Veritone, Inc. 10-Q

Item 1. Financial Statements VERITONE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except per share and share data) (Unaudited) As of June 30, December 31, 2021 2020 ASSETS Cash and cash equivalents $ 120,627 $ 114,817 Accounts receivable, net 19,518 16,666 Expenditures billable to clients 20,783 18,365 Prepaid expenses and other current assets 8,944 6,719 Total current assets 169,872 156,567 Property, equipment and improvements, net 479 2,354 Intangible assets, net 8,587 10,744 Goodwill 6,904 6,904 Long-term restricted cash 855 855 Other assets 230 230 Total assets $ 186,927 $ 177,654 LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 16,174 $ 15,632 Accrued media payments 68,266 55,874 Client advances 7,638 6,496 Other accrued liabilities 12,633 10,246 Total current liabilities 104,711 88,248 Other non-current liabilities 1,989 1,196 Total liabilities 106,700 89,444 Commitments and contingencies (Note 7) Stockholders' equity Common stock, par value $ 0.001 per share; 75,000,000 shares authorized; 32,870,767 and 31,799,354 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively 33 32 Additional paid-in capital 403,768 368,477 Accumulated deficit ( 323,647 ) ( 280,365 ) Accumulated other comprehensive income 73 66 Total stockholders' equity 80,227 88,210 Total liabilities and stockholders' equity $ 186,927 $ 177,654 The accompanying notes are an integral part of these condensed consolidated financial statements. 2 VERITONE, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (in thousands, except per share and share data) (Unaudited) Three Months Ended Six Months Ended June 30, June 30, 2021 2020 2021 2020 Revenue $ 19,206 $ 13,268 $ 37,501 $ 25,172 Operating expenses: Cost of revenue 5,231 3,763 10,054 7,013 Sales and marketing 5,253 4,932 11,680 9,861 Research and development 4,646 3,440 9,606 7,086 General and administrative 15,644 11,343 47,187 22,886 Amortization 1,079 1,346 2,157 2,694 Total operating expenses 31,853 24,824 80,684 49,540 Loss from operations ( 12,647 ) ( 11,556 ) ( 43,183 ) ( 24,368 ) Other expense, net ( 13 ) ( 235 ) ( 22 ) ( 104 ) Loss before provision for income taxes ( 12,660 ) ( 11,791 ) ( 43,205 ) ( 24,472 ) Provision for income taxes 55 2 77 5 Net loss $ ( 12,715 ) $ ( 11,793 ) $ ( 43,282 ) $ ( 24,477 ) Net loss per share: Basic and diluted $ ( 0.39 ) $ ( 0.43 ) $ ( 1.33 ) $ ( 0.91 ) Weighted average shares outstanding: Basic and diluted 32,741,356 27,117,432 32,458,269 26,945,297 Comprehensive loss: Net loss $ ( 12,715 ) $ ( 11,793 ) $ ( 43,282 ) $ ( 24,477 ) Foreign currency translation gain, net of income taxes - 1 7 5 Total comprehensive loss $ ( 12,715 ) $ ( 11,792 ) $ ( 43,275 ) $ ( 24,472 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 3 VERITONE, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands, except share amounts) (Unaudited) Three Months Ended June 30, 2021 Accumulated Additional Other Common Stock Paid-in Accumulated Comprehensive Shares Amount Capital Deficit Income Total Balance as of March 31, 2021 32,676,286 $ 33 $ 396,619 $ ( 310,932 ) $ 73 $ 85,793 Common stock issued under employee stock plans, net 194,481 — 540 — — 540 Common stock issued for services — — 131 — — 131 Stock-based compensation expense — — 6,478 — — 6,478 Net loss — — — ( 12,715 ) — ( 12,715 ) Balance as of June 30, 2021 32,870,767 $ 33 $ 403,768 $ ( 323,647 ) $ 73 $ 80,227 Six Months Ended June 30, 2021 Accumulated Additional Other Common Stock Paid-in Accumulated Comprehensive Shares Amount Capital Deficit Income Total Balance as of December 31, 2020 31,799,354 $ 32 $ 368,477 $ ( 280,365 ) $ 66 $ 88,210 Common stock issued under employee stock plans, net 803,367 1 4,793 — — 4,794 Common stock issued for services 15,828 — 250 — — 250 Stock-based compensation expense — — 27,969 — — 27,969 Exercise of warrants 252,218 — 2,279 — — 2,279 Net loss — — — ( 43,282 ) — ( 43,282 ) Other comprehensive gain — — — — 7 7 Balance as of June 30, 2021 32,870,767 $ 33 $ 403,768 $ ( 323,647 ) $ 73 $ 80,227 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 VERITONE, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands, except share amounts) (Unaudited) Three Months Ended June 30, 2020 Accumulated Additional Other Common Stock Paid-in Accumulated