3. Acquisition

Q Interactive Acquisition

To expand and strengthen the Company’s marketing services business, on June 8, 2016 (the “Effective Date of Q Interactive Acquisition”), the Company entered into and consummated the transactions contemplated by a Membership Interest Purchase Agreement with Selling Source, LLC (“Selling Source”), the seller, pursuant to which the Company acquired all of the issued and outstanding membership interests (the “Membership Interests”) in Q Interactive, LLC (“Q Interactive”), a Delaware limited liability company (the “Q Interactive Acquisition”).

As consideration for the Membership Interests, after preliminary adjustment for Q Interactive’s net working capital at closing, the Company issued to Selling Source 2,369,190 shares of the Company’s common stock, par value $0.0005 per share. Selling Source may receive additional consideration for the Membership Interests if 2016 gross revenue of Q Interactive equals or exceeds $25,000 (the “Earn-out Target”). Such additional consideration, if earned, would be paid in either of the following ways, at the seller’s option, no earlier than the one-year anniversary of the closing date (the “Q Interactive Earn-out Shares”): (i) 1,200,000 shares of common stock (subject to adjustment for certain capital events) or (ii) that number of shares of common stock equal to $10,000, in the aggregate, as determined by the volume weighted average price of the common stock for the ten trading days immediately preceding Selling Source’s receipt of a statement prepared by the Company stating the Earn-out Target has been achieved. Based on management’s preliminary assessment in 2016, the Company concluded that it was extremely likely that Q Interactive would meet the Earn-out Target, and the estimated fair value of the Q Interactive Earn-out Shares is $10,000. As of December 31, 2016, after certain measurement period adjustments, including the finalization of the closing working capital adjustment, the net balance of contingent consideration payable in stock of $10,225 was recognized. During the three months ended March 31, 2017, it was concluded that the Earn-out Target had been met and the acquisition consideration payable in stock is expected to be settled in 2017, however, it is classified as a non-current liability in the condensed consolidated balance sheets because this liability will be settled with the Company’s common stock. We used the probability-weighted method to determine the fair value of the contingent consideration payable in stock as of March 31, 2017, and this fair value assessment represents Level 3 measurements.

The following table summarizes the preliminary purchase price allocation and the fair value of the net assets acquired and liabilities assumed (marked to market), and the resulting amount of goodwill in the Q Interactive Acquisition (the legal and accounting acquiree) at the Effective Date of the Q Interactive Acquisition.

(In thousands)
Assets acquired:
Accounts receivable	$	4,673
Prepaid expenses and other current assets		213
Property and equipment		73
Intangible assets:
Customer relationships		4,900
Trade names		1,700
Acquired proprietary technology		2,150
Databases		4,800
Non-competition agreements		1,040
Total intangible assets		14,590
Total assets acquired		19,549
Liabilities assumed:
Trade accounts payable		2,297
Accrued expenses and other current liabilities		1,153
Deferred revenue		52
Total liabilities assumed		3,502
Goodwill		5,384
Total consideration	$	21,431

The intangible assets acquired in the Q Interactive Acquisition are amortized on a straight-line basis over the estimated useful lives. The useful lives for customer relationships, trade names, acquired proprietary technology, databases and non-competition agreements are 10 years, 20 years, 5 years, 5 years and 2 years, respectively, and the weighted average useful life for these acquired intangible assets with definite useful lives is 8 years.

Goodwill from the Q Interactive Acquisition principally relates to intangible assets that do not qualify for separate recognition, including the assembled workforce and synergies. Goodwill is tax deductible for income tax purposes and was assigned to the Information Services and Performance Marketing reporting segments in the amount of $1,765 and $3,619, respectively.

The fair value of assets acquired and liabilities assumed from the Q Interactive Acquisition was based on a preliminary valuation and our estimates and assumptions are subject to change within the measurement period. The primary area of the purchase price not yet finalized is related to contingent consideration, as described above. Measurement period adjustments will be applied to the period that the adjustment is identified in our consolidated financial statements.

Q Interactive Integration

On January 18, 2017, the Company’s management and Board of Directors approved a plan to merge and fully integrate Q Interactive’s business into Fluent, LLC (“Fluent”), a wholly-owned subsidiary of the Company (the “Q Interactive Integration”). As a result, Q Interactive became a wholly-owned subsidiary of Fluent. We expect little or no customer or revenue attrition associated with the Q Interactive Integration.

As a result of the cost synergies we will achieve through the Q Interactive Integration, we expect to realize annualized savings in our operating expenses of approximately $4,500 beginning in the second quarter of 2017. An aggregate of $668 in restructuring costs associated with the Q Interactive Integration was recognized in general and administrative expenses during the three months ended March 31, 2017, which was assigned to the Information Services and Performance Marketing segments in the amount of $200 and $468, respectively. Also, we wrote off the remaining balance of certain long-lived assets of $3,626, primarily relating to trade names and acquired proprietary technology acquired in the Q Interactive Acquisition, in the first quarter of 2017, and recognized it in the operating expenses as a write-off of long-lived assets.