What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-05-06 compared with 2020-11-09 · 112 added, 247 removed, 262 unchanged (58% of the section changed)

3 unchanged sentences

(in thousands, except per share and share data)

September 30,

Cash and cash equivalents

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75,000,000 shares authorized;

27,719,753 and 25,670,737 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively

32,676,286 and 31,799,354 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively

Additional paid-in capital

9 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Cost of revenue (exclusive of amortization shown separately below)

Operating expenses:

Cost of revenue

Sales and marketing

5 unchanged sentences

Loss before provision for income taxes

Provision for (benefit from) income taxes

Provision for income taxes

Net loss per share:

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Comprehensive loss:

Unrealized gain on marketable securities, net of income taxes

Foreign currency translation gain (loss), net of income taxes

Foreign currency translation gain, net of income taxes

Total comprehensive loss

3 unchanged sentences

(in thousands, except share amounts)

Three Months Ended September 30, 2020

Comprehensive

Balance as of June 30, 2020

Common stock offerings, net

Common stock issued under employee stock plans, net

Release of Machine Box holdback consideration

Stock-based compensation expense

Other comprehensive gain

Balance as of September 30, 2020

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

Comprehensive

Balance as of December 31, 2020

Common stock offerings, net

Common stock issued under employee stock plans, net

Release of Machine Box holdback consideration

Common stock issued for services

Stock-based compensation expense

Exercise of warrants

Issuance of warrants

Other comprehensive gain

Balance as of September 30, 2020

The accompanying notes are an integral part of these condensed consolidated financial statements.

VERITONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share amounts)

Three Months Ended September 30, 2019

Comprehensive

Balance as of June 30, 2019

Common stock offerings, net

Common stock issued under employee stock plans, net

Machine Box holdback consideration

Common stock issued for acquisitions

Stock-based compensation expense

Other comprehensive loss

Balance as of September 30, 2019

Nine Months Ended September 30, 2019

Balance as of March 31, 2021

Three Months Ended March 31, 2020

Comprehensive

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Common stock issued under employee stock plans, net

Machine Box holdback consideration

Common stock issued for acquisitions

Stock-based compensation expense

Other comprehensive gain

Balance as of September 30, 2019

Balance as of March 31, 2020

The accompanying notes are an integral part of these condensed consolidated financial statements.

2 unchanged sentences

(in thousands)

Nine Months Ended

September 30,

Three Months Ended

Cash flows from operating activities:

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and amortization

Deferred income taxes, net

Warrant expense

Loss on disposal of fixed assets

Loss on sublease

Change in fair value of warrant liability

4 unchanged sentences

Expenditures billable to clients

Prepaid expenses and other assets

Prepaid expenses and other current assets

Accounts payable

3 unchanged sentences

Other liabilities

Net cash provided by (used in) operating activities

Net cash provided by operating activities

Cash flows from investing activities:

Proceeds from sales of marketable securities

Proceeds from the sale of equipment

Capital expenditures

Intangible assets acquired

Acquisition of businesses, net of cash acquired

Net cash (used in) provided by investing activities

Net cash used in investing activities

Cash flows from financing activities:

Proceeds from common stock offerings, net

Proceeds from loan

Repayment of loan

Proceeds from the exercise of warrants

1 unchanged sentence

Net cash provided by financing activities

Net increase in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash, beginning of period

Cash, cash equivalents and restricted cash, end of period

Net increase in cash and cash equivalents and restricted cash

Cash and cash equivalents and restricted cash, beginning of period

Cash and cash equivalents and restricted cash, end of period

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Veritone, Inc., a Delaware corporation (“Veritone”) (together with its wholly owned subsidiaries, collectively, the “Company”), is a provider of artificial intelligence (“AI”) computing solutions.

The Company’s AI platform, aiWARE TM , incorporates proprietary technologies that perform a wide variety of functions, including mimicking traditional human cognitive tasks such as perception, prediction and problem solving, in order to more effectively and efficiently transform unstructured data into structured data and automate and improve core processes, insights and decision-making.

aiWARE is based on an open architecture that enables new cognitive engines and applications to be added more efficiently, resulting in a future-proof, scalable and evolving solution that can be leveraged across a broad range of industries, including media and entertainment, government, legal and compliance, and other vertical markets.

The Company’s proprietary AI operating system, aiWARE TM , uses machine learning algorithms, or AI models, together with a suite of powerful applications, to reveal valuable insights from vast amounts of structured and unstructured data.

The platform offers capabilities that mimic human cognitive functions such as perception, prediction and problem solving, enabling users to quickly, efficiently and cost effectively transform unstructured data into structured data, and analyze and optimize data to drive business processes and insights.

aiWARE is based on an open architecture that enables new AI models, applications and workflows to be added quickly and efficiently, resulting in a future-proof, scalable and evolving solution that can be leveraged by organizations across a broad range of industries, including media and entertainment, government, legal and compliance, energy and other vertical markets.