Comprehensive Shares Amount Capital Deficit Income Total Balance as of March 31, 2020 27,074,372 $ 27 $ 287,368 $ ( 245,173 ) $ 50 $ 42,272 Common stock offerings, net 199,109 1 3,021 — — 3,022 Common stock issued under employee stock plans, net 88,515 — 39 — — 39 Stock-based compensation expense — — 4,131 — — 4,131 Exercise of warrants 154,311 — 2,100 — — 2,100 Warrant issuance — — 308 — — 308 Net loss — — — ( 11,793 ) — ( 11,793 ) Other comprehensive gain — — — — 1 1 Balance as of June 30, 2020 27,516,307 $ 28 $ 296,967 $ ( 256,966 ) $ 51 $ 40,080 Six Months Ended June 30, 2020 Accumulated Additional Other Common Stock Paid-in Accumulated Comprehensive Shares Amount Capital Deficit Income Total Balance as of December 31, 2019 25,670,737 $ 26 $ 279,828 $ ( 232,489 ) $ 46 $ 47,411 Common stock offerings, net 1,491,317 2 6,004 — — 6,006 Common stock issued under employee stock plans, net 199,942 — 140 — — 140 Stock-based compensation expense — — 8,587 — — 8,587 Exercise of warrants 154,311 — 2,100 — — 2,100 Warrant issuance — — 308 — — 308 Net loss — — — ( 24,477 ) — ( 24,477 ) Other comprehensive gain — — — — 5 5 Balance as of June 30, 2020 27,516,307 $ 28 $ 296,967 $ ( 256,966 ) $ 51 $ 40,080 The accompanying notes are an integral part of these condensed consolidated financial statements. 5 VERITONE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited) Six Months Ended June 30, 2021 2020 Cash flows from operating activities: Net loss $ ( 43,282 ) $ ( 24,477 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 2,410 3,206 Issuance of warrants — 102 Loss on disposal of fixed assets 1,894 — Loss on sublease 1,211 — Change in fair value of warrant liability — 200 Provision for doubtful accounts 5 213 Stock-based compensation expense 28,219 8,587 Changes in assets and liabilities: Accounts receivable ( 2,857 ) ( 3,453 ) Expenditures billable to clients ( 2,418 ) 7,109 Prepaid expenses and other assets ( 2,218 ) ( 363 ) Accounts payable 542 3,484 Accrued media payments 12,392 5,133 Client advances 1,142 ( 4,619 ) Other accrued liabilities 2,387 2,193 Other liabilities ( 418 ) ( 92 ) Net cash used in operating activities ( 991 ) ( 2,777 ) Cash flows from investing activities: Proceeds from the sale of equipment — 56 Capital expenditures ( 272 ) ( 30 ) Net cash (used in) provided by investing activities ( 272 ) 26 Cash flows from financing activities: Proceeds from common stock offerings, net — 6,527 Proceeds from loan — 6,491 Repayment of loan — ( 6,491 ) Proceeds from the exercise of warrants 2,279 2,100 Proceeds from issuances of stock under employee stock plans, net 4,794 140 Net cash provided by financing activities 7,073 8,767 Net increase in cash and cash equivalents and restricted cash 5,810 6,016 Cash and cash equivalents and restricted cash, beginning of period 115,672 44,920 Cash and cash equivalents and restricted cash, end of period $ 121,482 $ 50,936 The accompanying notes are an integral part of these condensed consolidated financial statements. 6 VERITONE, INC. Notes to the Condensed Consolidated Financial Statements (in thousands, except share and per share data and percentages) (Unaudited) NOTE 1. DESCRIPTION OF BUSINESS Description of Business 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 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. These offerings leverage the Company’s aiWARE technologies, providing customers with unique capabilities to enrich and drive expanded revenue opportunities from their content. In addition, the Company operates a full-service advertising agency that leverages the Company’s aiWARE technologies to provide differentiated services to its clients. The Company’s advertising services include media planning and strategy, advertisement buying and placement, campaign messaging, clearance verification and attribution, and custom analytics, specializing in host-endorsed and influencer advertising across primarily radio, podcasting, streaming audio, social media and other digital media channels. The Company’s advertising services also include its VeriAds TM Network, which is comprised of programs that enable broadcasters, podcasters and social media influencers to generate incremental advertising revenue. In July 2021, the Company announced