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Note 8 - Share-based Compensation

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

8. Share-based compensation

On June 8, 2022, the stockholders of the Company approved the Fluent, Inc. 2022 Omnibus Equity Incentive Plan (the "2022 Plan") that authorized for issuance 15,422,523 shares of the Company's common stock. As of September 30, 2023, the Company had 5,598,650 shares of common stock available for grants pursuant to the 2022 Plan, which includes 946,071 shares of common stock previously available for issuance under the 2018 Stock Incentive Plan.

The primary purpose of the 2022 Plan and prior plans is to attract, retain, reward, and motivate certain individuals by providing them with opportunities to acquire or increase their ownership interests in the Company. In October 2022, the Company issued to certain of its senior officers and employees, restricted stock units ("RSUs") (time-based vesting), long-term incentive grants (performance and time-based vesting RSUs), or performance share units ("PSUs") (achievement of performance targets settled in cash) under the 2022 Plan.

Stock options

The Compensation Committee of the Company's Board of Directors approved the grant of stock options to certain Company executives, which were issued on February 1, 2019, December 20, 2019, March 1, 2020, and March 1, 2021. Subject to continuing service, 50% of the shares subject to these stock options will vest if the Company's stock price remains above 125.00%, 133.33%, 133.33% and 133.33%, respectively, of the exercise price for 20 consecutive trading days, and the remaining 50% of the shares subject to these stock options will vest if the Company's stock price remains above 156.25%, 177.78%, 177.78% and 177.78%, respectively, of the exercise price for 20 consecutive trading days; provided, that no shares will vest prior to the first anniversary of the grant date. As of September 30, 2023, the first condition for the stock options issued on February 1, 2019, December 20, 2019 and March 1, 2020 had been met and the second condition for the stock options issued on December 20, 2019 and March 1, 2020 had been met. Any shares that remain unvested as of the fifth anniversary of the grant date will vest in full on such date. The fair value of the stock options granted was estimated at the trading day before the date of grant using a Monte Carlo simulation model. The key assumptions utilized to calculate the grant-date fair values for these awards are summarized below:

Issuance Date		February 1, 2019				December 20, 2019				March 1, 2020				March 1, 2021
Fair value lower range		$	2.81			$	1.58			$	1.46			$	4.34
Fair value higher range		$	2.86			$	1.61			$	1.49			$	4.43
Exercise price		$	4.72			$	2.56			$	2.33			$	6.33
Expected term (in years)			1.0 - 1.3				1.0 - 1.6				1.0 - 1.5				1.0 - 1.3
Expected volatility			65	%			70	%			70	%			80	%
Dividend yield			—	%			—	%			—	%			—	%
Risk-free rate			2.61	%			1.85	%			1.05	%			1.18	%

FLUENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

(unaudited)

For the nine months ended September 30, 2023, details of stock option activity were as follows:

		*Number of options*				*Weighted average exercise price per share*				*Weighted average remaining contractual term (in years)*				*Aggregate intrinsic value*
Outstanding as of December 31, 2022			2,139,000			$	4.37				6.3			$	—
Granted			—				—				—				—
Exercised			—				—				—				—
Forfeited			(308,000	)			—				—				—
Outstanding as of September 30, 2023			1,831,000			$	4.32				5.6			$	—
Options exercisable as of September 30, 2023			1,088,000			$	3.88				5.6			$	—

The aggregate intrinsic value amounts in the table above represent the difference between the closing price of the Company's common stock at the end of the reporting period and the corresponding exercise prices, multiplied by the number of in-the-money stock options as of the same date.

For the nine months ended September 30, 2023, the unvested balance of stock options was as follows:

		*Number of stock options*				*Weighted average exercise price per share*				*Weighted average remaining contractual term (in years)*
Unvested as of December 31, 2022			897,000			$	4.91				6.3
Granted			—				—				—
Forfeited			(154,000	)			—				—
Vested			—				—				—
Unvested as of September 30, 2023			743,000			$	4.95				5.6

Compensation expense recognized for stock options of $0 and $0 for the three months ended September 30, 2023 and 2022, respectively, and $0 and $125 for the nine months ended September 30, 2023 and 2022, respectively, was recorded in sales and marketing, product development and general and administrative expenses in the consolidated statements of operations. As of September 30, 2023, there was $0 of unrecognized share-based compensation with respect to outstanding stock options.

FLUENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

(unaudited)

Restricted stock units and restricted stock

For the nine months ended September 30, 2023, details of unvested RSU activity were as follows:

		*Number of units*				*Weighted average grant-date fair value*
Unvested as of December 31, 2022			4,223,156			$	5.37
Granted			3,487,110			$	0.89
Vested and delivered			(1,106,852	)		$	3.09
Withheld as treasury stock ⁽¹⁾			(311,417	)		$	1.82
Vested not delivered ⁽²⁾			(19,592	)		$	1.41
Forfeited			(773,030	)		$	1.49
Unvested as of September 30, 2023			5,499,375			$	4.09

(1)

As discussed in Note 7, Common stock, treasury stock and warrants, the increase in treasury stock was due to shares withheld to cover statutory withholding taxes upon the delivery of shares following vesting of RSUs. As of September 30, 2023, there were 4,611,569 outstanding shares of treasury stock.

(2)

Vested not delivered represents vested RSUs with delivery deferred to a future time. For the nine months ended September 30, 2023, there was a net increase in the vested not delivered balance as a result of the vesting of the 19,592 shares that were deferred due to timing of delivery of certain shares. As of September 30, 2023, 1,719,592 outstanding RSUs were vested not delivered.

Compensation expense recognized for RSUs of $982 and $818 for the three months ended September 30, 2023 and 2022, respectively, and $3,090 and $2,595 for the nine months ended September 30, 2023 and 2022, respectively, was recorded in sales and marketing, product development and general and administrative in the consolidated statements of operations, and intangible assets, net in the consolidated balance sheets. The fair value of the RSUs and restricted stock was estimated using the closing prices of the Company's common stock on the dates of grant.

As of September 30, 2023, unrecognized share-based compensation expense associated with the granted RSUs and stock options amounted to $4,757, which is expected to be recognized over a weighted average period of 1.3 years.

For the three and nine months ended September 30, 2023 and 2022, share-based compensation for the Company's stock options, RSUs, and common stock awards were allocated to the following accounts in the consolidated financial statements:

		*Three Months Ended September 30,*								*Nine Months Ended September 30,*
		*2023*				*2022*				*2023*				*2022*
Sales and marketing		$	123			$	107			$	419			$	420
Product development			158				125				485				383
General and administrative			680				569				2,114				1,849
Share-based compensation expense			961				801				3,018				2,652
Capitalized in intangible assets			21				17				72				68
Total share-based compensation		$	982			$	818			$	3,090			$	2,720

As of September 30, 2023, the Company recorded a liability of $15 related to PSUs that are to be settled in cash.

FLUENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

(unaudited)