The Company also offers cloud-native digital content management solutions and content licensing services, primarily to customers in the media and entertainment market.

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The information included in this Form 10-Q should be read in conjunction with the information included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 5, 2021.

Interim results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results the Company will have for the full year ending December 31, 2020.

Interim results for the three months ended March 31, 2021 are not necessarily indicative of the results the Company will have for the full year ending December 31, 2021.

The accompanying condensed consolidated financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which are normal, recurring and necessary to fairly state the Company’s financial position, results of operations and cash flows.

All significant intercompany transactions have been eliminated in consolidation.

The financial data and the other information disclosed in these notes to the condensed consolidated financial statements reflected in the three and nine month periods presented are unaudited.

The financial data and the other information disclosed in these notes to the condensed consolidated financial statements reflected in the three month periods presented are unaudited.

The December 31, 2020 balance sheet included herein was derived from the audited financial statements but does not include all disclosures or notes required by GAAP for complete financial statements.

Reclassifications

Certain reclassifications to other assets have been made to prior year amounts for consistency and comparability with the current year’s financial statements presentation.

These reclassifications had no effect on the reported total assets and liabilities.

Amortization expense, which was presented in prior year periods within cost of revenue, sales and marketing, research and development, and general and administrative operating expenses, has been reclassified and is presented as a single separate line item in operating expenses.

Gross profit, which was previously reflected in the statement of operations and comprehensive loss, is no longer presented.

Additionally, cost of revenue, which was presented in prior periods within gross profit, is now presented as an operating expense.

The Company believes that this presentation more accurately reflects the Company’s cost of revenue and operating expenses.

The reclassification had no effect on reported net loss.

These reclassifications had no effect on reported net loss.

Liquidity and Capital Resources

During the years ended December 31, 2019 and 2018, the Company generated negative cash flows from operations of $ 30,117 and $ 41,770 , respectively, and incurred net losses of $ 62,078 and $ 61,104 , respectively.

In the nine months ended September 30, 2020, the Company generated cash flows from operations of $ 1,282 and incurred a net loss of $ 35,490 .

As of September 30, 2020, the Company had an accumulated deficit of $ 267,979 .

Historically, the Company has satisfied its capital needs with the net proceeds from sales of equity securities, issuances of convertible

debt, and the exercise of common stock warrants.

In the first nine months of 20 20 , the Company raised net proceeds of $ 5,996 through sales of its common stock under an E quity D istribution A greement dated June 1, 2018 (the “Equity Distribution Agreement”) .

In the first nine months of 2020, the Company received net proceeds of $ 2,100 through the exercise of common stock warrants.

As of September 30 , 2020, the Company’s cash and cash equivalents totaled $ 54,315 .

In April 2020, the Company applied and was approved for unsecured loans under the Paycheck Protection Program (the “PPP”) established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) in the aggregate amount of $ 6,491 .

The Company believes that it qualified to apply for and receive the funds pursuant to the provisions of the CARES Act and the guidance in effect at that time.

However, in light of (i) revised guidance that was issued by the Small Business Administration subsequent to the Company’s receipt of the PPP Loans, and (ii) the improvement in the Company’s business outlook and access to the capital markets, the Board of Directors of the Company determined to repay the full amount of the PPP Loans.

The Company completed the repayment of the PPP Loans in May 2020.

During the years ended December 31, 2020 and 2019, the Company generated cash flows from operations of $ 1,433 and negative cash flows from operations of $ 30,432 , respectively, and incurred net losses of $ 47,876 and $ 62,078 , respectively.

In the three months ended March 31, 2021, the Company generated cash flows from operations of $ 6,209 and incurred a net loss of $ 30,567 .

As of March 31, 2021, the Company had an accumulated deficit of $ 310,932 .

Historically, the Company has satisfied its capital needs with the net proceeds from sales of

equity securities, issuance s of convertible debt, and the exercise of common stock options and warrants.

In 2020, the Company completed an offering of its common stock for aggregate net proceeds of $ 59,771 and raised additional net proceeds of $ 5,986 through sales of its common stock under an E quity D istribution A greement dated June 1, 2018 (the “Equity Distribution Agreement”) .

In the first three months of 202 1 , the Company received net proceeds of $ 4,254 from the issuance of common stock under the Company’s employee stock plan s and $ 2,279 from the exercise of common stock warrants.

The Company expects to continue to generate net losses for the foreseeable future as it makes significant investments in developing and selling its aiWARE SaaS solutions.

Also, the Company will continue to evaluate potential acquisitions of, or investments in, companies or technologies that complement its business, which acquisitions may require the use of cash.

Management believes that the Company’s existing balances of cash and cash equivalents will be sufficient to meet its anticipated cash requirements for at least twelve months from the date that these financial statements are issued.