its entry into a definitive agreement to acquire PandoLogic Ltd., a company incorporated under the laws of the state of Israel (“Pandologic”), pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company, Melisandra Ltd., a company incorporated under the laws of the State of Israel and a wholly-owned subsidiary of the Company (“Merger Sub”), and Shareholder Representative Services, LLC, a Colorado limited liability company, solely in its capacity as the representative of the Securityholders and COP Participants. See Note 10 for further details on the Merger Agreement. NOTE 2. PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation and Preparation The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial statements and the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not contain all information and footnotes required by GAAP for annual financial statements. Such unaudited condensed consolidated financial statements and accompanying notes are based on the representations of the Company’s management, who is responsible for their integrity and objectivity. 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 six months ended June 30, 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 six 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 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. These reclassifications had no effect on reported net loss. 7 Liquidity and Capital Resources 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 six months ended June 30, 2021, the Company generated negative cash flows from operations of $ 991 and incurred a net loss of $ 43,282 . As of June 30, 2021, the Company had an accumulated deficit of $ 323,647 . 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 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 Equity Distribution Agreement dated June 1, 2018 (the “Equity Distribution Agreement”). In the first six months of 2021, the Company received net proceeds of $ 4,794 from the issuance of common stock under the Company’s employee stock plans 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. Management believes that the Company’s existing balances of cash and cash equivalents, which totaled $ 120,627 as of June 30, 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. Such financing may not be available on terms favorable to the Company or at all. If the Company is unable to obtain adequate financing or financing on terms satisfactory to it when required, the Company’s ability to continue to support its business growth, scale its infrastructure, develop product enhancements and to respond to business challenges could be significantly impaired. Use of Accounting Estimates 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, where applicable. There has been uncertainty and disruption in the global economy and financial markets due to the COVID-19 pandemic. The Company is not aware of any specific event or circumstance that would require an update to its estimates or assumptions or a revision of the carrying value of its assets or liabilities as of the date of filing of this Quarterly Report on Form 10-Q. These estimates and assumptions may change as new events occur and additional information is obtained. 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 June 30, 2021. One individual customer accounted for 11 % of the Company’s net revenues for the three months ended June 30, 2020. No individual customer accounted for 10 % or more of the Company’s net revenues for the six months ended June 30, 2020 or the six months ended June 30, 2021. Two advertising clients individually accounted for 10 % or more of the Company’s accounts receivable as of June 30, 2021 and December 31, 2020. Remaining Performance Obligations As of June 30, 2021, the aggregate amount of the transaction prices under the Company’s contracts allocated to the Company’s remaining performance obligations was $ 4,668 , approximately 71 % 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. Significant Accounting Policies 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. 