative and discontinued operations in the condensed consolidated statements of operations, and intangible assets in the condensed consolidated balance sheets) for RSUs and restricted stock of $1,732 and $2,738 for the three months ended and $3,171 and $25,196 for the six months ended June 30, 2019 and 2018, respectively. The fair value of the RSUs and restricted stock was estimated using the closing prices of the Company's common stock on the dates of grant.
As of June 30, 2019, unrecognized share-based compensation expense associated with the granted RSUs and stock options amounted to $16,282, which is expected to be recognized over a weighted average period of 2.5 years.

18

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


For the three and six months ended June 30, 2019 and 2018, share-based compensation for the Company's stock option, RSU, common stock and restricted stock awards were allocated to the following accounts in the condensed consolidated financial statements:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In thousands)
 
2019