However, the Company does not expect that its current cash and cash equivalents will be sufficient to support the development of its business to the point at which the Company has continued positive cash flows from operations, particularly if it uses cash to finance any acquisitions or investments in the future.

The Company plans to meet its future needs for additional capital through equity and/or debt financings.

Equity financings may include sales of common stock under the Company’s Equity Distribution Agreement pursuant to which the Company may offer and sell, from time to time, shares of its common stock having an aggregate available offering price of up to $ 18,538 .

Management believes that the Company’s existing balances of cash and cash equivalents, which totaled $ 127,459 as of March 31, 2021, will be sufficient to meet its anticipated cash requirements for at least twelve months from the date that these financial statements are issued.

However, should the Company’s current cash and cash equivalents not be sufficient to support the development of its business to the point at which it has positive cash flows from operations, the Company plans to meet its future needs for additional capital through equity and/or debt financings.

Equity financings may include sales of common stock.

Such financing may not be available on terms favorable to the Company or at all.

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The preparation of the accompanying condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the accompanying condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period.

The principal estimates relate to revenue recognition, allowance for doubtful accounts, purchase accounting, impairment of long lived assets, the valuation of stock awards and stock warrants and income taxes.

The principal estimates relate to revenue recognition, allowance for doubtful accounts, purchase accounting, impairment of long-lived assets, the valuation of stock awards and stock warrants and income taxes, where applicable.

There has been uncertainty and disruption in the global economy and financial markets due to the COVID-19 pandemic.

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As a result, actual results could differ materially from these estimates and assumptions.

Significant Customers

One individual customer accounted for 10 % of the Company’s net revenues for the three months ended March 31, 2021.

No individual customer accounted for 10 % or more of the Company’s net revenues for the three months ended March 31, 2020.

Remaining Performance Obligations

As of September 30, 2020, the aggregate amount of the transaction prices under the Company’s contracts allocated to the Company’s remaining performance obligations was $ 3,814 , approximately 78 % of which the Company expects to recognize as revenue over the next twelve months , and the remainder thereafter.

As of March 31, 2021, the aggregate amount of the transaction prices under the Company’s contracts allocated to the Company’s remaining performance obligations was $ 4,730 , approximately 74 % of which the Company expects to recognize as revenue over the next twelve months , and the remainder thereafter.

This aggregate amount excludes amounts allocated to remaining performance obligations under contracts that have an original duration of one year or less and variable consideration that is allocated to remaining performance obligations.

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There have been no material changes in the Company’s significant accounting policies from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2020.

Recently Adopted Accounting Pronouncements

Effective for the Company’s fiscal year ended December 31, 2019, the Company adopted the provisions and expanded disclosure requirements described in ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“Topic 606”), for its annual financial statements.

The Company adopted the standard using the modified retrospective method.

Accordingly, the results for the prior comparable periods were not adjusted to conform to the current year measurement and recognition of results.

As of the beginning of 2019, the impact of the adoption of Topic 606 was not material.

However, in adopting Topic 606, the Company has modified its revenue recognition policy in the following ways:

Some multi-year contracts include fixed annual price increases.

Historically, the Company recognized revenue based on the price allocated to each year.

Now, the Company recognizes the aggregate fixed price as revenue ratably over the full term of the contract.

Historically, certain variable consideration was recognized one month in arrears when the amount became known.

These revenues are now recognized in the month in which the service is provided based on an estimate of the amount that the Company expects to be entitled to receive for the services.

These revenues do not represent a material portion of the Company’s total revenue.

During the year ended December 31, 2019, the Company’s quarterly financial statements were prepared using the prior revenue recognition standard, Topic 605, Revenue Recognition .

Beginning in the first quarter of 2020, the Company’s quarterly financial statements are presented using Topic 606.

In August 2018, the FASB issued ASU No.

2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement , as part of its disclosure framework project intended to improve the effectiveness of disclosures in the notes to the financial statements by updating certain disclosure requirements related to fair value measurements.

The standard became effective for the Company beginning in the first quarter of fiscal year 2020.

The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements

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Operating lease liabilities are amortized on a straight-line basis over the life of the lease as lease expense in the statement of operations.

This standard will be effective for the Company beginning with the first quarter of fiscal year 2022.

The Company is currently evaluating the impact this standard will have on its policies and procedures pertaining to its existing and future lease arrangements, its disclosure requirements and its consolidated financial statements.

This standard will be effective for the Company beginning with the first quarter of fiscal year 2022, assuming the Company maintains its emerging growth company status .

The Company is currently evaluating the expected impact this standard will have on its policies and procedures pertaining to its existing and future lease arrangements, its disclosure requirements and its consolidated financial statements, but anticipates that the required recognition of a lease liability and related right-of-use asset may significantly increase both assets and liabilities recognized and reported on its balance sheet.

In June 2016, the FASB issued ASU No.

