What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-11-15 compared with 2021-08-05 · 250 added, 119 removed, 294 unchanged (56% of the section changed)

3 unchanged sentences

(in thousands, except per share and share data)

September 30,

Cash and cash equivalents

10 unchanged sentences

Client advances

Contingent consideration, current

Other accrued liabilities

Total current liabilities

Contingent consideration, non-current

Other non-current liabilities

4 unchanged sentences

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

34,857,163 and 31,799,354 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively

Additional paid-in capital

Accumulated deficit

Accumulated other comprehensive income

Accumulated other comprehensive (loss) income

Total stockholders' equity

6 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Operating expenses:

19 unchanged sentences

(in thousands, except share amounts)

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

Comprehensive

Balance as of March 31, 2021

Balance as of June 30, 2021

Common stock issued under employee stock plans, net

Common stock issued for services

Common stock issued for acquisition

Stock-based compensation expense

Balance as of June 30, 2021

Six Months Ended June 30, 2021

Other comprehensive loss

Balance as of September 30, 2021

Nine Months Ended September 30, 2021

Comprehensive

1 unchanged sentence

Common stock issued under employee stock plans, net

Common stock issued for acquisition

Common stock issued for services

1 unchanged sentence

Exercise of warrants

Other comprehensive gain

Balance as of June 30, 2021

Other comprehensive loss

Balance as of September 30, 2021

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

2 unchanged sentences

(in thousands, except share amounts)

Three Months Ended June 30, 2020

Three Months Ended September 30, 2020

Comprehensive

Balance as of March 31, 2020

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

Exercise of warrants

Warrant issuance

Other comprehensive gain

Balance as of June 30, 2020

Six Months Ended June 30, 2020

Balance as of September 30, 2020

Nine Months Ended September 30, 2020

Comprehensive

2 unchanged sentences

Common stock issued under employee stock plans, net

Release of Machine Box holdback consideration

Stock-based compensation expense

2 unchanged sentences

Other comprehensive gain

Balance as of June 30, 2020

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

Balance as of September 30, 2020

VERITONE, INC.

1 unchanged sentence

(in thousands)

Six Months Ended

Nine Months Ended

September 30,

Cash flows from operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

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

Depreciation and amortization

Issuance of warrants

Loss on disposal of fixed assets

Provision for doubtful accounts

Loss on sublease

Change in fair value of warrant liability

Provision for doubtful accounts

Change in fair value of contingent consideration

Stock-based compensation expense

8 unchanged sentences

Other liabilities

Net cash used in operating activities

Net cash (used in) provided by operating activities

Cash flows from investing activities:

1 unchanged sentence

Capital expenditures

Net cash (used in) provided by investing activities

Acquisitions, net of cash acquired

Net cash used in investing activities

Cash flows from financing activities:

Proceeds from issuances of stock under employee stock plans, net

Proceeds from the exercise of warrants

Proceeds from common stock offerings, net

1 unchanged sentence

Repayment of loan

Proceeds from the exercise of warrants

Proceeds from issuances of stock under employee stock plans, net

Net cash provided by financing activities

Net increase in cash and cash equivalents and restricted cash

Net (decrease) increase in cash and cash equivalents and restricted cash

Cash and cash equivalents and restricted cash, beginning of period

9 unchanged sentences

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.

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 business sectors,serving commercial enterprises as well as government and regulated industries.

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.

In addition, the Company operates a full-service advertising agency that leverages the Company’s aiWARE technologies to provide differentiated Managed 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.

On September 14, 2021, the Company acquired PandoLogic Ltd., a leading provider of intelligent hiring solutions (“PandoLogic”), a company incorporated under the laws of the state of Israel (“PandoLogic”), as discussed in more detail in Note 3.

PandoLogic’s platform, pandoIQ, is an AI-enabled recruitment platform.

PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

4 unchanged sentences

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.

Interim results for the three and nine months ended September 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 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 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.

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.

1 unchanged sentence

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 .

During the year ended December 31, 2020, the Company generated cash flows from operations of $ 1,433 and incurred a net loss of $ 47,876 .

In the nine months ended September 30, 2021, the Company generated negative cash flows from operations of $ 3,528 and incurred a net loss of $ 54,726 .

As of September 30, 2021, the Company had an accumulated deficit of $ 335,091 .

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.

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 September 1, 2018 (the “Equity Distribution Agreement”).

