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.

10. Contingencies

In the ordinary course of business, the Company is subject to loss contingencies that cover a range of matters. An estimated loss from a loss contingency, such as a legal proceeding or claim, is accrued if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. In determining whether a loss should be accrued, the Company evaluates, among other factors, the degree of probability and the ability to reasonably estimate the amount of any such loss.

On October 26, 2018, the Company received a subpoena from the New York Attorney General’s Office (“NY AG”) regarding compliance with New York Executive Law § ~~63(12)~~63(12) and New York General Business Law § 349, as they relate to the collection, use, or disclosure of information from or about consumers or individuals, as such information was submitted to the Federal Communication Commission (“FCC”) in connection with the FCC’s rulemaking proceeding captioned “Restoring Internet Freedom,” WC Docket No. ~~17-108.~~17-108. On December 13, 2018, the Company received a subpoena from the United States Department of Justice (“DOJ”) regarding the same issue. On March 12, 2020, the Company received a subpoena from the Office of the Attorney General of the District of Columbia ("DC AG") regarding the same issue. The Company has been fully cooperating with the NY AG, the DOJ, and the DC AG. Based on recent communications with the NY AG, ~~and~~the Company believes that a loss from these matters is ~~responding to the subpoenas. At this time,~~probable, but it is not yet possible to ~~predict~~reasonably estimate the ~~ultimate~~magnitude of such loss. However, an unfavorable outcome ~~of any of these matters or the significance, if any, to~~could have a material adverse effect on the Company’s business, results of operations or financial position. ~~As such, the Company is unable to make a meaningful estimate of the amount or range of loss, if any, that could result from an unfavorable outcome.~~

On June 27, 2019, as a part of two sales and use tax audits covering the period from December 1, 2010 to November 30, 2019, the New York State Department of Taxation and Finance (the “Tax Department”) issued a letter stating its position that revenue derived from certain of the Company’s customer acquisition and list management services are subject to sales tax, as a result of being deemed information services. The Company disputed the Tax Department's position on several grounds, ~~and responded to the Tax Department outlining its position. On~~ but on January 14 and 15,2020, the Tax Department issued Statements of Proposed Audit Adjustment totaling $8.2 million, including $2.0 million of interest. The Company formally disagreed with the amount of the Proposed Audit ~~Adjustment~~Adjustments and met with the Tax Department on March 4, 2020. During that meeting, the Company informed the Tax Department that a majority of the Proposed Audit ~~Adjustment~~Adjustments was attributable to revenue derived from transfers which were either excluded resales or sourced outside of New York and renewed its challenge as to the taxability of its customer acquisition revenue. ~~Since that time,~~On July 22 and 31,2020, the Company ~~has~~ received ~~revised assessments for amounts less than~~notices of determination from the ~~previous assessments; however, such assessments are open for further discussion and refinement.~~Tax Department totaling $3.0 million, including $0.7 million of interest. Based on the foregoing, the Company ~~continues to believe~~believes that it is probable that a sales tax liability may result from this matter, and ~~continues to estimate~~has estimated the range of any such liability to be between $0.7 million and ~~$3.7~~$3.0 million. The Company has accrued a liability associated with these sales and use tax audits at the low end of this range.

On January 28, 2020, the Company received a Civil Investigative Demand (“CID”) from the Federal Trade Commission (“FTC”) regarding compliance with the Federal Trade Commission Act, 15 U.S.C. ~~§45~~§45 or the Telemarketing Sales Rule, 16 C.F.R. Part 310, as they relate to the advertising, marketing, promotion, offering for sale, or sale of rewards and other products, the transmission of commercial text messages, and/or consumer privacy or data security. The Company has been fully cooperating with the FTC and is responding to the CID. At this time, it is not possible to predict the ultimate outcome of this matter or the significance, if any, to the Company’s business, results of operations or financial position.

11. Business acquisitions

~~11. Business~~Winopoly acquisition

On April 1, 2020, the Company acquired, through a wholly owned subsidiary, a 50% membership interest in Winopoly, LLC (the "Winopoly Acquisition") for a deemed purchase price of $2,553, which consisted of $1,553 in cash and contingent consideration with a fair value of $1,000 payable based upon the achievement of specified revenue targets over the eighteen-month period following the completion of the acquisition. Winopoly, LLC is a contact center operation, which serves as a marketplace that matches consumers sourced by Fluent with advertiser clients. In accordance with ASC 805, the Company determined that the Winopoly Acquisition constituted the purchase of a business. For the six months ended June 30, 2020, the Company incurred transaction-related expenses of $60 in connection with the acquisition, which are recorded in general and administrative expenses in the consolidated statements of operations. Assets and revenues of Winopoly, LLC totaled 0.9% and 0.7%, respectively, of the Company's consolidated financial statements at and for the six months ended June 30, 2020, and are included in the Fluent operating segment.

The preliminary fair value of the acquired customer relationships of $600, to be amortized over a period of five years, was determined using the excess earnings method, a variation of the income approach, while the preliminary fair value of the acquired developed technology of $800, to be amortized over a period of three years, was determined using the cost approach. The amount of the purchase price in excess of the fair value of the net assets acquired was recorded as goodwill in the amount of $1,131 and primarily relates to intangible assets that do not qualify for separate recognition, including assembled workforce and synergies. The purchase accounting process has not yet been completed, primarily because the valuation of acquired assets and liabilities assumed has not been finalized. The Company expects to complete the purchase accounting as soon as practicable but no later than one year from the acquisition date. The Company does not believe there will be material adjustments.

At any time between the fourth and sixth anniversary of the Winopoly Acquisition, the sellers may exercise a put option whereby the Company is required to acquire the remaining 50% membership interests in Winopoly, LLC. During this period, the Company also has the ability to exercise a call option whereby the sellers must sell the remaining 50% membership interests in Winopoly, LLC to the Company. The purchase price paid for the remaining 50% membership interests would be calculated based on a multiple of 4.0x EBITDA (as such term is defined in the agreement between the parties), applied to a twelve-month period spanning the five months prior to month of put/call closing extending through six months following the month of put/call closing. In connection with the exercise of the put/call option, certain of the seller parties must enter into employment agreements with the Company in order to receive their share of the consideration for the remaining 50% of the membership interests (the "Put/Call Consideration").

Although the sellers maintain an equity interest in Winopoly, LLC, we have deemed this equity interest to be non-substantive in nature, as the sellers will primarily benefit from the Winopoly Acquisition based on periodic distributions of the earnings of Winopoly, LLC and the Put/Call Consideration, both of which are dependent on their continued service. Without providing service, the sellers could benefit from their pro rata share of the proceeds upon a third-party sale or liquidation of Winopoly, LLC; however, such a liquidity event is considered unlikely. Therefore, no non-controlling interest has been recognized. Periodic distributions for services rendered will be recorded as compensation expense. In addition, we will estimate the amount of the Put/Call Consideration, which will be accreted over the six year estimated service period, consisting of the estimated four years until the put/call can be exercised and the additional two-year service requirement. For the three and six months ended June 30, 2020, compensation expense of $530 related to the Put/Call Consideration was recorded in general and administrative on the consolidated statement of operations, with a corresponding liability in other non-current liabilities on the consolidated balance sheet.

AdParlor acquisition

On July 1, 2019, two wholly owned subsidiaries of the Company, AdParlor, LLC (formerly known as AdParlor Acquisition, LLC), a Delaware limited liability company, and Fluent Media Canada, Inc., a British Columbia company (together with AdParlor, LLC, each a "Buyer" and collectively "Buyers"), completed the acquisition of substantially all of the assets of AdParlor Holdings, Inc., a Delaware corporation ("AdParlor Holdings"), AdParlor International, Inc., a Delaware corporation ("AdParlor International"), AdParlor Media, Inc., a Delaware corporation ("AdParlor Media US"), and AdParlor Media ULC, a British Columbia unlimited liability company (together with AdParlor Holdings, AdParlor International and AdParlor Media US, each a "Seller" and collectively "Sellers") pursuant to an Asset Purchase Agreement (the "Purchase Agreement") dated June 17, 2019, by and among Buyers, Sellers and the parent of the Sellers, v2 Ventures Group LLC, a Delaware limited liability company (the "AdParlor Acquisition"). The purpose of the acquisition was to expand the Company's performance-based marketing capabilities. In accordance with ~~ASU 2017-01,~~ ~~Business Combinations (ASC 805): Clarifying the Definition of a Business~~,ASC 805, the Company determined that the AdParlor Acquisition constituted the purchase of a business.

At closing, the Buyers paid to Sellers cash consideration of $7,302, net of adjustments for working capital and indebtedness, and issued a promissory note to Sellers with a present value of $2,350 in exchange for substantially all of the assets of Sellers. This promissory note is guaranteed by Fluent, LLC, and will not accrue interest except in the case of default, is payable in two equal installments on the first and second anniversaries of the date of closing and is subject to setoff in respect of certain indemnity and other matters. See Note 5, Long-term debt, net for further detail. For the year ended December 31, 2019, the Company incurred transaction-related expenses of $483 in connection with the AdParlor Acquisition, which it recorded in general and administrative expenses in the consolidated statements of operations.

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FLUENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands, except share data)

(unaudited)

The following table summarizes the fair values of the assets acquired and the liabilities assumed at the closing date:

	*July 1, 2019*

Cash and cash equivalents	$	56
Accounts receivable		7,835
Prepaid expenses and other current assets		54
Property and equipment		138
Intangible assets		4,700
Goodwill		4,983
Other non-current assets		28
Accounts payable		(7,691	)
Accrued expenses and other current liabilities		(418	)
Deferred revenue		(33	)
Total net assets acquired	$	9,652

The fair values of the identifiable intangible assets and goodwill acquired at the closing date are as follows:

	*Fair Value*		*Weighted Average Amortization Period (Years)*
Trade name & trademarks	$	300	4
Developed technology		2,100	4
Customer relationships		2,300	6
Goodwill		4,983
Total intangible assets, net	$	9,683

With the assistance of a ~~third-party~~third-party valuation firm, the fair value of the acquired customer relationships was determined using the excess earnings method, a variation of the income approach, while the fair value of the acquired developed technology, trade names and trademarks were determined using the relief from royalty method of the income approach. The amount of the purchase price in excess of the fair value of the net assets acquired was recorded as goodwill and primarily relates to intangible assets that do not qualify for separate recognition, including assembled workforce and synergies. For tax purposes, the goodwill is deductible over 15fifteen years.