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which requires measurement and recognition of expected credit losses for financial assets held.

This standard will be effective for the Company beginning in the first quarter of fiscal year 2023.

This standard will be effective for the Company beginning in the first quarter of fiscal year 2023, assuming the Company maintains its emerging growth company status, and early adoption is permitted.

The Company is currently evaluating the impact that this standard will have on its consolidated financial statements and related disclosures as well as the timing of adoption.

In December 2019, the FASB issued ASU No.

2019-12 to simplify the accounting in ASC 740, Income Taxes .

In December 2019, the FASB issued ASU 2019-12 to simplify the accounting in ASC 740, Income Taxes .

This standard removes certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences.

This guidance also clarifies and simplifies other areas of ASC 740.

This standard will be effective for the Company beginning in the first quarter of fiscal year 2022.

The Company is currently evaluating the impact that this standard will have on its consolidated financial statements and related disclosures as well as the timing of adoption.

This standard will be effective for the Company beginning in the first quarter of fiscal year 2022, assuming the Company maintains its emerging growth company status, and early adoption is permitted .

The Company is currently evaluating the impact that this standard will have on its financial statements and related disclosures as well as the timing of adoption.

NET LOSS PER SHARE

1 unchanged sentence

Three Months Ended

Nine Months Ended

September 30,

Weighted-average common shares outstanding

1 unchanged sentence

Denominator for basic and diluted net loss per share

attributable to common stockholders

Basic and diluted net loss per share

2 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Common stock options and restricted stock units

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Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

The fair value hierarchy is based on three levels of inputs, the first two of which are considered observable and the last unobservable, that may be used to measure fair value, as follows:

The fair value hierarchy is based on three levels of inputs that may be used to measure fair value.

Level 1 and Level 2 are considered observable and Level 3 is considered unobservable, as follows:

Level 1—quoted prices (unadjusted) in active markets for identical assets or liabilities;

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The Company’s money market funds are categorized as Level 1 within the fair value hierarchy.

As of September 30, 2020, the Company’s cash and cash equivalents balances were as follows:

As of March 31, 2021, the Company’s cash and cash equivalents balances were as follows:

Money market funds

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The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s management with the assistance of a third-party valuation specialist.

In April 2020, in connection with a consulting agreement between the Company and a consulting firm, the Company issued to such firm a warrant to purchase up to 50,000 shares of the Company’s common stock (the “Compensation Warrant”).

The Compensation Warrant was fully vested and exercisable upon issuance, has an exercise price of $ 3.01 per share and expires on December 31, 2021 .

The holder is able to redeem the warrant for a number of shares having a value equal to the in-the-money value of the warrant.

The fair value of this stock warrant is $ 59 , which was determined using the Black-Scholes option-pricing model and was recorded in general and administrative operating expenses in the nine months ended September 30, 2020.

The Company also issued to such firm in connection with the consulting agreement an additional warrant to purchase up to 400,000 shares of the Company’s common stock (the “Performance Warrant” and collectively with the Compensation Warrant, the “2020 Stock Warrants”).

The Performance Warrant has an exercise price of $ 3.01 per share, shall vest and become exercisable in three substantially equal installments of 133,333 shares upon the achievement of specified performance goals and/or a market condition, and expires on December 31, 2023 .

The market condition has been achieved and, accordingly, the first installment of 133,333 shares underlying the Performance Warrant has vested and is exercisable.

The fair value of the installment of the Performance Warrant tied to the market condition is $ 43 , which was determined using a Monte Carlo simulation model and was recorded in general and administrative operating expenses in the nine months ended September 30, 2020.

The Company has not recorded any fair value with respect to the remaining installments linked to performance goals, because the achievement of such performance goals is not yet considered probable.

The following table summarizes quantitative information with respect to the significant inputs that were used to value the 2020 Stock Warrants during the nine months ended September 30, 2020:

Compensation Warrant

Performance Warrant

Risk-free rate

In April 2018, in connection with the advisory agreement between the Company and a financial advisory firm, the Company issued such firm a warrant to purchase up to 20,000 shares of the Company’s common stock (“April 2018 Warrant”).

The April 2018 Warrant was fully vested and exercisable upon issuance, has an exercise price of $ 11.73 per share and expires on April 6, 2023.

The Company recorded this stock warrant at its fair value of $ 207 using the Black-Scholes option-pricing model.

The holder is able to redeem the warrant for a number of shares having a value equal to the in-the-money value of the warrant.

The April 2018 Warrant was outstanding at September 30, 2020.

GOODWILL AND INTANGIBLE ASSETS, NET

The carrying amount of goodwill was $ 6,904 as of September 30, 2020 and December 31, 2019.

The carrying amount of goodwill was $ 6,904 as of March 31, 2021 and December 31, 2020.