In the first nine months of 2021, the Company received net proceeds of $ 7,127 from the issuance of common stock under the Company’s employee stock plans and $ 2,279 from the exercise of common stock warrants.

Beginning in the fourth quarter of 2021 and including the acquisition of PandoLogic in September 2021, the Company expects to generate positive consolidated cash flows from its operations.

As a result, management believes that the Company’s existing balances of cash and cash equivalents, which totaled $ 72,645 as of September 30, 2021, will be sufficient to meet its anticipated cash requirements for the foreseeable future.

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.

The principal estimates relate to the accounting recognition and presentation of revenue, allowance for doubtful accounts, purchase accounting, impairment of long-lived assets, the valuation of contingent consideration, 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.

3 unchanged sentences

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.

Two individual customers accounted for 27 % of the Company’s net revenues for the three months ended September 30, 2021 and no individual customer accounted for 10 % of the Company’s net revenues for the nine months ended September 30, 2021.

No individual customer accounted for 10 % of the Company’s net revenues for the three months ended and nine months ended September 30, 2020.

Three Commercial Enterprise Managed Services clients individually accounted for 10 % or more of the Company’s accounts receivable as of September 30, 2021 and two Commercial Enterprise Managed services clients individually accounted for 10 % or more of the Company’s accounts receivable as 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.

As of September 30, 2021, the aggregate amount of the transaction prices under the Company’s contracts allocated to the Company’s remaining performance obligations was $ 8,346 approximately 52 % 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 .

Excluded based on this policy are balances related to PandoLogic representing gross purchase orders to be satisfied in less than one year.

Revenues will be recognized net of costs to fulfill these orders.

Significant Accounting Policies

11 unchanged sentences

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.

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 statement s, 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 September 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.

7 unchanged sentences

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.

BUSINESS COMBINATIONS

On September 14, 2021 , the Company acquired 100 % of PandoLogic.

, a company incorporated under the laws of the state of Israel, pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) dated as of July 21, 2021 .

PandoLogic is a leading provider of intelligent hiring solutions and utilizes its proprietary platform to accelerate the time and improve the efficiency in the process for employers hiring at scale for both mass market and difficult-to-source candidates.

PandoLogic’s fully autonomous recruiting platform helps employers source talent faster and more efficiently with predictive algorithms, machine learning and AI.

The total purchase consideration for PandoLogic was $ 116,633 (the “Merger Consideration”), which consisted of upfront consideration of $ 58,733 in cash and $ 31,500 for the fair value of the Company’s 1,704,822 shares of common stock, and up to $ 65,000 in contingent consideration based on achieving certain 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 “Earnout”).

The total purchase consideration is preliminary and subject to net working capital adjustments that the Company expects to finalize and settle in the measurement period.

The final settlement amount may vary materially as amounts are finalized and ultimately agreed to by the parties.

The Company utilized a Monte Carlo simulation model to estimate the fair value of the Earnout.

The fair value of the Earnout was estimated to be $ 30,000 as of September 14, 2021, $ 26,400 of which was deemed to be purchase consideration and recorded within contingent consideration current and contingent consideration non-current on the condensed consolidated balance sheet.

The remaining $ 3,600 will be recognized as compensation expense over the earnout period in the general and administrative expenses on the condensed consolidated statement of operations and comprehensive loss.

Subsequent to the acquisition date, the Company is required to reassess its estimate of the fair value of the Earnout, including certain future Earnout obligations triggered on employment status of certain PandoLogic management, and record any changes in earnings when the estimate is based on information not known as of the acquisition date (See Note 5).

The Company incurred $ 2,161 in acquisition related expenses and has recorded them in general and administrative expenses in the condensed consolidated statement of operations and comprehensive loss .

The following table summarizes the fair value of the purchase price consideration (in thousands):

Acquisition consideration

Cash consideration at closing

Equity consideration at closing

Contingent earnout

The preliminary allocation of the purchase consideration to tangible and intangible assets acquired and liabilities assumed is based on estimated fair values and is as follows (in thousands):

Purchase price allocation**

Accounts receivable

Prepaid and other current assets

Property and equipment

Intangible assets

Total assets acquired

Accounts payable

Accrued expenses and other current liabilities

Deferred tax liability

Total liabilities assumed

Identifiable net assets acquired

Total preliminary purchase consideration

**The purchase price allocation has been prepared on a preliminary basis and changes to the preliminary purchase price allocation may occur as additional information concerning asset and liability valuations is finalized.