8 Recently Issued Accounting Pronouncements In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) . The amendments under this pronouncement will change the way all leases with duration of one year or more are treated. Under this guidance, lessees will be required to capitalize virtually all leases on the balance sheet as a right-of-use asset and an associated financing lease liability or capital lease liability. The right-of-use asset represents the lessee’s right to use, or control the use of, a specified asset for the specified lease term. The lease liability represents the lessee’s obligation to make lease payments arising from the lease, measured on a discounted basis. Based on certain characteristics, leases are classified as financing leases or operating leases. Financing lease liabilities, those that contain provisions similar to capitalized leases, are amortized in the same manner as capital leases are amortized under current accounting rules, as amortization expense and interest expense in the statement of operations. 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 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. 2016-13, Financial Instruments – Credit Losses (Topic 326) 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, 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 . 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, 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. NOTE 3. NET LOSS PER SHARE The following table presents the computation of basic and diluted net loss per share: Three Months Ended Six Months Ended June 30, June 30, 2021 2020 2021 2020 Numerator Net loss $ ( 12,715 ) $ ( 11,793 ) $ ( 43,282 ) $ ( 24,477 ) Denominator Weighted-average common shares outstanding 32,756,357 27,135,107 32,475,448 26,964,717 Less: Weighted-average shares subject to repurchase ( 15,001 ) ( 17,675 ) ( 17,179 ) ( 19,420 ) Denominator for basic and diluted net loss per share attributable to common stockholders 32,741,356 27,117,432 32,458,269 26,945,297 Basic and diluted net loss per share $ ( 0.39 ) $ ( 0.43 ) $ ( 1.33 ) $ ( 0.91 ) The Company reported net losses for all periods presented and, as such, all potentially dilutive shares of common stock would have been antidilutive for such periods. The table below presents the weighted-average securities (in common equivalent shares) outstanding during the periods presented that have been excluded from the calculation of diluted net loss per share because their effect would be anti-dilutive: Three Months Ended Six Months Ended June 30, June 30, 2021 2020 2021 2020 Common stock options and restricted stock units 9,948,564 10,171,737 10,110,820 9,976,772 Warrants to purchase common stock 520,112 1,674,387 579,311 1,485,769 10,468,676 11,846,124 10,690,131 11,462,541 9 NOTE 4. FINANCIAL INSTRUMENTS Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. 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 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; • Level 2—inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or • Level 3—unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Cash and Cash Equivalents The Company’s money market funds are categorized as Level 1 within the fair value hierarchy. As of June 30, 2021, the Company’s cash and cash equivalents balances were as follows: Gross Cash and Unrealized Fair Cash Cost Losses Value Equivalents Cash $ 52,602 $ — $ 52,602 $ 52,602 Level 1: Money market funds 68,025 — 68,025 68,025 Total $ 120,627 $ — $ 120,627 $ 120,627 As of December 31, 2020, the Company’s cash and cash equivalents balances were as follows: Gross Cash and Unrealized Fair Cash Cost Losses Value Equivalents Cash $ 44,795 $ — $ 44,795 $ 44,795 Level 1: Money market funds 70,022 — 70,022 70,022 Total $ 114,817 $ — $ 114,817 $ 114,817 Stock Warrants All of the Company’s outstanding stock warrants are categorized as Level 3 within the fair value hierarchy. Stock warrants have been recorded at their fair value using either a probability weighted expected return model, the Monte Carlo simulation model or the Black-Scholes option-pricing model. These models incorporate contractual terms, maturity, risk-free interest rates and volatility. The value of the Company’s stock warrants would increase if a higher risk-free interest rate was used, and would decrease if a lower risk-free interest rate was used. Similarly, a higher volatility assumption would increase the value of the stock warrants, and a lower volatility assumption would decrease the value of the stock warrants. 