Intangible Assets

The following table sets forth the Company’s finite-lived intangible assets resulting from business acquisitions and other purchases, which continue to be amortized:

September 30, 2020

March 31, 2021

December 31, 2020

Life (in years)

Software and technology

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Customer relationships

Trademarks and trade names

Noncompete agreements

The following table presents future amortization of the Company’s finite-lived intangible assets at September 30, 2020:

2020 (three months)

The following table presents future amortization of the Company’s finite-lived intangible assets at March 31, 2021:

2021 (9 months)

CONSOLIDATED FINANCIAL STATEMENTS DETAILS

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Cash and cash equivalents

As of September 30, 2020 and December 31, 2019, the Company had cash and cash equivalents of $ 54,315 and $ 44,065 , respectively, including $ 34,195 and $ 15,003 , respectively, of cash received from advertising clients and content licensees for future payments to vendors.

As of March 31, 2021 and December 31, 2020, the Company had cash and cash equivalents of $ 127,459 and $ 114,817 , respectively, including $ 51,129 and $ 40,052 , respectively, of cash received from advertising clients for future payments to vendors.

Accounts Receivable, Net

Accounts receivable consisted of the following:

September 30,

Accounts receivable — Advertising

Accounts receivable — aiWARE SaaS Solutions

Accounts receivable — aiWARE Content Licensing and Media Services

Accounts receivable — Other

allowance for doubtful accounts

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Property, equipment and improvements, net consisted of the following:

September 30,

Property and equipment

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Property, equipment and improvements, net

Depreciation expense was $ 264 and $ 776 for the three and nine months ended September 30, 2020, respectively.

Depreciation expense was $ 271 and $ 822 for the three and nine months ended September 30, 2019, respectively.

During the three months ended March 31, 2021, in connection with the sublease of its former corporate office space located in Costa Mesa, California, the Company wrote-off approximately $ 3,559 in property and equipment and leasehold improvements and recorded a net loss on disposal of $ 1,894 .

Depreciation expense was $ 175 and $ 256 for the three months ended March 31, 2021 and 2020, respectively.

Accounts Payable

Accounts payable consisted of the following:

September 30,

Accounts payable — Advertising

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Three Months Ended

Nine Months Ended

September 30,

aiWARE SaaS Solutions

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Total revenue

During the three and nine months ended September 30, 2020, the Company made $ 71,101 and $ 180,297 , respectively, in gross media placements, of which $ 66,187 and $ 166,877 respectively, were billed directly to clients.

Of the amounts billed directly to clients, $ 59,058 and $ 148,668 represented media-related costs netted against billings during the three and nine months ended September 30, 2020, respectively.

During the three and nine months ended September 30, 2019, the Company made $ 55,799 and $ 158,370 , respectively, in gross media placements, of which $ 51,429 and $ 147,989 respectively, were billed directly to clients.

Of the amounts billed directly to clients, $ 45,668 and $ 131,345 represented media-related costs netted against billings during the three and nine months ended September 30, 2019, respectively.

Disaggregated Revenue

Revenue disaggregated was as follows:

Three Months Ended

Nine Months Ended

September 30,

Advertising (by service type):

aiWARE SaaS Solutions (by market):

Media and Entertainment

Government, Legal and Compliance

Other Markets

aiWARE Content Licensing and Media Services (by service type):

Content Licensing

Media Services

Total revenue

During the three months ended March 31, 2021 and 2020, the Company made $ 82,421 and $ 54,749 , respectively, in gross media placements, of which $ 79,625 and $ 50,050 respectively, were billed directly to clients.

Of the amounts billed directly to clients, $ 71,673 and $ 44,499 represented media-related costs netted against billings during the three months ended March 31, 2021 and 2020, respectively.

Other (Expense) Income, Net

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Three Months Ended

Nine Months Ended

September 30,

Interest income, net

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Rent expense for lease payments is recognized on a straight-line basis over the lease term.

As of September 30, 2020, future minimum lease payments were as follows:

2020 (three months)

In February 2021, the Company entered into an office sublease (the “Sublease”) with a third party (the “Subtenant”), pursuant to which the Company has subleased its former office space located in Costa Mesa, California, consisting of approximately 37,875 square feet, which the Company leases pursuant to an existing lease agreement expiring in 2024 (the “Lease”).

The term of the Sublease commenced in March 2021 and will continue through December 31, 2024 , coterminous with the Lease.

Pursuant to the Sublease, the Subtenant will pay to the Company monthly base rent, which is subject to annual rent escalations, as well as a portion of the operating expenses and taxes payable by the Company under the Lease.

The Company recognized contract termination costs as a liability when it ceased using the rights conveyed under the Lease.

During the first quarter ended March 31, 2021, the Company recorded approximately $ 3,367 in charges resulting from the Sublease, consisting of $ 1,894 loss on disposal of property and equipment and leasehold improvements, $ 1,211 loss on sublease, and $ 262 in initial direct costs.