12. ~~Subsequent events~~ Variable Interest Entity

~~On April 1, 2020,~~The Company has determined that Winopoly, LLC (as discussed in Note 11,Business acquisitions) qualifies as a VIE, for which the Company ~~through~~is the primary beneficiary. A VIE is an entity that either (i) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support, or (ii) has equity investors who lack the characteristics of a ~~wholly owned subsidiary, acquired~~controlling financial interest. The primary beneficiary is the party that has the power to direct activities that most significantly impact the operations of the VIE and has the obligation to absorb losses or the right to benefits from the VIE that could potentially be significant to the VIE. We assess whether we are the primary beneficiary of a ~~50% interest in~~VIE at the inception of the arrangement and at each reporting date.

Winopoly is a VIE, and the Company is its primary beneficiary, as contractual arrangements provides the Company with the control over certain activities that most significantly impact its economic performance. These significant activities include the compliance practices of Winopoly, LLC ~~a New York limited liability company (the "Winopoly Transaction"). Concurrent with~~and the Company's provisions of leads that Winopoly, ~~Transaction, on April 1, 2020, Fluent,~~ LLC ~~entered into Limited Consent and Amendment No. 11~~uses to generate its revenue, which ultimately give the Company controlling interest. The Company therefore consolidates Winopoly, LLC in its consolidated financial statements, inclusive of deemed compensation expense to the ~~Credit Agreement,~~sellers for services rendered.

13. Related party transactions

The Company earns revenue and incurs expenses from a client in which ~~modified certain provisions to accommodate~~ the Company's ~~entry into~~Chief Executive Officer holds a significant ownership interest. For the ~~Winopoly Transaction.~~three and six months ended June 30, 2020, the Company recognized revenue from this client of $95 and $145, respectively. For both the three and six months ended June 30, 2020, the Company incurred expenses from this client of $1.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion in conjunction with our consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"), Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended, (the "Exchange Act"), about our expectations, beliefs, or intentions regarding our business, financial condition, results of operations, strategies, the outcome of litigation, or prospects. You can identify forward-looking statements by the fact that these statements do not relate strictly to historical or current matters. Rather, forward-looking statements relate to anticipated or expected events, activities, trends, or results as of the date they are made. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. These factors include those contained in this Quarterly Report on Form 10-Q, as well as the disclosures made in the Company's Annual Report on Form 10-K for the year ended December 31, 2019 filed on March 13, 2020 ("2019 Form 10-K"), and other filings we make with the Securities and Exchange Commission (the "SEC"). We do not undertake any obligation to update forward-looking statements, except as required by law. We intend that all forward-looking statements be subject to the safe harbor provisions of PSLRA. These forward-looking statements are only predictions and reflect our views as of the date they are made with respect to future events and financial performance.

Overview

Fluent, Inc. ("we," "us," "our," "Fluent," or the "Company"), is an industry leader in data-driven digital marketing services. We primarily perform customer acquisition services by operating highly scalable digital marketing campaigns, through which we connect our advertiser clients with consumers they are seeking to reach. We deliver data and performance-based marketing executions to our clients, which in 2019 included over 500 consumer brands, direct marketers and agencies across a wide range of industries, including Financial Products & Services, Retail & Consumer, Media & Entertainment, Staffing & Recruitment and Marketing Services.

We attract consumers at scale to our owned digital media properties primarily through promotional offerings and employment opportunities. On average, our websites receive over 900,000 first-party user registrations daily, which include users’ names, contact information and opt-in permission to present them with offers on behalf of our clients. According to comScore, we reach 13% of the U.S. digital population on a monthly basis through our owned media properties. Nearly 90% of these users engage with our media on their mobile devices or tablets. Our always-on, real-time capabilities enable users to access our media whenever and wherever they choose.

Once users have registered with our sites, we integrate proprietary direct marketing technologies to engage them with surveys, polls and other experiences, through which we learn about their lifestyles, preferences and purchasing histories. Based on these insights, we serve targeted, relevant offers to them on behalf of our clients. As new users register and engage with our sites and existing registrants re-engage, we believe the enrichment of our database expands our addressable client base and improves the effectiveness of our performance-based campaigns.

Since our inception, we have amassed a large, proprietary database of first-party, self-declared user information and preferences. We have permission to contact the majority of users in our database through multiple channels, such as email, home address, telephone, push notifications and SMS text messaging. We leverage our data primarily to serve advertisements that we believe will be relevant to users based on the information they have provided. We have also begun to leverage our existing database into new revenue streams, including utilization-based models, such as programmatic advertising, as well as services-based models, such as marketing research and insights.

~~First~~Second Quarter Financial Summary

Three months ended ~~March 31,~~June 30, 2020 compared to ~~March 31, 2019~~:three months ended June 30, 2019:

•

Revenue increased ~~19%~~1% to ~~$78.9~~$71.5 million, from ~~$66.6~~$70.6 million.

•

Net income was ~~$0.4~~$0.5 million, or ~~$0.01~~$0.01 per share, compared to ~~$1.0~~$0.7 million or ~~$0.01~~$0.01 per share.

•

Media margin increased 4%8% to ~~$23.9~~$24.8 million, from ~~$23.1~~$22.9 million, representing ~~30.3%~~34.7% of revenue.

•

Adjusted EBITDA decreased 1%3% to ~~$9.0~~$9.4 million, based on net income of ~~$0.4~~$0.5 million, from ~~$9.1~~$9.7 million, based on a net income of ~~$1.0~~$0.7 million.

•

Adjusted net income was$~~3.8~~4.2 million, or ~~$ 0.05~~$0.05 per share, compared to ~~$4.1~~$4.6 million, or ~~$ 0.05~~$0.06 per share.

Six months ended June 30, 2020 compared to six months ended June 30, 2019:

	•	Revenue increased 10% to $150.4 million, from $137.1 million.
	•	Net income was $0.9 million, or $0.01 per share, compared to $1.8 million or $0.02 per share.
	•	Media margin increased 6% to $48.7 million, from $46.0 million, representing 32.4% of revenue.
	•	Adjusted EBITDA decreased $0.4 to $18.4 million, based on net income of $0.9 million, from $18.8 million, based on a net income of $1.8 million.
	•	Adjusted net income was $8.0 million, or $0.10 per share, compared to $8.7 million, or $0.11 per share.

Media margin, adjusted EBITDA and adjusted net income are non-GAAP financial measures.

COVID-19 Update

On March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic. At this time, our operations have not been significantly impacted by the global economic impact of COVID-19, and we have taken appropriate measures to ensure that we are able to conduct our business remotely without significant ~~disruptions.The~~disruptions. The economic uncertainty caused by COVID-19 has had an impact on certain of our advertiser clients in certain industry verticals, such as staffing and recruitment and financial products and services, who have reduced their pricing and/or demand during the ~~portion~~quarter. We took steps to reduce our costs of ~~the quarter impacted by the COVID-19 pandemic, resulting in lower overall margin for our services. We anticipate this effect~~acquiring traffic and to ~~continue, and perhaps accelerate, for so long as the businesses of our~~match available consumers with other advertiser clients in ~~these verticals~~the various industries we serve, thereby enabling us to more effectively manage our margins during the quarter. We anticipate additional shifts in pricing and/or demand among affected clients, as the trajectory of the pandemic and future economic outlook remain uncertain.

We implemented company-wide work-from-home beginning on March 13, 2020. While we believe we are ~~adversely affected by~~well-positioned to adapt to a work-from-home environment, COVID-19 increases the ~~pandemic.~~ likelihood of certain risks of disruption to our business, such as the incapacity of certain employees or system interruptions, which could lead to diminishment of our regular business operations, technological capacity and cybersecurity capabilities, as well as operational inefficiencies and reputational harm.

Please see "Results of Operations" and Item 1A. Risk Factors for further discussion of the possible impact of the COVID-19 pandemic on our business.

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Definitions, Reconciliations and Uses of Non-GAAP Financial Measures

We report the following non-GAAP measures:

Media margin is defined as revenue minus cost of revenue (exclusive of depreciation and amortization) attributable to variable costs paid for media and related expenses. Media margin is also presented as percentage of revenue.

Adjusted EBITDA is defined as net income excluding (1) income taxes, (2) interest expense, net, (3) depreciation and amortization, (4) goodwill impairment, (5) accrued compensation expense for Put/Call Consideration, (6) share-based compensation expense, ~~(5)~~(7) acquisition-related costs, ~~(6)~~(8) restructuring and certain severance costs, ~~(7)~~(9) certain litigation and other related costs, and ~~(8)~~(10) one-time items.

Adjusted net income is defined as net income excluding (1) goodwill impairment, (2) accrued compensation expense for Put/Call Consideration, (3) share-based compensation expense, ~~(2)~~(4) acquisition-related costs, ~~(3)~~(5) restructuring and certain severance costs, ~~(4)~~(6) certain litigation and other related costs, and ~~(5)~~(7) one-time items. Adjusted net income is also presented on a per share (basic and diluted) basis.

Below is a reconciliation of media margin from net income, which we believe is the most directly comparable GAAP measure.