The preliminary fair value estimates of the net assets acquired are based upon preliminary calculations and valuations, and those estimates and assumptions regarding certain tangible assets acquired and liabilities assumed, the valuation of intangible assets acquired, income taxes, and goodwill are subject to change as the Company obtains additional information during the measurement period ( up to one year from the acquisition date ).

The excess of the total consideration over the tangible assets, identifiable intangible assets, and assumed liabilities is recorded as goodwill.

Goodwill is primarily attributable to operational efficiencies from operating PandoLogic products on aiWARE as well as opportunities to cross-sell into our commercial enterprise customer base.

Identifiable Intangible Assets

The identifiable intangible assets acquired consisted of developed technology, customer relationships and tradename with estimated useful lives of 4 - 7 years.

The Company amortizes the fair value of these intangible assets on a straight-line basis over their respective useful lives.

The fair value of the intangible assets has been estimated using a combination of the income and cost approaches.

Under the income approach, the after-tax cash flows associated with the asset are discounted to present value.

The key assumptions include the Company's estimates of the projected cash flows and discount rates.

Under the cost approach, the replacement cost is used to estimate the value of the asset.

The key assumptions include the Company's estimates of the direct and indirect costs required to replace the asset.

The valuation of the intangible assets acquired from PandoLogic along with their estimated useful lives, is as follows (in thousands):

Estimated Useful Lives (in years)

Customer relationships

Developed technology

Total intangible assets

In connection with the acquisition, a deferred tax liability is established for the future consequences attributable to differences between the financial statement carrying amounts of the acquired non-goodwill intangible assets and their respective tax basis.

No deferred tax asset or liability is recorded on PandoLogic goodwill, most of which is not deductible for tax purposes.

No valuation allowance is recorded on the acquired PandoLogic deferred tax assets that are presented net of deferred tax liability in the preliminary purchase price allocation.

The Company’s tax expense for the three and nine-month periods ended September 30, 2021 is primarily attributable to PandoLogic.

Unaudited Pro Forma Results

The unaudited pro forma financial information in the table below summarizes the combined results of operations for Veritone and PandoLogic, as if the companies were combined for the nine-month period ended September 30, 2021.

The unaudited pro forma financial information for all periods presented included the business combination accounting effects resulting from this acquisition, including adjustments to reflect recognition of intangible asset amortization and accretion of contingent consideration.

The unaudited pro forma financial information as presented below is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisitions had taken place at the beginning of January 1, 2020.

The unaudited pro forma financial information was as follows (in thousands):

The Company recognized $ 4,311 in revenue and $ 1,889 of net income related to PandoLogic since the acquisition date of September 14 through September 30, 2021 in the condensed consolidated statement of operations and comprehensive loss.

Three Months Ended

Nine Months ended

September 30,

Loss before provision for income taxes

Three Months Ended

Nine Months ended

September 30,

Loss before provision for income taxes

NET LOSS PER SHARE

1 unchanged sentence

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Weighted-average common shares outstanding

6 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Common stock options and restricted stock units

12 unchanged sentences

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:

As of September 30, 2021, the Company’s cash and cash equivalents balances were as follows:

Money market funds

1 unchanged sentence

Money market funds

Contingent Consideration

All of the Company’s contingent consideration liabilities are categorized as Level 3 within the fair value hierarchy.

Contingent consideration was valued at the time of acquisition using the Monte Carlo simulation model.

This model incorporates revenue volatility, internal rate of return, and risk free rate.

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.

As of September 30, 2021, the Company’s contingent consideration liabilities current and non-current balances were as follows:

Consideration

Contingent consideration, current

Contingent consideration, non-current

Included in the contingent consideration liabilities as of September 30, 2021 is $ 1,261 which relates to contingent consideration resulting from an acquisition made by Pandologic prior to execution of the Merger Agreement.

As discussed in Note 8, the Company is indemnified against this contingent consideration and related accretion.

Stock Warrants

3 unchanged sentences

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.

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.

GOODWILL AND INTANGIBLE ASSETS, NET

The carrying amount of goodwill was $ 6,904 as of June 30, 2021 and December 31, 2020.

The carrying amount of goodwill was $ 27,999 as of September 30, 2021 and $ 6,904 December 31, 2020.

Balance at December 31, 2020

Acquisition of PandoLogic

Balance at September 30, 2021

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

September 30, 2021

December 31, 2020

5 unchanged sentences

Noncompete agreements

The following table presents future amortization of the Company’s finite-lived intangible assets at June 30, 2021:

The following table presents future amortization of the Company’s finite-lived intangible assets at September 30, 2021:

2021 (3 months)

2 unchanged sentences

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.