As of March 31, 2021, future minimum lease payments were as follows:

2021 (nine months)

Total minimum payments

The total rent expense for all operating leases was $ 748 and $ 2,265 for the three and nine months ended September 30, 2020, respectively.

The total rent expense for all operating leases was $ 755 and $ 2,235 for the three and nine months ended September 30, 2019, respectively.

As of March 31, 2021, minimum sublease rental income to be received in the future under noncancelable subleases was approximately $ 4,254 .

The total rent expense for all operating leases, excluding the charges related to the Sublease discussed above, was $ 571 and $ 766 for the three months ended March 31, 2021 and 2020, respectively.

The Company collects and remits sales tax in jurisdictions in which it has a physical presence or it believes nexus exists, which therefore obligates the Company to collect and remit sales tax.

During the three months ended March 31, 2021, the Company recorded a liability of $ 138 for potential exposure in several states where there is uncertainty about the point in time at which the Company established a sufficient business connection to create nexus.

As of March 31, 2021, the total accrued liability for potential sales tax exposure was $ 1,179 .

Other Contingencies

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Common Stock Issuances

In June 2018, the Company entered into an Equity Distribution Agreement with JMP Securities as sales agent, pursuant to which it may offer and sell, from time to time, through JMP Securities, shares of its common stock having an aggregate offering price of up to $ 50,000 .

During the nine months ended September 30, 2020 and 2019, the Company issued an aggregate of 1,491,317 and 2,772,600 of shares of its common stock, respectively, which were sold pursuant to the Equity Distribution Agreement.

During the nine months ended September 30, 2020 and 2019, the Company received net proceeds from such sales of $ 5,996 and $ 17,531 after deducting expenses of $ 281 and $ 601 , respectively.

During the nine months ended September 30, 2020, the Company issued a total of 154,311 shares of its common stock upon the exercise of warrants for an aggregate exercise price of $ 2,100 .

On September 6, 2018 , the Company acquired all of the outstanding capital stock of Machine Box, Inc.

(“Machine Box”).

The purchase consideration for the acquisition was comprised of the initial consideration paid at closing and additional contingent amounts that were payable if Machine Box achieved certain technical development and integration milestones within 12 months after the closing of the acquisition, and 80 % of such consideration was payable by issuance of shares of the Company’s common stock to the former stockholders of Machine Box.

During the nine months ended September 30, 2019, the Company determined that Machine Box had achieved the technical development and integration milestones required to be completed during such period and, as a result, the former Machine Box stockholders became entitled to receive an aggregate of 394,604 shares of the Company’s common stock, valued at $ 2,389 based on the closing price of the Company’s common stock on the respective milestone dates, of which an aggregate of 315,687 shares were issued to them, and 78,917 shares were held back from issuance by the Company to secure certain indemnification and other obligations of the former stockholders.

During the three months ended September 30, 2020, the Company issued an aggregate of 105,898 shares of common stock to the former stockholders of Machine Box, representing all of the shares previously held back from issuance by the Company with respect to the initial consideration and the additional contingent consideration.

On August 21, 2018 , the Company acquired all of the outstanding capital stock of S Media Limited (d/b/a Performance Bridge Media) (“Performance Bridge”).

The purchase consideration for the acquisition was comprised of the initial consideration paid at closing and additional earnout consideration that was payable if Performance Bridge achieved certain revenue milestones for its 2018 fiscal year, and 80 % of such consideration was payable by issuance of shares of the Company’s common stock to the former stockholder of Performance Bridge.

The initial consideration was subject to adjustment based on a final calculation of Performance Bridge’s net assets at closing, which was completed in the first quarter of 2019 and resulted in the issuance to the former stockholder of Performance Bridge an additional 6,482 shares of common stock valued at $ 34 based on the closing price of the Company’s common stock on January 25, 2019, which was the date both parties agreed upon the final calculation.

In March 2019, the Company determined that the additional earnout consideration had been earned and the former stockholder of Performance Bridge became entitled to receive 574,231 shares of the Company’s common stock, valued at $ 3,026 based on the closing price of the Company’s common stock on March 28, 2019, which were paid and issued to the former stockholder of Performance Bridge in the second quarter of 2019.

During the nine months ended September 30, 2020 and 2019, the Company issued an aggregate of 297,490 shares of its common stock and 230,979 shares of its common stock, respectively, in connection with the exercise of stock options, issuance and forfeiture of restricted stock awards and vesting of restricted stock units under its stock incentive plans and purchases under its Employee Stock Purchase Plan (the “ESPP”).

Common Stock Warrants

During the nine months ended September 30, 2020, the Company issued to a consulting firm warrants to purchase up to an aggregate of 450,000 shares of its common stock.

As of September 30, 2020 and December 31, 2019, the Company had outstanding warrants to purchase an aggregate of 1,592,840 and 1,297,151 shares of the Company’s common stock, respectively.

