Fluent, Inc. Fair Value Disclosure
9. Fair Value Measurements
The fair value of the Company's cash, cash equivalents, restricted cash, accounts receivable, accounts payable, and accrued liabilities approximate their carrying values because of the short-term nature of these instruments. Restricted cash includes a separately maintained cash account, as required under the terms of a lease agreement the Company entered into on October 10, 2018 for office space in New York City.
| December 31, 2024 | December 31, 2023 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | |||||||||||||||||||
| Assets: | ||||||||||||||||||||||||
| Restricted cash | $ | 1,255 | — | — | $ | — | — | — | ||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||
| Long term debt, net(1) | — | 33,045 | — | — | 31,250 | — | ||||||||||||||||||
| Convertible Notes, with related parties | — | — | 3,720 | — | — | — | ||||||||||||||||||
| Contingent consideration in connection with TAPP consolidation(2) | — | — | 988 | — | — | 1,950 | ||||||||||||||||||
| (1) | Inclusive of the credit facilities and notes payable. The debt fair value does not include debt issuance costs or debt discount. See Note 8, Long-term debt, net. |
| (2) | Balance recorded in prepaid and other expenses and other non-current assets with changes to the balance as a result of adjustment of the fair value related to the initial discount rate and payments made. See Note 14, Variable Interest Entity, for initial assumptions of the fair value. |
Convertible Notes, with related parties
The Company issued the Convertible Notes on August 19, 2024 and elected the fair value option, see Note 8, Long-term debt, net. The following is a reconciliation of the fair value from the issuance date of such notes to December 31, 2024:
| Amount | ||||
| Fair value as of August 19, 2024 | $ | 4,160 | ||
| (Gain) loss on change in fair value reported in the consolidated statement of operations | (440 | ) | ||
| Fair value as of December 31, 2024 | $ | 3,720 | ||
As the Convertible Notes mature on April 2, 2029, and bear interest at 13% per annum paid in kind but may be converted into shares of the Company’s common stock (the "call option"), the estimated fair value is computed as the sum of (a) the present value of the expected interest and principal payments using the discounted cash flow method based on an estimated discount rate and (b) the fair value of the call option computer using the Black-Scholes model. Both approaches are based on the following assumptions:
| Assumptions | December 31, 2024 | |||
| Face value of principal payable | $ | 2,148 | ||
| Conversion price | 3.04 | |||
| Value of common stock | 2.52 | |||
| Contractual term (years) | 4.3 | |||
| Volatility | 79.0 | % | ||
| Risk free rate | 3.8 | % | ||
| Discount rate | 16.8 | % | ||
Contingent Consideration
In connection with the contingent consideration received related to the consolidation of TAPP, the Company had to determine the fair value of the identified assets acquired and liabilities assumed. The Company determined that the estimated fair value of the net assets acquired, excluding the net working capital, was a Level 3 measurement, as certain inputs to determine fair value were unobservable. See Note 14, Variable Interest Entity.
| Amount | ||||
| Fair value as of December 31, 2023 | $ | 1,950 | ||
| Payment for annual bonus | (1,083 | ) | ||
| Adjustment to compensation expense | 121 | |||
| Fair value as of December 31, 2024 | $ | 988 | ||
The fair value of certain long-lived non-financial assets and liabilities may be required to be measured on a nonrecurring basis in certain circumstances, including when there is evidence of impairment. As of December 31, 2024, certain non-financial assets have been measured at fair value subsequent to their initial recognition. The Company determined the estimated fair value to be a Level 3 measurement, as certain inputs used to determine fair value are unobservable. See Note 7, Goodwill.
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.