As of September 30, 2021 and December 31, 2020, the Company had cash and cash equivalents of $ 72,645 and $ 114,817 , respectively, including $ 56,996 and $ 40,052 , respectively, of cash received from Commercial Managed Services clients for future payments to vendors.

Accounts Receivable, Net

Accounts receivable consisted of the following:

Accounts receivable — Advertising

September 30,

Accounts receivable — Commercial Managed Services

Accounts receivable — Other

1 unchanged sentence

Accounts receivable, net

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.

Property, Equipment and Improvements, Net

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

September 30,

Property and equipment

2 unchanged sentences

Property, equipment and improvements, net

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.

During the nine months ended September 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 $ 95 and $ 349 for the three and nine months ended September 30, 2021, respectively.

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

Accounts Payable

Accounts payable consisted of the following:

Accounts payable — Advertising

September 30,

Accounts payable — Commercial Managed Services

Accounts payable — Other

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

1 unchanged sentence

Three Months Ended

Six Months Ended

aiWARE SaaS Solutions

aiWARE Content Licensing and Media Services

Nine Months Ended

September 30,

Commercial Enterprise

Government & Regulated Industries

Total revenue

In Q3 2021, we realigned our organization to improve focus and growth into two customer groups:

(1) Commercial Enterprise, which today consists of customers in the commercial sector, including our media and entertainment customers, advertising customers, content licensing customers and customers through PandoLogic that are not from government or regulated industries, and (2) Government & Regulated Industries (GRI), which today consists of customers in the government and regulated industries sectors, including our state, local and federal government, legal, compliance and energy customers.

Software Products & Services consists of revenue generated from our aiWARE platform and through Pandologic’s software product solutions, any related support and maintenance services, and any related professional services associated with the deployment and or implementation of such solutions.

Managed Services consists of revenues generated from our advertising agency and related services and content licensing.

The table below illustrates the presentation of our revenues based on the above definitions:

Three Months Ended

Nine Months Ended

September 30, 2021

Revenue Presentation

Software Products & Services

Managed Services

Total Managed Services

Total Revenue

Software Products & Services consists of aiWARE SaaS Solutions of $ 4,716 and $ 19,292 for the three and nine months ended September 30, 2021 respectively as well PandoLogic of $ 4,311 for the three months September 30 , 2021.

Three Months Ended

Nine Months Ended

September 30, 2020

Revenue Presentation

Software Products & Services

Managed Services

Total Managed Services

Total Revenue

PandoLogic Revenue Recognition

The Company generates revenue primarily from platform services where it provides access to digital job advertising done programmatically.

Revenue is derived from AI-enabled programmatic advertising, which uses software and algorithms to match buyers and sellers of digital job advertising in a technology-driven marketplace.

The Company provides the use of its solution to clients to execute digital job advertising campaigns.

Campaigns are typically ordered through monthly purchase orders.

The Company charges clients a fee based on the number of job searches by potential applicants through its solution during each campaign.

Revenue is recognized as platform advertising services are provided during each campaign.

The Company determined that it is not the principal in the purchase and sale of jobs placements in all of its arrangements, and therefore, it reports revenue on a net basis for the solution fees charged to clients.

Costs to source the applicants which are measured and invoiced monthly over the period the services are delivered.

Other Expense, Net

1 unchanged sentence

Three Months Ended

Six Months Ended

Interest income, net

Nine Months Ended

September 30,

Interest (expense) income, net

Change in fair value of warrant liability

9 unchanged sentences

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)

During the nine months ended September 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 September 30, 2021, future minimum lease payments were as follows:

2021 (three months)

Total minimum payments

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.

As of September 30, 2021, minimum sublease rental income to be received in the future under noncancelable subleases was approximately $ 3,686 .

The total rent expense for all operating leases, excluding the charges related to the Sublease discussed above, was $ 428 and $ 4,672 for the three and nine months ended September 30, 2021, and $ 748 and $ 2,265 for the three and nine months ended September 30, 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 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 .

During the three and nine months ended September 30, 2021, the Company recorded a liability net of payments remitted to states of $ 22 and $ 306 , 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.

Other Contingencies

1 unchanged sentence

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.

In conjunction with our acquisition of PandoLogic as outlined in Note 3, there are certain contingencies outlined in the Merger Agreement for which the Company is indemnified including, but not limited to, contingent consideration arising from a previous acquisition, and international as well as state and local tax matters.

An indemnification asset has been recognized related to fair value of the contingent consideration acquired in the opening balance sheet of $ 1,259 .

As of September 30, 2021, the Company was investigating potential sales tax exposure for PandoLogic, of which potential maximum exposure is estimated to be covered and reserved for under escrow with the sellers of PandoLogic.

As a result, the Company has not accrued any contingency estimates for sales tax exposure for PandoLogic as of September 30, 2021.

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 .

During the nine months ended September 30, 2021 and 2020, the Company issued an aggregate of 1,084,941 and 297,490 shares of its common stock, respectively 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 nine months ended September 30, 2021, the Company issued a total of 1,704,822 shares of its common stock in connection with the acquisition of PandoLogic.

During the nine months ended September 30, 2021, the Company issued a total of 252,218 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 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 .

During the nine months ended September 30, 2021, the Company issued an aggregate of 15,828 shares of its common stock for services provided to the Company.

During the nine 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.

During the nine months ended September 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 JMP Securities (as sales agent) and received net proceeds from such sales of $ 5,996 after deducting expenses of $ 281 .

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

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.

During the nine months ended September 30, 2021, the Company granted options to purchase an aggregate of 298,455 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:

The following assumptions were used to compute the grant date fair values of the stock options granted during the nine months ended September 30, 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 six months ended June 30, 2021 are set forth in the table below:

The assumptions used in calculating the fair values of purchase rights granted under the ESPP during the nine months ended September 30, 2021 are set forth in the table below:

Expected term (in years)

4 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Stock-based compensation expense by type of award:

Restricted stock units

Machine Box contingent common stock issuances

Performance-based stock options

7 unchanged sentences

Equity Award Activity Under Stock Plans

The Company’s stock award activity for the six months ended June 30, 2021 was as follows:

The Company’s stock award activity for the nine months ended September 30, 2021 was as follows:

Average Grant

1 unchanged sentence

Unvested at December 31, 2020

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.

Unvested at September 30, 2021

All stock awards granted during the nine months ended September 30, 2021 were fully vested upon grant.

As of September 30, 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 six months ended June 30, 2021 was as follows:

The Company’s restricted stock unit activity for the nine months ended September 30, 2021 was as follows:

Average Grant

1 unchanged sentence

Unvested at December 31, 2020

Unvested at June 30, 2021

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.

Unvested at September 30, 2021

As of September 30, 2021, total unrecognized compensation cost related to restricted stock units was $ 8,033 , which is expected to be recognized over a weighted average period of 1.0 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:

The activity during the nine months ended September 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

Outstanding at December 31, 2020

Outstanding at June 30, 2021

Exercisable at June 30, 2021

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.

Outstanding at September 30, 2021

Exercisable at September 30, 2021

During the first nine 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 nine months ended September 30, 2021.

The aggregate intrinsic value of the options exercised during the nine months ended September 30, 2021 was $ 7,665 .

No options were exercised during the nine months ended September 30, 2020.

No performance-based stock options were granted during the nine months ended September 30, 2021 and 2020, and no performance-based stock options vested during the nine months ended September 30, 2020.

Stock Options

The activity during the six months ended June 30, 2021 related to all other stock options was as follows:

The activity during the nine months ended September 30, 2021 related to all other stock options was as follows:

Weighted-Average

Outstanding at December 31, 2020

Outstanding at June 30, 2021

Exercisable at June 30, 2021

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.

Outstanding at September 30, 2021

Exercisable at September 30, 2021

The weighted average grant date fair value of stock options granted during the nine months ended September 30, 2021 and 2020 was $ 19.95 and $ 2.46 per share, respectively.

The aggregate intrinsic value of the stock options exercised during the nine months ended September 30, 2021 and 2020 was $ 9,521 and $ 484 , respectively.

The total grant date fair value of stock options vested during the nine months ended September 30, 2021 and 2020 was $ 1,797 and $ 4,659 , respectively.

At September 30, 2021, total unrecognized compensation expense related to stock options was $ 7,502 and is expected to be recognized over a weighted average period of 2.97 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.

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 .

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.

During the nine months ended September 30, 2021, a total of 67,068 shares of common stock were purchased under the Company’s ESPP.

As of September 30, 2021, accrued employee contributions for future purchases under the ESPP totaled $ 157 .

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