Modifications to Performance-Based Stock Options

In August 2020, the disinterested members of the Board of Directors of the Company adopted certain amendments (the “Amendments”) to the Company’s 2018 Performance-Based Stock Incentive Plan (the “2018 Plan”), the stock option award agreements entered into pursuant to the 2018 Plan, and certain stock option award agreements entered into pursuant to the Company’s 2017 Stock Incentive Plan (the “2017 Plan”) on substantially the same terms as the stock option award agreements entered into pursuant to the 2018 Plan (collectively, the “Performance Awards”).

Such Amendments were approved by the Company’s stockholders at the Company’s annual meeting of stockholders held on July 24, 2020.

The Amendments include (i) amendment of the stock price milestones applicable to the Performance Awards, and (ii) reduction of the exercise prices of the Performance Awards held by the Company’s Chief Executive Officer and the Company’s President, which resulted in a modification of the Performance Awards.

The Company values the Performance Awards using a Monte Carlo simulation model.

A fair value per share and a derived service period is determined for each of the three equal tranches of each Performance Award.

The Company determined the fair values and the new derived service periods of the modified awards as of the date of modification and the fair values of the original awards immediately before the modification.

The amount of incremental compensation expense resulting from the modification of each award is equal to the excess of the fair value of the modified award on the date of modification over the fair value of the original award immediately before the modification.

The total incremental compensation expense resulting from the modification of the Performance Awards for approximately 215 employees is $ 3,011 .

The assumptions used in the Monte Carlo simulation model for computing the fair values of the Performance Awards on the modification date and immediately before the modification are set forth in the table below:

Amendment date stock price

Expected volatility

Risk-free interest rate

Expected dividend yield

Cost of equity

In June 2018, the Company entered into an Equity Distribution Agreement with JMP Securities as sales agent, pursuant to which it could offer and sell, from time to time, through JMP Securities, shares of its common stock having an aggregate offering price of up to $ 50,000 .

During the three months ended March 31, 2020, the Company issued and sold an aggregate of 1,292,208 shares of its common stock pursuant to the Equity Distribution Agreement and received net proceeds from such sales of $ 2,984 after deducting expenses of $ 92 .

The Company voluntarily terminated the Equity Distribution Agreement in January 2021.

During the three months ended March 31, 2021, the Company issued a total of 167,495 shares of its common stock upon the exercise of warrants for an aggregate exercise price of $ 2,279 and issued an aggregate of 84,723 shares of its common stock upon exercises of warrants to purchase an aggregate of 91,833 shares of its common stock, which were effected on a net exercise basis without cash payment of the exercise price.

During the three months ended March 31, 2021 and 2020, the Company issued an aggregate of 608,886 shares of its common stock and 111,427 shares of its common stock, respectively, in connection with the exercise of stock options, issuance of stock awards and vesting of restricted stock units under its stock incentive plans and purchases under its Employee Stock Purchase Plan (the “ESPP”).

During the three months ended March 31, 2021, the Company issued an aggregate of 15,828 shares of its common stock for services provided to the Company.

Stock-Based Compensation

During the nine months ended September 30, 2020, the Company granted options to purchase an aggregate of 610,000 shares of its common stock that are subject to time-based vesting conditions.

During the three months ended March 31, 2021, the Company granted options to purchase an aggregate of 92,000 shares of its common stock that are subject to time-based vesting conditions.

The Company valued these stock options using the Black-Scholes Merton option pricing model.

The following assumptions were used to compute the grant date fair values of the stock options granted during the nine months ended September 30, 2020:

The following assumptions were used to compute the grant date fair values of the stock options granted during the three months ended March 31, 2021:

Expected term (in years)

2 unchanged sentences

Expected dividend yield

The assumptions used in calculating the fair values of purchase rights granted under the ESPP during the nine months ended September 30, 2020 are set forth in the table below:

The assumptions used in calculating the fair values of purchase rights granted under the ESPP during the three months ended March 31, 2021 are set forth in the table below:

Expected term (in years)

2 unchanged sentences

Expected dividend yield

The Company’s stock-based compensation expense recognized for the periods presented was as follows:

The Company’s stock-based compensation expense by type of award and by operating expense grouping are presented below:

Three months ended

Nine Months Ended

September 30,

Stock-based compensation expense by type of award:

Restricted stock units

Restricted stock awards

Machine Box contingent common stock issuances

Performance-based stock options

1 unchanged sentence

Employee stock purchase plan

Three Months Ended

Nine Months Ended

September 30,

Common stock issued for services

Stock-based compensation expense by operating expense grouping:

2 unchanged sentences

General and administrative

Equity Award Activity

Restricted Stock Awards

The Company’s restricted stock award activity for the nine months ended September 30, 2020 was as follows:

Equity Award Activity Under Stock Plans

The Company’s stock award activity for the three months ended March 31, 2021 was as follows:

Average Grant

1 unchanged sentence

Unvested at December 31, 2020

Unvested at September 30, 2020

At September 30, 2020, total unrecognized compensation cost related to restricted stock was $ 14 , which is expected to be recognized over a weighted average period of 0.1 year.