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. 10 NOTE 5. GOODWILL AND INTANGIBLE ASSETS, NET Goodwill The carrying amount of goodwill was $ 6,904 as of June 30, 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: June 30, 2021 December 31, 2020 Weighted Average Remaining Useful Life (in years) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Software and technology 0.9 $ 3,582 $ ( 3,437 ) $ 145 $ 3,582 $ ( 3,357 ) $ 225 Licensed technology 0.3 500 ( 458 ) 42 500 ( 375 ) 125 Developed technology 2.2 9,600 ( 5,440 ) 4,160 9,600 ( 4,480 ) 5,120 Customer relationships 2.2 9,300 ( 5,270 ) 4,030 9,300 ( 4,340 ) 4,960 Noncompete agreements 1.1 800 ( 590 ) 210 800 ( 486 ) 314 Total 2.1 $ 23,782 $ ( 15,195 ) $ 8,587 $ 23,782 $ ( 13,038 ) $ 10,744 The following table presents future amortization of the Company’s finite-lived intangible assets at June 30, 2021: 2021 (6 months) $ 2,104 2022 3,963 2023 2,520 Total $ 8,587 NOTE 6. CONSOLIDATED FINANCIAL STATEMENTS DETAILS Consolidated Balance Sheets Details Cash and cash equivalents As of June 30, 2021 and December 31, 2020, the Company had cash and cash equivalents of $ 120,627 and $ 114,817 , respectively, including $ 48,226 and $ 40,052 , respectively, of cash received from advertising clients for future payments to vendors. Accounts Receivable, Net Accounts receivable consisted of the following: As of June 30, December 31, 2021 2020 Accounts receivable — Advertising $ 15,380 $ 12,641 Accounts receivable — Other 4,221 4,143 19,601 16,784 Less: allowance for doubtful accounts ( 83 ) ( 118 ) Accounts receivable, net $ 19,518 $ 16,666 The amount that the Company invoices and collects from advertising clients includes the cost of the advertisements placed for them with media vendors and the amount of the commission earned by the Company. The average commission earned by the Company is less than 15 % of the total amount invoiced and collected from the advertising clients. 11 Property, Equipment and Improvements, Net Property, equipment and improvements, net consisted of the following: As of June 30, December 31, 2021 2020 Property and equipment $ 1,899 $ 2,365 Leasehold improvements 78 2,899 1,977 5,264 Less: accumulated depreciation ( 1,498 ) ( 2,910 ) Property, equipment and improvements, net $ 479 $ 2,354 During the six months ended June 30, 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 $ 78 and $ 253 for the three and six months ended June 30, 2021, respectively. Depreciation expense was $ 256 and $ 512 for the three and six months ended June 30, 2020, respectively. Accounts Payable Accounts payable consisted of the following: As of June 30, December 31, 2021 2020 Accounts payable — Advertising $ 14,031 $ 14,667 Accounts payable — Other 2,143 965 Total $ 16,174 $ 15,632 Accounts payable – Advertising reflects the amounts due to media vendors for advertisements placed on behalf of the Company’s advertising clients. Consolidated Statement of Operations and Comprehensive Loss Details Revenue Revenue for the periods presented were comprised of the following: Three Months Ended Six Months Ended June 30, June 30, 2021 2020 2021 2020 Advertising $ 9,969 $ 7,038 $ 20,296 $ 13,039 aiWARE SaaS Solutions 5,580 3,002 10,265 6,110 aiWARE Content Licensing and Media Services 3,657 3,228 6,940 6,023 Total revenue $ 19,206 $ 13,268 $ 37,501 $ 25,172 Other Expense, Net Other expense, net for the periods presented was comprised of the following: Three Months Ended Six Months Ended June 30, June 30, 2021 2020 2021 2020 Interest income, net $ 2 $ 5 $ 4 $ 82 Change in fair value of warrant liability — ( 202 ) — ( 200 ) Other ( 15 ) ( 38 ) ( 26 ) 14 Other expense, net $ ( 13 ) $ ( 235 ) $ ( 22 ) $ ( 104 ) NOTE 7. COMMITMENTS AND CONTINGENCIES Leases 12 The Company leases facilities under operating lease arrangements expiring on various dates through fiscal year 2024. Certain of the Company’s leases contain standard rent escalation and renewal clauses. Under certain leases, the Company is required to pay operating expenses in addition to base rent. Rent expense for lease payments is recognized on a straight-line basis over the lease term. 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 six months ended June 30, 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 June 30, 2021, future minimum lease payments were as follows: 2021 (six months) $ 1,087 2022 1,884 2023 1,685 2024 1,730 Total minimum payments $ 6,386 As of June 30, 2021, minimum sublease rental income to be received in the future under noncancelable subleases was approximately $ 3,970 . The total rent expense for all operating leases, excluding the charges related to the Sublease discussed above, was $ 306 and $ 877 for the three and six months ended June 30, 2021, and $ 751 and $ 1,517 for the three and six months ended June 30, 2020, respectively. Sales Taxes 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 and six months ended June 30, 2021, the Company recorded a liability of $ 146 and $ 284 , respectively, 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 June 30, 2021, the total accrued liability for potential sales tax exposure was $ 845 . Other Contingencies From time to time, the Company may be involved in litigation relating to claims arising out of its operations in the normal course of business. The Company currently is not a party to any legal proceedings, the adverse outcome of which, in management’s opinion, individually or in the aggregate, would have a material adverse effect on the Company’s results of operations, financial position or cash flows. NOTE 8. STOCKHOLDERS’ EQUITY (DEFICIT) Common Stock Issuances During the six months ended June 30, 2021 and 2020, the Company issued an aggregate of 803,367 shares of its common stock and 199,942 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 six months ended June 30, 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 six months ended June 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 . During the six months ended June 30, 2021, the Company issued an aggregate of 15,828 shares of its common stock for services provided to the Company. During the six months ended June 30, 2020, the Company issued and sold an aggregate of 1,491,317 shares of its common stock pursuant to the Equity Distribution Agreement with JMH Securities (as sales agent) and received net proceeds from such sales of $ 6,006 after deducting expenses of $ 270 . The Company voluntarily terminated the Equity Distribution Agreement in January 2021. 13 NOTE 9. STOCK PLANS Stock-Based Compensation During the six months ended June 30, 2021, the Company granted options to purchase an aggregate of 200,955 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 six months ended June 30, 2021: Expected term (in years) 5.5 - 6.1 Expected volatility 82% - 83% Risk-free interest rate 0.6% - 1.0% Expected dividend yield — The assumptions used in calculating the fair values of purchase rights granted under the ESPP during the six months ended June 30, 2021 are set forth in the table below: Expected term (in years) 0.5 - 2.0 Expected volatility 101% - 119% Risk-free interest rate 0.1 % Expected dividend yield — The Company’s stock-based compensation expense by type of award and by operating expense grouping are presented below: Three Months Ended Six Months Ended June 30, June 30, 2021 2020 2021 2020 Stock-based compensation expense by type of award: Restricted stock units $ 5,579 $ 753 $ 9,750 $ 895 Stock awards — 47 19 109 Performance-based stock options — 1,953 16,314 3,921 Stock options 798 1,306 1,635 3,455 Employee stock purchase plan 101 72 251 207 Common stock issued for services 131 — 250 - Total $ 6,609 $ 4,131 $ 28,219 $ 8,587 Stock-based compensation expense by operating expense grouping: Sales and marketing $ 234 $ 198 $ 1,132 $ 376 Research and development 566 184 1,585 421 General and administrative 5,809 3,749 25,502 7,790 $ 6,609 $ 4,131 $ 28,219 $ 8,587 Equity Award Activity Under Stock Plans Stock Awards The Company’s stock award activity for the six months ended June 30, 2021 was as follows: Weighted Average Grant Shares Date Fair Value Unvested at December 31, 2020 - $ - Granted 581 $ 32.33 Vested ( 581 ) $ 32.33 Unvested at June 30, 2021 - All stock awards granted during the six months ended June 30, 2021 were fully vested upon grant. As of June 30, 2021, there was no unrecognized compensation cost related to stock awards granted under the Company’s stock plans. 14 Restricted Stock Units The Company’s restricted stock unit activity for the six months ended June 30, 2021 was as follows: Weighted Average Grant Shares Date Fair Value Unvested at December 31, 2020 829,124 $ 11.53 Granted 394,020 $ 44.25 Forfeited ( 14,439 ) $ 39.60 Vested ( 749,374 ) $ 10.77 Unvested at June 30, 2021 459,331 $ 39.95 As of June 30, 2021, total unrecognized compensation cost related to restricted stock units was $ 11,705 , which is expected to be recognized over a weighted average period of 0.8 year. Performance-Based Stock Options The activity during the six months ended June 30, 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 Remaining Aggregate Exercise Contractual Intrinsic Options Price Term Value Outstanding at December 31, 2020 4,234,020 $ 10.55 Exercised ( 273,159 ) $ 5.79 Forfeited ( 12,552 ) $ 5.92 Expired ( 3,588 ) $ 5.00 Outstanding at June 30, 2021 3,944,721 $ 10.90 7.02 years $ 34,750 Exercisable at June 30, 2021 3,944,721 $ 10.90 7.02 years $ 34,750 During the first six months 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 during the six months ended June 30, 2021. The aggregate intrinsic value of the options exercised during the six months ended June 30, 2021 was $ 6,517 . No options were exercised during the six months ended June 30, 2020. No performance-based stock options were granted during six months ended June 30, 2021 and 2020, and no performance-based stock options vested during the six months ended June 30, 2020. Stock Options The activity during the six months ended June 30, 2021 related to all other stock options was as follows: Weighted-Average Remaining Aggregate Exercise Contractual Intrinsic Options Price Term Value Outstanding at December 31, 2020 5,400,070 $ 12.60 Granted 200,955 $ 33.11 Exercised ( 348,608 ) $ 8.78 Forfeited ( 104,774 ) $ 9.79 Expired ( 2,174 ) $ 5.33 Outstanding at June 30, 2021 5,145,469 $ 13.72 6.55 years $ 34,108 Exercisable at June 30, 2021 4,158,680 $ 13.81 6.05 years $ 24,674 The weighted average grant date fair value of stock options granted during the six months ended June 30, 2021 and 2020 was $ 23.09 and $ 2.06 per share, respectively. The aggregate intrinsic value of the stock options exercised during the six months ended June 30, 2021 and 2020 was $ 8,198 and $ 177 , respectively The total grant date fair value of stock options vested during the six months ended June 30, 2021 and 2020 was $ 1,313 and $ 4,067 , respectively. At June 30, 2021, total unrecognized compensation expense related to stock options was $ 8,137 and is expected to be recognized over a weighted average period of 3.0 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 stock options. 15 Employee Stock Purchase Plan During the six months ended June 30, 2021, a total of 67,068 shares of common stock were purchased under the Company’s ESPP. As of June 30, 2021, accrued employee contributions for future purchases under the ESPP totaled $ 223 . NOTE 10. SUBSEQUENT EVENTS On July 21, 2021, the Company entered into a definitive agreement to acquire Pandologic Ltd., a company incorporated under the laws of the state of Israel (“Pandologic”), pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) for total consideration of $ 150 million (the “Merger Consideration”). The Merger Consideration consists of upfront payments of $ 50 million in cash and $ 35 million in common stock (approximately 1.7 million shares) and $ 65 million payable based on earnouts tied to financial performance of Pandologic in fiscal 2021 and 2022, which amount will be paid in a combination of cash and common stock. The Merger Consideration is subject to adjustment based on Pandologic cash, indebtedness, transaction expenses and working capital as of the closing date (the “Closing”). The Company and Pandologic have agreed to customary representations, warranties, covenants and closing conditions under Israeli law in the Merger Agreement. The Merger Agreement provides for customary termination rights for both the Company and Pandologic, including, among other bases for termination, if the Merger is not consummated prior to October 21, 2021. The Closing is subject to customary conditions (as defined) and is expected to close by late Q3 2021. 16