	Three Months Ended March 31,						Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019			2020			2019
Net income	$	408		$	1,045		$	452		$	715		$	860		$	1,760
Income tax benefit		—			(35	)		—			—			—			(35	)
Interest expense, net		1,532			1,778			1,333			1,767			2,865			3,545
Goodwill impairment								817			—			817			—
Depreciation and amortization		3,733			3,317			3,853			3,306			7,586			6,623
General and administrative		11,076			10,043			10,044			10,294			21,120			20,329
Product development		2,731			2,150			3,115			2,287			5,846			4,445
Sales and marketing		2,830			3,434			2,888			3,058			5,718			6,492
Non-media cost of revenue (1)		1,603			1,361			2,312			1,475			3,915			2,836
Media margin	$	23,913		$	23,093		$	24,814		$	22,902		$	48,727		$	45,995
Revenue	$	78,934		$	66,561		$	71,509		$	70,560		$	150,443		$	137,121
Media margin % of revenue		30.3	%		34.7	%		34.7	%		32.5	%		32.4	%		33.5	%

(1)	Represents the portion of cost of revenue (exclusive of depreciation and amortization) not attributable to variable costs paid for media and related expenses.

Below is a reconciliation of adjusted EBITDA from net income, which we believe is the most directly comparable GAAP measure:

	Three Months Ended March 31,					Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019			2020		2019		2020		2019
Net income	$	408	$	1,045		$	452	$	715	$	860	$	1,760
Income tax benefit		—		(35	)		—		—		—		(35	)
Interest expense, net		1,532		1,778			1,333		1,767		2,865		3,545
Depreciation and amortization		3,733		3,317			3,853		3,306		7,586		6,623
Goodwill impairment							817		—		817		—
Accrued compensation expense for Put/Call Consideration							530		—		530		—
Share-based compensation expense		2,397		2,275			1,281		2,954		3,678		5,229
Acquisition-related costs		47		—			15		448		62		448
Restructuring and certain severance costs		—		110			—		250		—		360
Certain litigation and other related costs		907		489			1,115		227		2,022		716
One-time items		—		168			—		—		—		168
Adjusted EBITDA	$	9,024	$	9,147		$	9,396	$	9,667	$	18,420	$	18,814

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Below is a reconciliation of adjusted net income and ~~the related measure of~~ adjusted net income per share from net income, which we believe is the most directly comparable GAAP measure.

	Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
(In thousands, except share data)	2020		2019		2020		2019		2020		2019
Net income	$	408	$	1,045	$	452	$	715	$	860	$	1,760
Goodwill impairment						817		—		817		—
Accrued compensation expense for Put/Call Consideration						530		—		530		—
Share-based compensation expense		2,397		2,275		1,281		2,954		3,678		5,229
Acquisition-related costs		47		—		15		448		62		448
Restructuring and certain severance costs		—		110		—		250		—		360
Certain litigation and other related costs		907		489		1,115		227		2,022		716
One-time items		—		168		—		—		—		168
Adjusted net income	$	3,759	$	4,087	$	4,210	$	4,594	$	7,969	$	8,681
Adjusted net income per share:
Basic	$	0.05	$	0.05	$	0.05	$	0.06	$	0.10	$	0.11
Diluted	$	0.05	$	0.05	$	0.05	$	0.06	$	0.10	$	0.11
Weighted average number of shares outstanding:
Basic		78,604,280		79,097,426		78,510,383		79,388,383		78,557,331		79,297,599
Diluted		78,753,770		80,063,989		78,666,776		81,132,304		78,905,792		80,443,530

We present media margin, adjusted EBITDA, adjusted net income and adjusted net income per share as supplemental measures of our financial and operating performance because we believe they provide useful information to investors. More specifically:

Media margin, as defined above, is a measure of the efficiency of the Company’s operating model. We use media margin and the related measure of media margin as a percentage of revenue as primary metrics to measure the financial return on our media and related costs, specifically to measure the degree by which the revenue generated from our digital marketing services exceeds the cost to attract the consumers to whom offers are made through our services. Media margin is used extensively by our management to manage our operating performance, including evaluating operational performance against budgeted media margin and understanding the efficiency of our media and related expenditures. We also use media margin for performance evaluations and compensation decisions regarding certain personnel.

Adjusted EBITDA, as defined above, is another primary metric by which we evaluate the operating performance of our business, on which certain operating expenditures and internal budgets are based and by which, in addition to media margin and other factors, our senior management is compensated. The first three adjustments represent the conventional definition of EBITDA, and the remaining adjustments are items recognized and recorded under GAAP in particular periods but might be viewed as not necessarily coinciding with the underlying business operations for the periods in which they are so recognized and recorded. These adjustments include certain severance costs associated with department-specific reorganizations and certain litigation and other related costs associated with legal matters outside the ordinary course of business. Items are considered one-time in nature if they are non-recurring, infrequent or unusual and have not occurred in the past two years or are not expected to recur in the next two years, in accordance with SEC rules. Adjusted EBITDA for the ~~three~~six months ended ~~March 31,~~June 30, 2019 excluded as one-time items $0.2 million of costs associated with the move of our corporate headquarters. There were no other adjustments for one-time items in the current period presented.

Adjusted net income, as defined above, and the related measure of adjusted net income per share exclude certain items that are recognized and recorded under GAAP in particular periods but might be viewed as not necessarily coinciding with the underlying business operations for the periods in which they are so recognized and recorded. Adjusted net income for the ~~three~~six months ended ~~March 31,~~June 30, 2019 excluded as one-time items $0.2 million of costs associated with the move of our corporate headquarters. There were no other adjustments for one-time items in the current period presented. We believe adjusted net income affords investors a different view of the overall financial performance of the Company than adjusted EBITDA and the GAAP measure of net income.

Media margin, adjusted EBITDA, adjusted net income and adjusted net income per share are not intended to be performance measures that should be regarded as an alternative to, or more meaningful than, net income as indicators of operating performance. None of these metrics are presented as measures of liquidity. The way we measure media margin, adjusted EBITDA and adjusted net income may not be comparable to similarly titled measures presented by other companies and may not be identical to corresponding measures used in our various agreements.

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Results of Operations

Three months ended ~~March 31,~~June 30, 2020 compared to three months ended ~~March 31,~~June 30, 2019

Revenue. Revenue increased ~~$12.4~~$0.9 million, or ~~19%~~1%, to ~~$78.9~~$71.5 million for the three months ended ~~March 31,~~June 30, 2020,, from ~~$66.6~~$70.6 million for the three months ended ~~March 31, 2019~~.June 30, 2019. The increase was primarily attributable to greater availability of consumer traffic to our websites, along with corresponding demand for our performance-based marketing services. We believe that ~~a combination~~the effect of ~~reduced competition for media early in the year, followed by~~ consumers spending more time on their mobile devices during the period of social isolation brought on by the COVID-19 pandemic yielded a greater supply of consumer ~~traffic.~~traffic, although this effect dissipated and reversed later in the quarter. As the trajectory of the pandemic and governmental, business and individual responses to the same remain dynamic and unpredictable, we are unable to assess the availability of consumer traffic to our websites in future quarters. After the initial onset of the COVID-19 pandemic, certain advertisers in industry verticals such as staffing and recruitment and financial products and services began to reduce their spend with us, while certain advertisers in other verticals such as streaming services and mobile gaming have increased their demand. While the combination of these trends did not result in a significant disruption to our business in the quarter ended ~~March 31,~~June 30, 2020, the trajectory of these trends is uncertain.

Cost of revenue (exclusive of depreciation and amortization). Cost of revenue ~~increased~~ ~~$11.8~~ ~~million, or~~ ~~26%, to~~ ~~$56.6~~was relatively flat at $49.0 million for the three months ended ~~March 31,~~June 30, 2020,~~, from~~ ~~$44.8~~ as compared with $49.1 million for the three months ended ~~March 31, 2019~~.June 30, 2019. Our cost of revenue primarily consists of media and related costs associated with acquiring traffic from third-party publishers and digital media platforms for our owned and operated websites and, historically, on behalf of third-party ~~advertisers.~~advertisers, as well as the costs of fulfilling rewards earned by consumers who complete the requisite number of advertiser offers.

The total cost of revenue as a percentage of revenue ~~increased~~decreased to ~~72%~~69% for the three months ended ~~March 31,~~June 30, 2020,, compared to ~~67%~~70% in the corresponding period in 2019,, as a reduction in our cost of media was partly offset by increased reward fulfillment expense, as we tested certain ~~advertising client segments, particularly staffing~~changes to the consumer flows and ~~recruitment and financial products and services, reduced their pricing and demand~~experience during the portion of the quarter impacted by the COVID-19 pandemic. In addition, certain initiatives, such as newer media supply channels, consumer media formats and geographic markets, which carry lower margins due their stage of development, represented an increased portion of our overall profitability. These factors resulted in a lower overall margin for our services. We anticipate future profitability will depend upon the interaction of these factors, including the extent of the adverse impact of COVID-19 on the businesses of our advertiser clients, among other factors.quarter.

Sales and marketing. Sales and marketing expenses decreased ~~$0.6~~$0.2 million, or ~~18%~~6%, to ~~$2.8~~$2.9 million for the three months ended ~~March 31,~~June 30, 2020,, from ~~$3.4~~$3.1 million for the three months ended ~~March 31, 2019~~.June 30, 2019. For the three months ended ~~March 31,~~June 30, 2020 and 2019,, the amounts consisted mainly of employee salaries and benefits of ~~$2.2~~$2.4 million and ~~$2.3~~$2.3 million, non-cash share-based compensation expense of ~~$0.2~~$0.3 million and ~~$0.4~~$0.2 million, and advertising costs of ~~$0.2~~$0.2 million and ~~$0.4~~$0.4 million, respectively. We have seen favorable shifts in consumer interest in our offers since a majority of the United States mandated work from home for all but essential sectors; at the same time, we experienced uneven demand from our advertiser clients, depending on the impact of COVID-19 on their industries. We are actively managing our sales and marketing expenditures to reflect ~~these~~the rapidly shifting market ~~dynamics.~~dynamics associated with the impact of COVID-19 on our advertiser clients’ industries. As a result, past levels of sales and marketing expenditures may not be indicative of future expenditures, which may increase or decrease as these uncertainties in our business play out.

Product development. Product development increased ~~$0.6~~,$0.8, or ~~27%~~36%, to $~~2.7~~3.1 million for the three months ended ~~March 31,~~June 30, 2020,, from ~~$2.2~~$2.3 million for the three months ended ~~March 31, 2019~~. June 30, 2019. For the three months ended ~~March 31,~~June 30, 2020 and 2019,, the amounts consisted mainly of salaries and benefits of ~~$2.1~~$2.2 million and ~~$1.8~~$2.0 million and software license and maintenance costs of $0.3 million and $0.0 million, respectively. We have not implemented any material changes to our product development strategy as a result of the COVID-19 pandemic.

General and administrative. General and administrative expenses ~~increased~~ ~~$1.0~~decreased $0.3 million, or ~~10%~~2%, to ~~$11.1~~$10.0 million for the three months ended ~~March 31,~~June 30, 2020,, from ~~$10.0~~$10.3 million for the ~~March 31, 2019~~.June 30, 2019. For the three months ended ~~March 31,~~June 30, 2020 and 2019,, the amounts consisted mainly of employee salaries and benefits of ~~$4.5~~$4.3 million and ~~$4.1~~$3.9 million ~~non-cash share-based compensation expense of$1.9million and~~ ~~$1.7~~ ~~million,~~, professional fees of ~~$1.3~~$1.2 million and~~$1.9~~ $1.2 million, office overhead of $~~0.9~~1.2 million and ~~$1.0~~$0.8 million, ~~and~~ certain litigation and related costs of ~~$0.9~~$1.1 million and $0.2 million, non-cash share-based compensation expense of $0.7 million and $~~0.5~~2.5 million, and accrued compensation expense for Put/Call Consideration from the Winopoly Acquisition of $0.5 million and $0.0 million (see Note 11, Business acquisitions, in the Notes to Consolidated Financial Statements), respectively. The ~~increase~~decrease was ~~therefore,~~ mainly the result of ~~increased employee-related costs resulting from the expansion of our workforce to support growth, in addition to~~reduced non-cash share-based compensation expense, partially offset by an increase in certain litigation and related costs year over year ~~partially offset by a decrease in professional fees.~~as well as accrued compensation expense for the Put/Call Consideration. At this time, we do not anticipate material changes to our general and administrative expenditures due to the COVID-19 pandemic. See “Item 1A Risk Factors” below.

Depreciation and amortization. Depreciation and amortization expenses increased ~~$0.4~~$0.5 million, or ~~13%~~17%, to ~~$3.7~~$3.9 million for the three months ended ~~March 31,~~June 30, 2020,, from ~~$3.3~~$3.3 million for the ~~March 31,~~three months ended June 30, 2019,. as the results of the AdParlor Acquisition are included in the current period but were not present in the prior period.

Goodwill impairment.During the second quarter of 2020, we recognized $0.8 million of goodwill impairment related to the All Other reporting unit, with no corresponding impairment charge in the prior period.

Interest expense, net. Interest expense, net, decreased ~~$0.2~~$0.4 million, or ~~14%~~25%, to ~~$1.5~~$1.3 million for the three months ended ~~March 31,~~June 30, 2020,, from ~~$1.8~~$1.8 million for the ~~March 31, 2019~~.three months ended June 30, 2019. The decrease was ~~mainly~~ attributable to a lower interest rate environment, as well as lower average debt balance outstanding on the Refinanced Term Loan described below under "Liquidity and Capital Resources".

Income before income taxes. For the three months ended ~~March 31,~~June 30, 2020,, income before income taxes decreased ~~$0.6~~$0.3 million to ~~$0.4~~$0.5 million, compared to ~~$1.0~~$0.7 million for the ~~March 31, 2019~~.three months ended June 30, 2019. The change was primarily due to an increase in ~~cost~~product development of ~~revenue~~$0.8 million, goodwill impairment of ~~$11.8~~ ~~million, general and administrative expense of~~ ~~$1.0~~$0.8 million and depreciation and amortization expense of ~~$0.4~~$0.5 million, partially offset by an increase in revenue of ~~$12.4~~$0.9 million, decrease in interest expense of $0.4 million, decrease in general and administrative expense of $0.3 million, decrease in sales and marketing of ~~$0.6~~,$0.2 million and decrease in cost of revenue of $0.1, discussed above.

Income taxes. ~~Income~~There was no income tax ~~benefit was~~ $0 ~~thousand and~~ ~~$35~~ ~~thousand~~recorded for the three months ended ~~March 31,~~June 30, 2020 and 2019,, respectively.

As of ~~March 31,~~June 30, 2020 and 2019,, we recorded a full valuation allowance against our net deferred tax assets. We intend to maintain a full valuation allowance against the net deferred tax assets until there is sufficient evidence to support the release of all or some portion of this allowance. Based on the our history of losses, current income, estimated future taxable income, exclusive of reversing temporary differences and carryforwards, future reversals of existing taxable temporary differences and consideration of available tax planning strategies, we believe there is a reasonable possibility that, within the next twelve months, sufficient positive evidence may become available to allow us to reach a conclusion that a significant portion of the valuation allowance may 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 on the profitability that we are able to achieve and the net deferred tax assets available.

Net income. Net income of ~~$0.4~~$0.5 million and ~~$1.0~~$0.7 million was recognized for the three months ended ~~March 31,~~June 30, 2020 and 2019, respectively, as a result of the foregoing.

Six months ended June 30, 2020 compared to six months ended June 30, 2019

Revenue. Revenue increased $13.3 million, or 10%, to $150.4 million for the six months ended June 30, 2020, from $137.1 million for the six months ended June 30, 2019. The increase was primarily attributable to greater availability of consumer traffic to our websites, along with corresponding demand for our performance-based marketing services. We believe that a combination of reduced competition for media early in the year, followed by consumers spending more time on their mobile devices during the period of social isolation brought on by the COVID-19 pandemic, yielded a greater supply of consumer traffic, although this effect dissipated and reversed later in the second quarter. After the initial onset of the COVID-19 pandemic, certain advertisers in industry verticals such as staffing and recruitment and financial products and services began to reduce their spend with us, while certain advertisers in other verticals such as streaming services and mobile gaming increased their demand. The combination of these trends did not result in a significant disruption to our business in the six months ended June 30, 2020.

Cost of revenue (exclusive of depreciation and amortization). Cost of revenue increased $11.7 million, or 12%, to $105.6 million for the six months ended June 30, 2020, from $94.0 million for the six months ended June 30, 2019.

The total cost of revenue as a percentage of revenue increased to 70% for the six months ended June 30, 2020, compared to 69% in the corresponding period in 2019, as we sourced increased media at slightly lower margins, and incurred increased reward fulfillment expense, as we tested certain changes to the consumer flows and experience during the second quarter.

Sales and marketing. Sales and marketing expenses decreased $0.8 million, or 12%, to $5.7 million for the six months ended June 30, 2020, from $6.5 million for the six months ended June 30, 2019. For the six months ended June 30, 2020 and 2019, the amounts consisted mainly of employee salaries and benefits of $4.6 million and $4.6 million, non-cash share-based compensation expense of $0.5 million and $0.5 million, and advertising costs of $0.4 million and $0.9 million, respectively. The reduction in sales and marketing expenses derived primarily from reduced advertising costs.

Product development.Product development increased $1.4, or 32%, to $5.8 million for the six months ended June 30, 2020, from $4.4 million for the six months ended June 30, 2019, partly owing to the development of new media properties. For the six months ended June 30, 2020 and 2019, the amounts consisted mainly of salaries and benefits of $4.4 million and $3.8 million, non-cash share-based compensation expense of $0.5 million and $0.5 million, and software license and maintenance costs of $0.4 million and $0.0 million, respectively.

General and administrative.General and administrative expenses increased $0.8 million, or 4%, to $21.1 million for the six months ended June 30, 2020, from $20.3 million for the June 30, 2019. For the six months ended June 30, 2020 and 2019, the amounts consisted mainly of employee salaries and benefits of $8.8 million and $8.0 million, non-cash share-based compensation expense of $2.7 million and $4.2 million, professional fees of $2.5 million and $3.0 million, office overhead of $2.0 million and $1.8 million, certain litigation and related costs of $2.0 million and $0.7 million, and accrued compensation expense for Put/Call Consideration from the Winopoly Acquisition of $0.5 million and $0.0 million, respectively. The increase was mainly the result of increased employee-related costs resulting from the expansion of our workforce to support growth, increase in certain litigation and related costs year over year and accrued compensation expense for Put/Call Consideration, partially offset by a decrease in non-cash share-based compensation expense and professional fees.

Depreciation and amortization.Depreciation and amortization expenses increased $1.0 million, or 15%, to $7.6 million for the six months ended June 30, 2020, from $6.6 million for the six months ended June 30, 2019, as the results of the AdParlor Acquisition are included in the current period but were not present in the prior period.

Interest expense, net. Interest expense, net, decreased $0.7 million, or 19%, to $2.9 million for the six months ended June 30, 2020, from $3.5 million for the six months ended June 30, 2019. The decrease was attributable to a lower interest rate environment and a lower average debt balance outstanding on the Refinanced Term Loan described below under "Liquidity and Capital Resources".

Income before income taxes.For the six months ended June 30, 2020, income before income taxes decreased $0.9 million, or 50%, to $0.9 million for the six months ended June 30, 2020, from $1.7 million for the six months ended June 30, 2019. The change was primarily due to an increase in cost of revenue of $11.7 million, product development of $1.4 million, goodwill impairment charge of $0.8 million, depreciation and amortization expense of $1.0 million, and general and administrative expense of $0.8 million, partially offset by an increase in revenue of $13.3 million, decrease in sales and marketing of $0.8 and decrease in interest expense of $0.7 million, discussed above.

Income taxes. Income tax benefit was $0.0 thousand and $35.0 thousand for the six months ended June 30, 2020 and 2019, respectively.

Net income. Net income of $0.9 million and $1.8 million was recognized for the six months ended June 30, 2020 and 2019, respectively, as a result of the foregoing.

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Effect of Inflation

The rates of inflation experienced in recent years have had no material impact on our financial statements. We attempt to recover increased costs by increasing prices for our services, to the extent permitted by contracts and the competitive environment within our industry.

Liquidity and Capital Resources

Cash flows ~~(used in)~~ provided by operating activities. ~~Net cash used in operating activities for~~For the ~~three~~six months ended ~~March 31,~~June 30, 2020 ~~was~~ ~~$0.2~~ ~~million~~ and 2019, net cash provided by operating activities ~~for the three months ended~~ ~~March 31, 2019~~was ~~$5.2~~$9.8 million ~~which was mainly the result~~and $13.1 million, respectively. The decline of ~~net working capital decreasing by~~ ~~$7.1~~$3.3 million ~~compared to~~ ~~$2.3~~resulted primarily from a $3.2 million ~~during the~~ ~~three months ended March 31, 2020~~reduction in changes in assets and ~~2019, respectively.~~ liabilities.

Cash flows used in investing activities. For the ~~three~~six months ended ~~March 31,~~June 30, 2020 and 2019,, net cash used in investing activities was ~~$0.6~~$2.7 million and ~~$1.7~~$2.9 million, respectively. The decrease in cash used was mainly due to $1.9 million reduced capital expenditures year over year, partially offset by cash paid for the Winopoly Acquisition in the amount of $1.4 million in the current year.

Cash flows used in financing activities. Net cash used in financing activities for the ~~three~~six months ended ~~March 31,~~June 30, 2020 and 2019 was ~~$4.7~~$5.6 million and ~~$2.5~~$6.2 million, respectively. The ~~increase~~decrease in cash used for the ~~three~~six months ended ~~March 31,~~June 30, 2020 was mainly due to ~~repayments of~~ ~~$3.0~~a $2.7 million ~~of the Refinanced Term Loan, compared to~~ ~~$0.9~~ ~~million in 2019, and repurchase of treasury stock as part of a stock repurchase program of~~ ~~$1.3~~ ~~million, partially offset by a~~ decrease in statutory taxes paid related to the net share settlement of vested restricted stock units, partially offset by an increase of ~~$0.4~~$0.8 million ~~compared to~~ ~~$1.6~~in ~~2019.~~repayment of the Refinanced Term Loan and the repurchase of treasury stock as part of a stock repurchase program of $1.3 million in 2020, which was not in effect in the prior period.

As of ~~March 31,~~June 30, 2020,, we had noncancelable operating lease commitments of ~~$12.5~~$11.9 million and long-term debt which had ~~$51.8~~$50.9 million principal balance. For the ~~three~~six months ended ~~March 31,~~June 30, 2020,, we funded our operations using available cash.

As of ~~March 31,~~June 30, 2020,, we had cash, cash equivalents and restricted cash of approximately ~~$14.6~~$21.7 million, ~~a decrease~~an increase of ~~$5.6~~$1.5 million from ~~$20.2~~$20.2 million as of December 31, ~~2019, mainly as a result of cash used in financing activities.~~2019. We believe that we will have sufficient cash resources to finance our operations and expected capital expenditures for the next twelve months and beyond.

We may explore the possible acquisition of businesses, products and/or technologies that are complementary to our existing business. We are continuing to identify and prioritize additional technologies, which we may wish to develop internally or through licensing or acquisition from third parties. While we may engage from time to time in discussions with respect to potential acquisitions, there can be no assurances that any such acquisitions will be made or that we will be able to successfully integrate any acquired business. In order to finance such acquisitions and working capital, it may be necessary for us to raise additional funds through public or private financings. Any equity or debt financings, if available at all, may be on terms which are not favorable to us and, in the case of equity financings, may result in dilution to shareholders. On July 1, 2019, we acquired substantially all of the assets of AdParlor Holdings, Inc. and certain affiliates for $7.3 million in cash, using cash on hand, and a $2.4 million promissory note to the sellers. On April 1, 2020, we acquired a 50% membership interest in Winopoly, LLC, for a deemed purchase price of $2.6 million, comprised of $1.6 million in upfront cash paid to the seller parties and contingent consideration with a fair value of $1.0 million, payable based upon the achievement of specified revenue targets over the eighteen-month period following the completion of the acquisition. See Note 11,, Business ~~acquisition~~acquisitions,, in the Notes to Consolidated Financial Statements.

As of ~~March 31,~~June 30, 2020,, the Refinanced Term Loan has an outstanding principal balance of ~~$49.3~~$48.4 million and matures on March 26, 2023. The Credit Agreement, along with the related Amendment No. 6 governing the Refinanced Term Loan and subsequent amendments, contain restrictive covenants which impose limitations on the way we conduct our business, including limitations on the amount of additional debt we are able to incur and our ability to make certain investments and other restricted payments. The restrictive covenants and prepayment penalties in the Credit Agreement, as amended, may limit our strategic and financing options and our ability to return capital to our shareholders through dividends or stock buybacks. Furthermore, we may need to incur additional debt to meet future financing needs. The Refinanced Term Loan is guaranteed by us and our direct and indirect subsidiaries and is secured by substantially all of our assets and those of our 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) base rate (generally equivalent to the U.S. prime rate) plus 6.0% per annum, payable in cash. Principal amortization of the Refinanced Term Loan is $0.9 million per quarter, ~~commencing~~which commenced with the fiscal quarter ended June 30, 2018.

The Credit Agreement, as amended, requires us to maintain and comply with certain financial and other covenants. While we were in compliance with the financial and other covenants at ~~March 31,~~June 30, 2020,, we cannot assure that we will be able to maintain compliance with such financial or other covenants. Our failure to comply with these covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all of our indebtedness, which would materially adversely affect our financial health if we are unable to access sufficient funds to repay all the outstanding amounts. Moreover, if we are unable to meet our debt obligations as they come due, we could be forced to restructure or refinance such obligations, seek additional equity financing or sell assets, which we may not be able to do on satisfactory terms, or at all. In addition, the Credit Agreement includes certain prepayment provisions, including mandatory quarterly prepayments of the Refinanced Term Loan with a portion of our excess cash flow and prepayment penalties if we prepay the Refinanced Term Loan before the fourth anniversary of Amendment No. 6. As long as the Refinanced Term Loan remains outstanding, the restrictive covenants and mandatory quarterly prepayment provisions and prepayment penalties could impair our ability to expand or pursue our business strategies or obtain additional funding.

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Off-Balance Sheet Arrangements

As of ~~March 31,~~June 30, 2020,, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.

Critical Accounting Policies and Estimates

Management's discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States ("US GAAP"). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We periodically evaluate our estimates, including those related to revenue recognition, allowance for doubtful receivables, lease commitments, useful lives of intangible assets, recoverability of the carrying amounts of goodwill and intangible assets, share-based compensation and income taxes. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

During the three months ended March 31, 2020,, we determined that the decline in market value of our publicly traded stock and the macroeconomic conditions arising from the global COVID-19 pandemic constituted an impairment triggering event for our two reporting units, Fluent and All Other. As such, we conducted an interim test of the fair value of our goodwill for potential impairment as of March 31, 2020. Based on the results of this interim impairment test, which used a combination of income and market approaches to determine the fair value of our two reporting units, we concluded that Fluent's goodwill of $159,791 and All Other's goodwill of $4,983, were not impaired since the results of the interim test indicated that the estimated fair values exceeded their carrying value by approximately 18% and 4%, respectively. We believe that the assumptions utilized in ~~our~~the interim impairment testing over our two reporting units, including the determination of an appropriate discount rate of 13.0% for Fluent and 16.5% for All Other, long-term profitability growth projections, and estimated future cash flows, are reasonable. The risk of future impairment of goodwill exists if actual results, such as lower than expected revenue, profitability, cash flows, market multiples, discount rates and control premiums, differ from the assumptions used in our interim impairment test. In addition, a sustained decline in the market value of our publicly traded stock could impact the fair value assessment.

During the three months ended June 30, 2020, we determined that the effects of the macroeconomic conditions arising from the global COVID-19 pandemic and the social unrest throughout the United States during June 2020, which changed the media-buying patterns of certain customers directly impacting the All Other reporting unit, constituted an impairment triggering event. As such, we conducted an interim test of the fair value of its goodwill for potential impairment as of June 30, 2020. The results of this interim impairment test, which used a combination of income and market approaches to determine the fair value of the All Other reporting unit, indicated that its carrying value exceeded its estimated fair value by 8.9%, we concluded that All Other's goodwill of $5.0 million was impaired by $0.8 million. We believe that the assumptions utilized in the interim impairment testing, including the determination of an appropriate discount rate of 16%, long-term profitability growth projections, and estimated future cash flows, are reasonable. The interim goodwill impairment test reflected management's best estimate of the economic impact to its business, end market conditions and recovery timelines. While no further triggering events were identified by management as of June 30, 2020, if the ongoing economic uncertainty proves to be more severe than estimated, or if the economic recovery takes longer to materialize or does not materialize as strongly as anticipated, this could result in future impairment charges.

For additional information, please refer to our 2019 Form 10-K. There have been no additional material changes to Critical Accounting Policies and Estimates disclosed in the 2019 Form 10-K.

Recently issued accounting and adopted standards

See Note 1(b), "Recently issued and adopted accounting standards," in the Notes to Consolidated Financial Statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of ~~March 31, 2020~~.June 30, 2020. We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based on the evaluation of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934), the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were not effective as of ~~March 31, 2020~~.June 30, 2020. As described below and as previously reported in our 2019 Form 10-K, in connection with management’s assessment of the effectiveness of our internal control over financial reporting at the end of our last fiscal year, management identified a material weakness in our internal control over financial reporting as of December 31, 2018, which was not remediated as of December 31, 2019 and which is in the process of being remediated as of ~~March 31,~~June 30, 2020.

On July 1, 2019, we acquired substantially all of the assets of AdParlor Holdings, LLC and certain of its affiliates, as described in Note 11,, Business ~~acquisition~~acquisitions. As permitted by the SEC Staff interpretive guidance for newly acquired businesses, management's assessment of our internal control over financial reporting as of ~~March 31,~~June 30, 2020 did not include an assessment of those disclosure controls and procedures that are subsumed by internal control over financial reporting as it relates to the AdParlor Acquisition. We will continue the process of implementing internal controls over financial reporting for the AdParlor business. As of ~~March 31,~~June 30, 2020,, assets and ~~revenues~~revenue excluded from management's assessment totaled ~~6.0%~~4.7% and 1.7%, respectively, of total assets and revenue for the six months ended June 30, 2020.

On April 1, 2020, we acquired a 50% membership interest in Winopoly, LLC which is consolidated in our condensed consolidated financial statements as a VIE, as described in Note 11, Business acquisitions, in the Notes to Consolidated Financial Statements. As permitted by the SEC Staff interpretive guidance for newly acquired businesses, management's assessment of our internal control over financial reporting as of June 30, 2020 did not include an assessment of those disclosure controls and procedures that are subsumed by internal control over financial reporting as it relates to the Winopoly Acquisition. We will continue the process of implementing internal controls over financial reporting for the ~~three~~Winopoly business. As of June 30, 2020, assets and revenue excluded from management's assessment totaled 0.9% and 0.7%, respectively, of total assets and revenue for the six months ended ~~March 31, 2020~~.June 30, 2020.

Notwithstanding the identified material weakness, management believes the consolidated financial statements included in this Quarterly Report on Form 10-Q fairly represent in all material respects our financial condition, results of operations and cash flows at and for the periods presented in accordance with U.S. GAAP.

Remediation Efforts to Address Material Weakness

With the oversight of management and the audit committee of the Company’s board of directors, we are actively taking the appropriate steps towards the remediation of the underlying causes of the material weakness described above. During the third quarter of 2019, we commenced configuration of our new ERP system, NetSuite, with the first phase of our implementation completed on January 1, 2020, at which point we transitioned to NetSuite as our general ledger. While the full integration of our internal revenue tracking platforms with NetSuite remains ongoing, we believe that once NetSuite is fully integrated, its automated processes will include controls that will render unnecessary the manual preventative and detective controls that were deemed inadequate at December 31, 2019. We will continue our implementation of NetSuite, including the design of appropriate automated processes and controls, and continue to monitor, evaluate and update, as necessary, our processes and controls during the post-implementation period for an appropriate period of time before concluding that the material weakness described above has been effectively remediated.

Changes in Internal Control Over Financial Reporting

Except as noted above, there were no changes to our internal control over financial reporting during this quarter ended ~~March 31,~~June 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

Other than as disclosed below under "—Certain Legal Matters," the Company is not currently a party to any legal proceeding, investigation or claim which, in the opinion of the management, is likely to have a material adverse effect on the business, financial condition, results of operations or cash flows. Legal fees associated with legal proceedings are expensed as incurred. We review legal proceedings and claims on an ongoing basis and follow appropriate accounting guidance, including ASC 450, when making accrual and disclosure decisions. We establish accruals for those contingencies where the incurrence of a loss is probable and can be reasonably estimated, and we disclose the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued, if such disclosure is necessary for our financial statements to not be misleading. To estimate whether a loss contingency should be accrued by a charge to income, we evaluate, among other factors, the probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of the loss. We do not record liabilities when the likelihood that the liability has been incurred is probable, but the amount cannot be reasonably estimated.

In addition, we may be involved in litigation from time to time in the ordinary course of business. We do not believe that the ultimate resolution of any such matters will have a material adverse effect on our business, financial condition, results of operations or cash flows. However, the results of such matters cannot be predicted with certainty and we cannot assure you that the ultimate resolution of any legal or administrative proceeding or dispute will not have a material adverse effect on our business, financial condition, results of operations and cash flows.

Certain Legal Matters

On October 26, 2018, the Company received a subpoena from the New York Attorney General’s Office (“NY AG”) regarding compliance with New York Executive Law § 63(12) and New York General Business Law § 349, as they relate to the collection, use, or disclosure of information from or about consumers or individuals, as such information was submitted to the Federal Communication Commission (“FCC”) in connection with the FCC’s rulemaking proceeding captioned “Restoring Internet Freedom,” WC Docket No. 17-108. On December 13, 2018, the Company received a subpoena from the United States Department of Justice (“DOJ”) regarding the same issue. On March 12, 2020, the Company received a subpoena from the Office of the Attorney General of the District of Columbia ("DC AG") regarding the same issue. The Company has been fully cooperating with the NY AG, the DOJ, and the DC AG. Based on recent communications with the NY AG, ~~and~~the Company believes that a loss from these matters is ~~responding to the subpoenas. At this time,~~probable, but it is not yet possible to ~~predict~~reasonably estimate the ~~ultimate~~magnitude of such loss. However, an unfavorable outcome ~~of any of these matters or the significance, if any, to~~could have a material adverse effect on our business, results of operations or financial position.

On June 27, 2019, as a part of two sales and use tax audits covering the period from December 1, 2010 to November 30, 2019, the New York State Department of Taxation and Finance (the “Tax Department”) issued a letter stating its position that revenue derived from certain of the Company’s customer acquisition and list management services are subject to sales tax, as a result of being deemed information services. The Company disputed the Tax Department's position on several grounds, ~~and responded to the Tax Department outlining its position. On~~but on January 14 and 15, 2020, the Tax Department issued Statements of Proposed Audit Adjustment totaling $8.2 million, including $2.0 million of interest. The Company formally disagreed with the amount of the Proposed Audit ~~Adjustment~~Adjustments and met with the Tax Department on March 4, 2020. During that meeting, the Company informed the Tax Department that a majority of the Proposed Audit ~~Adjustment~~Adjustments was attributable to revenue derived from transfers which were either excluded resales or sourced outside of New York and renewed its challenge as to the taxability of its customer acquisition revenue. ~~Since that time,~~On July 22 and 31, 2020, the Company ~~has~~ received ~~revised assessments for amounts less than~~notices of determination from the ~~previous assessments; however, such assessments are open for further discussion and refinement.~~ Tax Department totaling $3.0 million, including $0.7 million of interest. Based on the foregoing, the Company ~~continues to believe~~believes that it is probable that a sales tax liability may result from this matter, and ~~continues to estimate~~has estimated the range of any such liability to be between $0.7 million and ~~$3.7~~$3.0 million. The Company has accrued a liability associated with these sales and use tax audits at the low end of this range.

On January 28, 2020, the Company received a Civil Investigative Demand (“CID”) from the FTC regarding compliance with the FTC Act or the TSR, as they relate to the advertising, marketing, promotion, offering for sale, or sale of rewards and other products, the transmission of commercial text messages, and/or consumer privacy or data security. The Company has been fully cooperating with the FTC and is responding to the CID. At this time, it is not possible to predict the ultimate outcome of this matter or the significance, if any, to our business, results of operations or financial position.

Item 1A. Risk Factors.

Our business, financial condition, results of operations, and cash flows may be impacted by a number of factors, many of which are beyond our control, including those set forth in our 2019 Form 10-K, the occurrence of any one of which could have a material adverse effect on our actual results.

There have been no material changes to the Risk Factors previously disclosed in our 2019 Form 10-K, except as noted below.

Unfavorable global economic conditions, including as a result of health and safety concerns around the ongoing COVID-19 pandemic, could adversely affect our business, financial condition and results of operations.

Our results of operations could be adversely affected by general conditions in the global economy, including conditions that are outside of our control, such as the impact of health and safety concerns from the current outbreak of the COVID-19 coronavirus. The most recent global financial crisis caused by COVID-19 has resulted in extreme volatility and disruptions in the capital and credit markets. A severe or prolonged economic downturn presents a variety of risks to our business, including the potential for weakened demand from our advertiser clients or delays in client payments. A weak or declining economy could also strain our media supply channels.

After the initial onset of the COVID-19 pandemic, certain advertisers in industry verticals such as staffing and recruitment and financial products and services began to reduce their spend with us, while certain advertisers in other verticals, such as streaming services and mobile gaming, ~~have~~ increased their demand, aswith many consumers ~~are~~ spending more time on their mobile devices during ~~this~~the period of social isolation. We have taken steps to reduce our costs of acquiring traffic and to match available consumers with other advertiser clients in the various industries we serve, thereby enabling us to effectively manage our margins during this period of uncertainty. We anticipate additional shifts in pricing and/or demand among affected clients as the trajectory of the pandemic and future economic outlook remain uncertain. While the combination of these trends did not result in a significant disruption to our business in the ~~quarter~~six months ended ~~March 31,~~June 30, 2020, the trajectory of these trends is uncertain. These trends, or others that have yet to be identified, could have a material adverse impact on our business, financial condition and results of operations in subsequent periods. The extent of any impact is uncertain and cannot be reasonably estimated at this time.

Table of Contents

Additionally, our business relies heavily on people, and adverse events such as health-related concerns about working in our offices, the inability to travel and other matters affecting the general work environment could harm our business. We implemented company-wide work-from-home beginning on March 13, 2020. While we believe we are well-positioned to adapt to a work-from-home environment, COVID-19 increases the likelihood of certain risks of disruption to our business, such as the incapacity of certain employees or system interruptions, which could lead to diminishment of our regular business operations, technological capacity and cybersecurity capabilities, as well as operational inefficiencies and reputational harm.

While we do not anticipate any material impact to our operational capabilities as a result of COVID-19, we cannot predict the impact it may have on our business due to numerous uncertainties, including the severity of the disease, the duration of the outbreak, actions that may be taken by governmental authorities, the impact to our clients’ businesses and other factors.

The expansion of our international operations subjects us to increased challenges and risks.

We have begun expanding our website offerings into additional international markets beyond the UKUnited Kingdom and we may expand further into additional countries in Europe or other regions. Our ability to manage our business and conduct our operations internationally requires considerable management attention and resources and is subject to the particular challenges of supporting a rapidly growing business in an environment of multiple languages, cultures, legal and regulatory systems, taxation regimes, and commercial infrastructures. Continued international expansion will require us to invest significant funds and other resources and may subject us to new risks that we have not faced before or increase risks that we currently face, including risks associated with:

~~compliance with applicable foreign laws and regulations and adapting to foreign customs and practices as they relate to our business;~~

•	compliance with applicable foreign laws and regulations and adapting to foreign customs and practices as they relate to our business;


•	compliance with the ~~GDPR~~General Data Protection Regulation ("GDPR") and other foreign privacy, data protection and ~~other foreign privacy, data protection~~information security laws and ~~information security laws~~regulations and ~~regulations~~the risks and ~~the risks and~~ costs of noncompliance;

•	cross-border data transfers among us, our subsidiaries, and our customers, vendors, and business partners;

•	difficulties and added costs of conducting our business in foreign languages;


•	~~difficulties~~credit risk and ~~added costs~~higher levels of ~~conducting our business~~payment fraud, as well as longer sales or collection cycles in ~~foreign languages;~~some countries;


•	~~credit risk and higher levels of payment fraud,~~compliance with anti-bribery laws, such as ~~well as longer sales or collection cycles in some countries;~~the Foreign Corrupt Practices Act;


•	~~compliance with anti-bribery laws, such as the Foreign Corrupt Practices Act;~~recruiting and retaining employees in foreign countries;

•	increased competition from local providers;


•	~~recruiting~~economic and ~~retaining employees~~political instability in ~~foreign countries;~~some countries, including as a result of health concerns, terrorist attacks and civil unrest;

~~increased competition from local providers;~~


•	~~economic and political instability in some countries, including as a result of health concerns, terrorist attacks and civil unrest;~~less protective intellectual property laws;


•	~~less protective intellectual property laws;~~


•	compliance with the laws of numerous foreign taxing jurisdictions in which we conduct business, potential double taxation of our international earnings and potentially adverse tax consequences due to changes in applicable U.S. and foreign tax laws; and


•	overall higher costs of doing business internationally.

If our revenue from our international operations does not exceed the expense of establishing and maintaining these operations, our business and operating results could suffer and we may decide to make changes to our business in an effort to mitigate losses. If are unable to successfully manage the risks and costs associated with international operations, it could adversely affect our business and/or results of operations.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not Applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.

Incorporated by Reference

Filed
Exhibit No.

Exhibit Description

Form

File No.

Exhibit

Filing Date

Herewith
3.1 Certificate of Incorporation 8-K 001-37893 3.2 3/26/2015
3.2

Certificate of Amendment to the Certificate of Incorporation.

8-K

001-37893

3.1

4/16/2018

3.3

Amended and Restated Bylaws.

8-K

001-37893

3.2

2/19/2019

4.1

Form of Common Stock Certificate.

8-K

001-37893

4.1

4/16/2018

31.1

Certification of Chief Executive Officer filed pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a) of the Securities and Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

X
31.2

Certification of Chief Financial Officer filed pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a) of the Securities and Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

X
32.1*

Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

X
32.2*

Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

X
101.INS

XBRL Instance Document

X
101.SCH

XBRL Taxonomy Extension Schema Document

X
101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

X
101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

X
101.LAB

XBRL Taxonomy Extension Label Linkbase Document

X
101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

X
*

This certification is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended or the Exchange Act.

Incorporated by Reference

Filed

Exhibit No.

Exhibit Description

Form

File No.

Exhibit

Filing Date

Herewith

3.1

Certificate of Incorporation

8-K

001-37893

3.2

3/26/2015

3.2

Certificate of Amendment to the Certificate of Incorporation.

8-K

001-37893

3.1

4/16/2018

3.3

Amended and Restated Bylaws.

8-K

001-37893

3.2

2/19/2019

4.1

Form of Common Stock Certificate.

8-K

001-37893

4.1

4/16/2018

10.1

Amendment No. 11 to Credit Agreement, dated as of April 1, 2020, by and among Fluent, Inc., Fluent, LLC as borrower, the other borrower parties thereto, WhiteHorse Finance, Inc., as administrative agent, and the other lenders party thereto.

10.2

Amendment No. 12 to Credit Agreement, dated as of May 19, 2020, by and among Fluent, Inc., Fluent, LLC as borrower, the other borrower parties thereto, WhiteHorse Finance, Inc., as administrative agent, and the other lenders party thereto.

31.1

Certification of Chief Executive Officer filed pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a) of the Securities and Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of Chief Financial Officer filed pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a) of the Securities and Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*

Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*

Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

This certification is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended or the Exchange Act.

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		Fluent, Inc.

~~May 11,~~August 10, 2020	By:	/s/ Alexander Mandel
		Alexander Mandel
		~~Alexander Mandel~~Chief Financial Officer
		~~Chief Financial Officer~~
		(Principal Financial and Accounting Officer)

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
Emerging growth company	☐

	March 31, 2020			December 31, 2019			*June 30, 2020*			*December 31, 2019*
ASSETS:
Cash and cash equivalents	$	13,086		$	18,679		$	20,218		$	18,679
Accounts receivable, net of allowance for doubtful accounts of $665 and $1,967, respectively		61,012			60,915
Accounts receivable, net of allowance for doubtful accounts of $309 and $1,967, respectively								55,304			60,915
Prepaid expenses and other current assets		1,944			1,921			1,996			1,921
Total current assets		76,042			81,515			77,518			81,515
Restricted cash		1,480			1,480			1,480			1,480
Property and equipment, net		2,684			2,863			2,566			2,863
Operating lease right-of-use assets		9,448			9,865			9,063			9,865
Intangible assets, net		52,720			55,603			51,094			55,603
Goodwill		164,774			164,774			165,088			164,774
Other non-current assets		1,106			993			1,592			993
Total assets	$	308,254		$	317,093		$	308,401		$	317,093
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable	$	15,854		$	21,574		$	11,601		$	21,574
Accrued expenses and other current liabilities		18,857			20,358			21,027			20,358
Deferred revenue		1,526			1,140			2,468			1,140
Current portion of long-term debt		4,750			6,873			9,677			6,873
Current portion of operating lease liability		2,271			2,282			2,279			2,282
Total current liabilities		43,258			52,227			47,052			52,227
Long-term debt, net		43,579			44,098			38,115			44,098
Operating lease liability, net		8,607			9,056
Operating lease liability								8,176			9,056
Other non-current liabilities		745			775			1,243			775
Total liabilities		96,189			106,156			94,586			106,156
Contingencies (See Note 10)
Contingencies (Note 10)
Shareholders' equity:
Preferred stock — $0.0001 par value, 10,000,000 Shares authorized; Shares outstanding — 0 shares for both periods		—			—
Common stock — $0.0005 par value, 200,000,000 Shares authorized; Shares issued — 79,809,417 and 78,642,078, respectively; and Shares outstanding — 76,207,613 and 75,873,679, respectively		40			39
Treasury stock, at cost — 3,601,804 and 2,768,399 shares, respectively		(9,900	)		(8,184	)
Preferred stock — $0.0001 par value, 10,000,000 Shares authorized; Shares outstanding — 0 shares for both periods								—			—
Common stock — $0.0005 par value, 200,000,000 Shares authorized; Shares issued — 79,908,985 and 78,642,078, respectively; and Shares outstanding — 76,292,587 and 75,873,679, respectively								40			39
Treasury stock, at cost — 3,616,398 and 2,768,399 shares, respectively								(9,930	)		(8,184	)
Additional paid-in capital		408,633			406,198			409,961			406,198
Accumulated deficit		(186,708	)		(187,116	)		(186,256	)		(187,116	)
Total shareholders' equity		212,065			210,937			213,815			210,937
Total liabilities and shareholders' equity	$	308,254		$	317,093		$	308,401		$	317,093

	*Common stock*				*Treasury stock*					*Additional paid-in*			*Accumulated*			*Total shareholders'*
	*Shares*		*Amount*		*Shares*		*Amount*			*capital*			*deficit*			*equity*
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 exercisable warrants 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

	Three Months Ended March 31,						*Six Months Ended June 30,*
	2020			2019			*2020*			*2019*
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	408		$	1,045		$	860		$	1,760
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,733			3,317			7,586			6,623
Non-cash interest expense		356			319			694			648
Share-based compensation expense		2,397			2,275			3,678			5,229
Goodwill impairment								817			—
Non-cash accrued compensation expenses for Put/Call Consideration								530			—
Provision for bad debt		183			—			131			189
Deferred income tax benefit		—			(35	)
Changes in assets and liabilities:
Changes in assets and liabilities, net of business acquisition:
Accounts receivable		(280	)		4,629			5,513			2,758
Prepaid expenses and other current assets		(23	)		(601	)		(75	)		(522	)
Other non-current assets		(113	)		(21	)		(599	)		(21	)
Operating lease assets and liabilities, net		(43	)		587			(81	)		1,560
Accounts payable		(5,720	)		(1,629	)		(9,973	)		(1,551	)
Accrued expenses and other current liabilities		(1,501	)		(4,929	)		(515	)		(3,762	)
Deferred revenue		386			230			1,328			202
Other		(30	)		(22	)		(62	)		—
Net cash (used in) provided by operating activities		(247	)		5,165
Net cash provided by operating activities								9,832			13,113
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisition, net of cash acquired								(1,426	)		—
Acquisition of property and equipment		(7	)		(1,385	)		(37	)		(1,894	)
Capitalized costs included in intangible assets		(625	)		(357	)		(1,211	)		(978	)
Net cash used in investing activities		(632	)		(1,742	)		(2,674	)		(2,872	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt		(2,998	)		(875	)		(3,873	)		(3,095	)
Taxes paid related to net share settlement of vesting of restricted stock units		(416	)		(1,610	)		(446	)		(3,079	)
Repurchase of treasury stock		(1,300	)		—			(1,300	)		—
Net cash used in financing activities		(4,714	)		(2,485	)		(5,619	)		(6,174	)
Net decrease in cash, cash equivalents and restricted cash		(5,593	)		938
Net increase in cash, cash equivalents and restricted cash								1,539			4,067
Cash, cash equivalents and restricted cash at beginning of period		20,159			19,249			20,159			19,249
Cash, cash equivalents and restricted cash at end of period	$	14,566		$	20,187		$	21,698		$	23,316
SUPPLEMENTAL DISCLOSURE INFORMATION
Cash paid for interest	$	1,148		$	1,402		$	2,100		$	2,810
Cash paid for income taxes	$	—		$	—		$	—		$	—
Share-based compensation capitalized in intangible assets	$	39		$	15		$	86		$	45
Non-cash additions to property and equipment	$	—		$	138		$	—		$	122
Reclassification of puttable option from liability to equity	$	—		$	1,150
Reclassification of exercisable warrants from liability to equity							$	—		$	1,150

	Three Months Ended March 31,				*Three Months Ended June 30,*				*Six Months Ended June 30,*
	2020		2019		*2020*		*2019*		*2020*		*2019*
Restricted stock units		3,216,816		2,164,404		3,412,390		110,000		2,288,573		1,740,502
Stock options		2,568,000		2,142,000		2,568,000		2,060,000		2,568,000		2,060,000
Warrants		2,398,776		1,665,443		2,183,333		1,350,000		2,183,333		1,350,000
Total anti-dilutive securities		8,183,592		5,971,847		8,163,723		3,520,000		7,039,906		5,150,502

		Page
PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)
	Consolidated Balance Sheets as of ~~March 31,~~June 30, 2020 and December 31, 2019	2
	Consolidated Statements of Operations for the three and six months ended ~~March 31,~~June 30, 2020 and 2019	3
	Consolidated Statements of Changes in Shareholders' Equity for the three and six months ended ~~March 31,~~June 30, 2020 and 2019	4
	Consolidated Statements of Cash Flows for the ~~three~~six months ended ~~March 31,~~June 30, 2020 and 2019	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22
Item 4.	Controls and Procedures	22

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	23
Item 1A.	Risk Factors	23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3.	Defaults Upon Senior Securities	25
Item 4.	Mine Safety Disclosures	25
Item 5.	Other Information	25
Item 6.	Exhibits	25
Signatures		26

	Common stock					Treasury stock					Additional paid-in			Accumulated			Total shareholders'			*Common stock*					*Treasury stock*					*Additional paid-in*			*Accumulated*			*Total shareholders'*
																				*Shares*			*Amount*		*Shares*		*Amount*			*capital*			*deficit*			*equity*
Balance at March 31, 2020																					79,809,417		$	40		3,601,804	$	(9,900	)	$	408,633		$	(186,708	)	$	212,065
Vesting of restricted stock units and issuance of restricted stock																					99,568			—		—		—			—			—			—
Increase in treasury stock resulting from shares withheld to cover statutory taxes																					—			—		14,594		(30	)		—			—			(30	)
Share-based compensation																					—			—		—		—			1,328			—			1,328
Net income																					—			—		—		—			—			452			452
Balance at June 30, 2020																					79,908,985		$	40		3,616,398	$	(9,930	)	$	409,961		$	(186,256	)	$	213,815
	Shares			Amount		Shares		Amount			capital			deficit			equity
Balance at December 31, 2019		78,642,078		$	39		2,768,399	$	(8,184	)	$	406,198		$	(187,116	)	$	210,937			78,642,078		$	39		2,768,399	$	(8,184	)	$	406,198		$	(187,116	)	$	210,937
Vesting of restricted stock units and issuance of restricted stock		1,467,339			1		—		—			(1	)		—			—			1,566,907			1		—		—			(1	)		—			—
Increase in treasury stock resulting from shares withheld to cover statutory taxes		—			—		175,732		(416	)		—			—			(416	)		—			—		190,326		(446	)		—			—			(446	)
Repurchase of shares into treasury stock		—			—		657,673		(1,300	)		—			—			(1,300	)		—			—		657,673		(1,300	)		—			—			(1,300	)
Exercise of a Put Right by certain warrant holders (See Note 7)		(300,000	)		—		—		—			—			—			—
Exercise of warrants by certain warrant holders (see note 7)																					(300,000	)		—		—		—			—			—			—
Share-based compensation		—			—		—		—			2,436			—			2,436			—			—		—		—			3,764			—			3,764
Net income		—			—		—		—			—			408			408			—			—		—		—			—			860			860
Balance at March 31, 2020		79,809,417		$	40		3,601,804	$	(9,900	)	$	408,633		$	(186,708	)	$	212,065

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		1,077,608			1		—		—			(1	)		—			—
Increase in treasury stock resulting from shares withheld to cover statutory taxes		—			—		321,631		(1,610	)		—			—			(1,610	)
Reclassification of puttable option from liability to equity		—			—		—		—			1,150			—			1,150
Share-based compensation		—			—		—		—			2,290			—			2,290
Net income		—			—		—		—			—			1,045			1,045
Balance at March 31, 2019		77,603,189		$	39		1,554,829	$	(4,882	)	$	399,208		$	(184,324	)	$	210,041
Balance at June 30, 2020																					79,908,985		$	40		3,616,398	$	(9,930	)	$	409,961		$	(186,256	)	$	213,815

	Amortization period (in years)		March 31, 2020			December 31, 2019			*Amortization period (in years)*		*June 30, 2020*			*December 31, 2019*
Gross amount:
Software developed for internal use		3	$	5,473		$	4,866			3	$	5,987		$	4,866
Acquired proprietary technology		4-5		13,719			13,661			3-5		14,638			13,661
Customer relationships		6-10		37,286			37,286			5-10		37,886			37,286
Trade names		4-20		16,657			16,657			4-20		16,657			16,657
Domain names		20		191			191			20		191			191
Databases		5-10		31,292			31,292			5-10		31,292			31,292
Non-competition agreements		2-5		1,768			1,768			2-5		1,768			1,768
Total gross amount				106,386			105,721					108,419			105,721
Accumulated amortization:
Software developed for internal use				(2,369	)		(1,995	)				(2,752	)		(1,995	)
Acquired proprietary technology				(10,232	)		(9,516	)				(11,021	)		(9,516	)
Customer relationships				(20,689	)		(19,396	)				(22,011	)		(19,396	)
Trade names				(3,583	)		(3,359	)				(3,806	)		(3,359	)
Domain names				(41	)		(39	)				(44	)		(39	)
Databases				(15,084	)		(14,182	)				(15,987	)		(14,182	)
Non-competition agreements				(1,668	)		(1,631	)				(1,704	)		(1,631	)
Total accumulated amortization				(53,666	)		(50,118	)				(57,325	)		(50,118	)
Net intangible assets:
Software developed for internal use				3,104			2,871					3,235			2,871
Acquired proprietary technology				3,487			4,145					3,617			4,145
Customer relationships				16,597			17,890					15,875			17,890
Trade names				13,074			13,298					12,851			13,298
Domain names				150			152					147			152
Databases				16,208			17,110					15,305			17,110
Non-competition agreements				100			137					64			137
Total intangible assets, net			$	52,720		$	55,603				$	51,094		$	55,603

Year	March 31, 2020		*June 30, 2020*
Remainder of 2020	$	10,519	$	7,266
2021		11,262		11,674
2022		9,444		10,341
2023		4,714		4,912
2024		4,350		4,470
2025 and thereafter		12,431		12,431
Total	$	52,720	$	51,094

	*Fluent*		*All Other*			*Total*
Balance as of December 31, 2019	$	159,791	$	4,983		$	164,774
Winopoly Acquisition		1,131		—			1,131
Goodwill impairment		—		(817	)		(817	)
Balance as of June 30, 2020	$	160,922	$	4,166		$	165,088

Issuance Date	February 1, 2019			December 20, 2019			March 1, 2020
Fair value lower range	$	2.81		$	1.58		$	1.46
Fair value higher range	$	2.86		$	1.61		$	1.49
Exercise price	$	4.72		$	2.56		$	2.33
Expected term (in years)		1.0 - 1.3			1.0 - 1.6			1.0 - 1.5
Expected volatility		65	%		70	%		70	%
Dividend yield		—	%		—	%		—	%
Risk-free rate		2.61	%		1.85	%		1.05	%

	Number of options			Weighted average exercise price per share		Weighted average remaining contractual term (in years)		Aggregate intrinsic value		*Number of options*			*Weighted average exercise price per share*		*Weighted average remaining contractual term (in years)*		*Aggregate intrinsic value*
Outstanding as of December 31, 2019		2,120,000		$	5.21		8.7	$	—		2,120,000		$	5.21		8.7	$	—
Granted		478,000		$	2.48		9.8				478,000		$	2.48		9.5
Expired		(30,000	)	$	7.14		—				(30,000	)	$	7.14		—
Outstanding as of March 31, 2020		2,568,000		$	5.21		9.0	$	—
Options exercisable as of March 31, 2020		1,086,000		$	4.82		8.3	$	—
Outstanding as of June 30, 2020											2,568,000		$	4.34		8.6	$	—
Options exercisable as of June 30, 2020											1,086,000		$	4.82		8.1	$	—

	Number of units			Weighted average grant-date fair value		*Number of units*			*Weighted average grant-date fair value*
Unvested as of December 31, 2019		3,394,370		$	8.03		3,394,370		$	8.03
Granted		1,214,326		$	2.35		1,545,032		$	2.03
Vested and delivered		(1,291,607	)	$	3.56		(1,376,581	)	$	3.58
Withheld as treasury stock (1)		(175,732	)	$	3.92		(190,326	)	$	4.04
Vested not delivered (2)		520,334		$	2.83		525,334		$	2.84
Forfeited		(48,184	)	$	3.85		(161,506	)	$	2.77
Unvested as of March 31, 2020		3,613,507		$	7.16
Unvested as of June 30, 2020							3,736,323		$	6.83

	*June 30*		*December 31*
	*2020*		*2019*
Total assets:
Fluent	$	293,917	$	296,714
All Other		14,484		20,379
Total assets	$	308,401	$	317,093

	March 31		December 31
	2020		2019
Total assets:
Fluent	$	289,795	$	296,714
All Other		18,459		20,379
Total assets	$	308,254	$	317,093