Unvested at March 31, 2021

All stock awards granted during the three months ended March 31, 2021 were fully vested upon grant.

As of March 31, 2021, there was no unrecognized compensation cost related to stock awards granted under the Company’s stock plans.

Restricted Stock Units

The Company’s restricted stock unit activity for the nine months ended September 30, 2020 was as follows:

The Company’s restricted stock unit activity for the three months ended March 31, 2021 was as follows:

Average Grant

1 unchanged sentence

Unvested at December 31, 2020

Unvested at September 30, 2020

At September 30, 2020, total unrecognized compensation cost related to restricted stock units was $ 5,641 , which is expected to be recognized over a weighted average period of 0.7 year.

Unvested at March 31, 2021

As of March 31, 2021, total unrecognized compensation cost related to restricted stock units was $ 16,840 , which is expected to be recognized over a weighted average period of 0.9 year.

Performance-Based Stock Options

The activity during the nine months ended September 30, 2020 related to stock options that are subject to performance-based vesting conditions tied to the future achievement of stock price goals by the Company was as follows:

The activity during the three months ended March 31, 2021 related to stock options that are subject to performance-based vesting conditions tied to the achievement of stock price goals by the Company was as follows:

Weighted-Average

Outstanding at December 31, 2020

Outstanding at September 30, 2020

Exercisable at September 30, 2020

The weighted average grant date fair values of the performance-based stock options granted during the nine months ended September 30, 2019 was $ 2.55 per share.

No performance-based stock options were granted during the nine months ended September 30, 2020 and no performance-based stock options vested during the nine months ended September 30, 2020 and 2019.

At September 30, 2020, total unrecognized compensation expense related to performance-based stock options was $ 18,092 and is expected to be recognized over a weighted average period of 2.0 years.

Outstanding at March 31, 2021

Exercisable at March 31, 2021

During the first quarter of 2021, the Company achieved all of the stock price milestones applicable to substantially all of the performance-based stock options and, as a result, such performance-based stock options vested and all associated unrecognized compensation was accelerated and recognized in full as a one-time expense of $ 16,268 in the first quarter of 2021.

The aggregate intrinsic value of the options exercised during the three months ended March 31, 2021 was $ 5,815 .

No options were exercised during the three months ended March 31, 2020.

No performance-based stock options were granted during the three months ended March 31, 2021 and 2020, and no performance-based stock options vested during the three months ended March 31, 2020.

Stock Options

The activity during the nine months ended September 30, 2020 related to all other stock options was as follows:

The activity during the three months ended March 31, 2021 related to all other stock options was as follows:

Weighted-Average

Outstanding at December 31, 2020

Outstanding at September 30, 2020

Exercisable at September 30, 2020

The weighted average grant date fair value of stock options granted during the nine months ended September 30, 2020 and 2019 was $ 2.46 and $ 3.65 per share, respectively.

The aggregate intrinsic value of the options exercised during the nine months ended September 30, 2020 and 2019 was $ 484 and $ 183 , respectively.

The total grant date fair value of stock options vested during the nine months ended September 30, 2020 and 2019 was $ 4,659 and $ 8,056 , respectively.

At September 30, 2020, total unrecognized compensation expense related to stock options was $ 4,744 and is expected to be recognized over a weighted average period of 2.3 years.

The aggregate intrinsic values in the tables above represent the difference between the fair market value of the Company’s common stock and the average option exercise price of in-the-money options, multiplied by the number of such options.

Outstanding at March 31, 2021

Exercisable at March 31, 2021

The weighted average grant date fair value of stock options granted during the three months ended March 31, 2021 and 2020 was $ 32.68 and $ 1.64 per share, respectively.

The aggregate intrinsic value of the stock options exercised during the three months ended March 31, 2021 was $ 7,848 .

No stock options were exercised during the three months ended March 31, 2020.

The total grant date fair value of stock options vested during the three months ended March 31, 2021 and 2020 was $ 733 and $ 2,371 , respectively.

At March 31, 2021, total unrecognized compensation expense related to stock options was $ 7,765 and is expected to be recognized over a weighted average period of 3.0 years.

Employee Stock Purchase Plan

During the nine months ended September 30, 2020, a total of 126,550 shares of common stock were purchased under the Company’s ESPP.

As of September 30, 2020, accrued employee contributions for future purchases under the ESPP totaled $ 72 .

During the three months ended March 31, 2021, a total of 67,068 shares of common stock were purchased under the Company’s ESPP.

As of March 31, 2021, accrued employee contributions for future purchases under the ESPP totaled $ 119 .

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements