What changed in this filing

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Item 1. Financial Statements

2022-05-10 compared with 2021-11-15 · 316 added, 233 removed, 311 unchanged (64% of the section changed)

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(in thousands, except per share and share data)

September 30,

Cash and cash equivalents

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Total current liabilities

Convertible senior notes, non-current

Contingent consideration, non-current

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75,000,000 shares authorized;

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

36,056,839 and 34,972,256 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively

Additional paid-in capital

Accumulated deficit

Accumulated other comprehensive (loss) income

Accumulated other comprehensive income (loss)

Total stockholders' equity

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Three Months Ended

Nine Months Ended

September 30,

Operating expenses:

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(in thousands, except share amounts)

Three Months Ended September 30, 2021

Comprehensive

Balance as of June 30, 2021

Common stock issued under employee stock plans, net

Common stock issued for acquisition

Stock-based compensation expense

Other comprehensive loss

Balance as of September 30, 2021

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

Comprehensive

Balance as of December 31, 2021

Common stock issued under employee stock plans, net

Common stock issued for acquisition

Common stock issued for services

Cumulative-effect of accounting change adopted as of January 1, 2022

Common stock issued under employee stock plans

Common stock withheld for employee taxes

Common stock issued for acquisitions

Common stock issued as part of contingent consideration

Stock-based compensation expense

Exercise of warrants

Other comprehensive loss

Balance as of September 30, 2021

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

VERITONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share amounts)

Three Months Ended September 30, 2020

Comprehensive

Balance as of June 30, 2020

Common stock offerings, net

Common stock issued under employee stock plans, net

Release of Machine Box holdback consideration

Stock-based compensation expense

Other comprehensive gain

Balance as of September 30, 2020

Nine Months Ended September 30, 2020

Balance as of March 31, 2022

Three Months Ended March 31, 2021

Comprehensive

Balance as of December 31, 2020

Common stock offerings, net

Common stock issued under employee stock plans, net

Release of Machine Box holdback consideration

Common stock issued for services

Stock-based compensation expense

Exercise of warrants

Warrant issuance

Other comprehensive gain

Balance as of September 30, 2020

Balance as of March 31, 2021

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

VERITONE, INC.

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(in thousands)

Nine Months Ended

September 30,

Three Months Ended

Cash flows from operating activities:

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

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

Depreciation and amortization

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Loss on sublease

Change in fair value of warrant liability

Change in fair value of contingent consideration

Stock-based compensation expense

Change in fair value of contingent consideration

Change in deferred taxes

Amortization of debt issuance costs

Changes in assets and liabilities:

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Other liabilities

Net cash (used in) provided by operating activities

Net cash provided by operating activities

Cash flows from investing activities:

Proceeds from the sale of equipment

Minority investment

Capital expenditures

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Cash flows from financing activities:

Proceeds from issuances of stock under employee stock plans, net

Payment of contingent considerations

Taxes paid related to net share settlement of equity awards

Proceeds from the exercise of warrants

Proceeds from common stock offerings, net

Proceeds from loan

Repayment of loan

Net cash provided by financing activities

Proceeds from issuances of stock under employee stock plans, net

Net cash (used in) provided by financing activities

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

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Cash and cash equivalents and restricted cash, end of period

Supplemental Disclosure of Cash Flow Information

Non-cash activities:

Shares issued for acquisition of businesses and earn-out consideration

Lease liabilities arising from right-of-use assets

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

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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.

The aiWARE 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 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 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.

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.

The Company’s advertising services also include its VeriAds Network, which is comprised of programs that enable broadcasters, podcasters and social media influencers to generate incremental advertising revenue.

The Company also offers cloud-native digital content management solutions and 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.

On March 1, 2022, the Company acquired an influencer-based management company, as discussed in more detail in Note 3.

On September 14, 2021, the Company acquired PandoLogic Ltd.

(“PandoLogic”), a company incorporated under the laws of the state of Israel, and a leading provider of intelligent hiring solutions, as discussed in more detail in Note 3.

PandoLogic’s software platform, PandoIQ, is an AI-enabled talent acquisition and recruitment platform.

PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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The information included in this Form 10-Q should be read in conjunction with the information included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 17, 2022.

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.

Interim results for the three months ended March 31, 2022 are not necessarily indicative of the results the Company will have for the full year ending December 31, 2022.

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

All significant intercompany transactions have been eliminated in consolidation.

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

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

The December 31, 2021 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

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

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.

Liquidity and Capital Resources

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 .

During the years ended December 31, 2021 and 2020, the Company generated cash flows from operations of $ 7,234 and $ 1,433 , respectively, and incurred net losses of $ 70,593 and $ 47,876 , respectively.

In the three months ended March 31, 2022, the Company generated cash flows from operations of $ 10,134 and incurred a net loss of $ 28,441 .

As of March 31, 2022, the Company had an accumulated deficit of $ 380,076 .

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 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.

In the first three months of 2022, the Company received net proceeds of $ 569 from the issuance of common stock under the Company’s employee stock plans, and used $ 9,441 for taxes paid related to net share settlement of equity awards and $ 14,376 for payment of the 2021 earnout for PandoLogic.

In 2022, driven by 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 $ 237,553 as of March 31, 2021, will be sufficient to meet its anticipated cash requirements for the foreseeable future.

Use of Accounting Estimates

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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.

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

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.

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Significant Customers

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.

One individual customer accounted for 10 % or more of the Company’s revenue for the three months ended March 31, 2022 and one individual customer accounted for 10 % of the Company’s net revenues for the three months ended March 31, 2021.

Two individual customers accounted for 10 % or more of the Company’s accounts receivable as of March 31, 2022 and two individual customers accounted for 10 % or more of the Company’s accounts receivable as December 31, 2021.

Remaining Performance Obligations

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.

As of March 31, 2022, the aggregate amount of the transaction prices under the Company’s contracts allocated to the Company’s remaining performance obligations was $ 8,798 , approximately 57 % of which the Company expects to recognize as revenue over the next twelve months , and the remainder thereafter.

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

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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.

Recently Issued Accounting Pronouncements

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, 2021, other than those associated with the recently adopted leasing guidance as further described in Note 9.

Recently Adopted 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 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.

The amendments under this pronouncement change the way all leases with duration of one year or more are treated.

Under this guidance, lessees are required to capitalize virtually all leases on the balance sheet as a right-of-use asset and an associated financing lease liability or operating lease liability.

On January 1, 2022, the Company adopted the new leasing standard using the modified retrospective transition method applied at the adoption date of the standard.

See Note 9 for further details.

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 intra-period 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.

The Company adopted this guidance on January 1, 2022 using the prospective transition method.

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

Recently Issued Accounting Pronouncements

In September 2016, the FASB issued ASU No.

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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.

In October 2021, the FASB issued ASU No.

2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers , which requires entities to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC Topic 606, Revenue from Contracts with Customers , in order to align the recognition of a

contract liability with the definition of a performance obligation.

This standard will be effective for the Company beginning in the first quarter of fiscal year 2023, and early adoption is permitted.

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BUSINESS COMBINATIONS

March 2022 Acquisition

On March 1, 2022 , the Company acquired 100 % of an influencer-based management company, which is a California limited liability company, pursuant to a securities purchase agreement (the “Purchase Agreement”) dated as of March 1, 2022 .

The entity is an influencer management company that works with a select group of social media influencers to create content and custom marketing campaigns for brand partners and agencies.

The total purchase consideration was $ 5,844 (the “Acquisition Consideration”), which consisted of upfront consideration of $ 1,500 in cash, $ 1,929 for the fair value of the Company’s 116,550 shares of common stock, and deferred cash payments to be made in 2023 and 2024 totaling $ 3,000 , which was estimated to have a fair value of $ 2,707 on the acquisition date.

The total purchase price was decreased by $ 976 for the settlement of a preexisting receivable and increased by $ 684 to adjust for the cash on hand at the time of the transaction closing.

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.

In addition, the sellers may receive up to $ 4,500 in contingent earnout consideration based on achieving certain milestones tied to the entity’s financial performance in fiscal 2022 and 2023, which amount will be paid in cash (the “Earnout”).

The fair value of the Earnout was estimated to be $ 3,015 as of March 1, 2022, all of which was deemed to be compensation to the seller which 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.

The Company incurred $ 270 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

Deferred consideration

Acquired cash

Settlement of pre-existing receivable

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):

Preliminary 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

Operating lease liabilities, non-current

Total liabilities assumed

Identifiable net assets acquired

Total purchase consideration

**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 opportunities to cross-sell into our Commercial Enterprise customer base.

For income tax purposes, the Company elected to treat the transaction as an asset acquisition.

Tax deductible goodwill generated from the acquisition is $ 2,842 (including transaction costs of $ 270 ).

Identifiable Intangible Assets

The identifiable intangible assets acquired consisted of the influencer network, trade name and brand relationships with estimated useful lives of 2 - 10 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 an income approach.

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.

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

Estimated Useful Lives (in years)

Influencer network

Brand relationships

Total intangible assets

PandoLogic Acquisition

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

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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 total purchase consideration for PandoLogic was $ 122,451 (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, 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”) and a net working capital adjustment of $5,818 paid in cash.

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

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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 .

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 the 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 in 2021 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):

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Contingent earnout

Net working capital adjustment

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):

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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 ).

Total purchase consideration

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

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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.

In connection with the acquisition, a net deferred tax liability of $ 11,828 was established primarily for the differences between the fair value of the acquired non-goodwill intangible assets and PandoLogic’s historical tax basis in these assets.

No deferred tax asset or liability is recorded on PandoLogic goodwill, $ 25,141 of which is not deductible for tax purposes.

In August 2021, PandoLogic obtained the approval for Preferred Technology Enterprise status under which its Israeli tax rate is reduced from the 23 % statutory rate to a 12 % beneficial rate.

This arrangement is scheduled to expire in December 2025.

The acquired Israel deferred tax assets and liabilities are computed based on the tax rate in the year of their expected reversal.

No valuation allowance is recorded on the acquired PandoLogic deferred tax assets as it is more likely than not they will be utilized to offset future taxable income.

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 in the table below summarizes the combined results of operations for Veritone and PandoLogic as if the companies were combined for the three-month periods ended March 31, 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 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 acquisition had taken place at the beginning of January 1, 2021.

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

Convertible Senior Notes

In November 2021, the Company issued, at par value, $ 201.3 million aggregate principal amount of 1.75 % convertible senior notes due 2026 (the “Convertible Notes”).

The issuance included the full exercise of an option granted by the Company to the initial purchasers of the Convertible Notes to purchase an additional $ 26.25 million aggregate principal amount of Convertible Notes.

The Convertible Notes were issued pursuant to and are subject to the terms and conditions of an indenture, which is referred to as the Indenture, between the Company and U.S.

Bank National Association, as trustee.

The Convertible Notes were offered and sold in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended.

The Convertible Notes are senior, unsecured obligations of the Company and will bear interest at a rate of 1.75 % per year.

Interest will accrue from November 19, 2021 and will be payable semi-annually in arrears on May 15 and November 15 of each year, beginning on May 15, 2022.

The Convertible Notes will mature on November 15, 2026 , unless earlier converted, redeemed, or repurchased in accordance with the terms of the Convertible Notes.

Holders of the Convertible Notes may convert all or any portion of their Convertible Notes at their option at any time prior to the close of business on the business day immediately preceding May 15, 2026, only under the following conditions:

(1) during any calendar quarter commencing after the calendar quarter ending on March 31, 2022 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price on each applicable trading day;

(2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $ 1,000 principal amount of Convertible Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of the Company’s common stock and the conversion rate for the Convertible Notes on each such trading day;

(3) if the Company calls such Convertible Notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the applicable redemption date;

or (4) upon the occurrence of specified corporate events.

On or after May 15, 2026 , holders may convert all or any portion of their Convertible Notes at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date regardless of the foregoing conditions.

Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company’s election.

The conversion rate for the Convertible Notes will initially be 27.2068 shares of the Company’s common stock per $1,000 principal amount of Convertible Notes (equivalent to an initial conversion price of approximately $ 36.76 per share of common stock).

The conversion rate will be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest.

In addition, following certain corporate events that occur prior to the maturity date or following the Company’s issuance of a notice of redemption, the Company will, in certain circumstances, increase the conversion rate for a holder who elects to convert its Convertible Notes in connection with such a corporate event or who elects to convert its Convertible Notes called (or deemed called) for redemption during the related redemption period, as the case may be.

The Company may not redeem the Convertible Notes prior to November 20, 2024 .

The Company may redeem for cash all or any portion of the Convertible Notes (subject to certain limitations), at its option, on or after November 20, 2024 if the last reported sale price of the Company’s common stock has been at least 130 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100 % of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

No sinking fund is provided for the Convertible Notes.

If the Company undergoes a fundamental change prior to the maturity date, subject to certain conditions, holders may require the Company to repurchase for cash all or any portion of their Convertible Notes.

The fundamental change repurchase price will be equal to 100 % of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

The Convertible Notes are the Company’s senior unsecured obligations and rank senior in right of payment to all of the Company’s indebtedness that is expressly subordinated in right of payment to the Convertible Notes;

equal in right of payment with all existing and future liabilities of the Company that are not so subordinated;

effectively junior to any of secured indebtedness of the Company to the extent of the value of the assets securing such indebtedness;

and structurally junior to all indebtedness and other liabilities (including trade payables) and any preferred equity of the Company’s current or future subsidiaries.

The net proceeds from the issuance of the Convertible Notes were approximately $ 194.9 million, after deducting debt issuance costs.

The total debt issuance costs incurred and recorded by the Company amounted to $ 6.3 million, which were recorded as a reduction to the face amount of the Convertible Notes and are being amortized to interest expense using the effective interest method over the contractual term of the Convertible Notes.

The Convertible Notes are recorded as a liability within convertible senior notes, non-current.

For the three months ended March 31, 2022, interest expense related to the Convertible Notes and amortization of the issuance costs was $ 1.2 million.

The effective annual interest rate for the three months ended March 31, 2022 was approximately 2.42 %.

As of March 31, 2022, the if-converted value of the Convertible Notes did no t exceed the outstanding principal amount.

As of March 31, 2022, the total estimated fair value of the Convertible Notes was $ 176.3 million, which was determined based on a market approach using actual bids and offers of the Convertible Notes in an over-the-counter market on the last trading day of the period.

The Company considers these assumptions to be Level 2 inputs in accordance with the fair value hierarchy described in Note 6.

In connection with the pricing of the Convertible Notes, with the full exercise by the initial purchasers of their option to purchase additional Convertible Notes in November 2021, the Company used approximately $ 18.6 million of the net proceeds from the issuance of the Convertible Notes to enter into privately negotiated capped call transactions, which are referred to as the capped calls, with various financial institutions.

The capped call transactions will cover, subject to anti-dilution adjustments substantially similar to those applicable to the Convertible Notes, the number of shares of the Company’s common stock underlying the Convertible Notes.

The capped call transactions are expected generally to reduce the potential dilution to the Company’s common stock upon conversion of the Convertible Notes and/or offset some or all of any cash payments the Company is required to make in excess of the principal amount of converted Convertible Notes, as the case may be, in the event that the market price per share of the Company’s common stock, as measured under the terms of the capped call transactions, is greater than the strike price of the capped call transactions, which initially corresponds to the conversion price of the Convertible Notes and is subject to anti-dilution adjustments substantially similar to those applicable to the conversion rate of the Convertible Notes.

If, however, the market price per share of the Company’s common stock, as measured under the terms of the capped call transactions, exceeds the cap price of the capped call transactions, there would nevertheless be dilution and/or there would not be an offset of such potential cash payments, in each case, to the extent that such market price exceeds the cap price of the capped call transactions.

The initial cap price of the capped calls is $ 48.55 per share of common stock, which represents a premium of 75 % over the last reported sale price of the Company’s common stock of $ 27.74 per share on November 16, 2021, and is subject to certain customary adjustments under the terms of the capped calls;

provided that the cap price will not be reduced to an amount less than the strike price of $ 35.76 per share.

The capped call transactions are separate transactions and are not part of the terms of the Convertible Notes.

The capped calls meet the criteria for classification as equity and, as such, are not remeasured each reporting period and are included as a reduction to additional paid-in-capital within stockholders’ equity.

NET LOSS PER SHARE

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Three Months Ended

Nine Months Ended

September 30,

Weighted-average common shares outstanding

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Three Months Ended

Nine Months Ended

September 30,

Common stock options and restricted stock units

Warrants to purchase common stock

Common stock issuable in connection with convertible senior notes

FINANCIAL INSTRUMENTS

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

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

As of March 31, 2022, the Company’s cash and cash equivalents were as follows:

Money market funds

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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:

Contingent consideration for the PandoLogic acquisition was valued at the time of acquisition using Monte Carlo simulation models.

These models incorporate contractual terms and assumptions regarding financial forecasts for PandoLogic, discount rates, and volatility of forecasted revenue.

The value of the Company’s contingent consideration would increase if a lower discount rate was used and would decrease if a higher discount rate was used.

Similarly, a higher revenue volatility assumption would increase the value of the contingent consideration, and a lower revenue volatility assumption would decrease the value of the contingent consideration.

Contingent consideration for the March 2022 acquisition was valued using a simple probability of achievement model, with the probability of achievement based on management’s forecasted outcomes for 2022 and 2023 fiscal year results for the acquired entity.

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 March 31, 2022, the Company’s contingent consideration liabilities current and non-current balances were as follows:

Consideration

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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.

As of December 31, 2021, the Company’s contingent consideration liabilities current and non-current balances were as follows:

Consideration

Contingent consideration, current

Contingent consideration, non-current

Stock Warrants

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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.

During the three months ended March 31, 2022, the Company invested $ 2,000 in a strategic investment in a technology company that was determined to not have a readily determinable fair value.

This investment is carried initially at cost of $ 2,000 on our condensed consolidated balance sheet within other assets.

The Company will monitor this investment to determine whether an other-than-temporary decline in value indicates that impairment charges may be required.

The Company will also re-measure its investment if there is an observable transaction in a similar class of security to our investment.

GOODWILL AND INTANGIBLE ASSETS, NET

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

The carrying amount of goodwill was $ 36,630 as of March 31, 2022 and $ 34,058 December 31, 2021.

Balance at December 31, 2021

Acquisition of PandoLogic

Balance at September 30, 2021

March 2022 acquisition

Balance at March 31, 2022

Intangible Assets

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

September 30, 2021

March 31, 2022

December 31, 2021

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Developed technology

Customer relationships

Customer and supplier relationships

Noncompete agreements

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

The following table presents future amortization of the Company’s finite-lived intangible assets at March 31, 2022:

2022 (9 months)

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Cash and cash equivalents

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.

As of March 31, 2022 and December 31, 2021, the Company had cash and cash equivalents of $ 237,553 and $ 254,722 , respectively, including $ 69,496 and $ 66,401 , respectively, of cash received from advertising customers and content licensees for future payments to vendors.

Accounts Receivable, Net

Accounts receivable consisted of the following:

September 30,

Accounts receivable — Commercial Managed Services

Accounts receivable — Managed Services (1)

Accounts receivable — Software Products & Services (2)

Accounts receivable — Other

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Accounts receivable, net

Accounts receivable – Managed Services reflects the amounts due from the Company’s advertising customers.

Accounts receivable – Software Products & Services reflects the amounts due from the Company’s PandoLogic customers.

Property, Equipment and Improvements, Net

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

September 30,

Property and equipment

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Property, equipment and improvements, net

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.

Depreciation expense was $ 198 and $ 175 for the three months ended March 31, 2022 and 2021, respectively.

Accounts Payable

Accounts payable consisted of the following:

September 30,

Accounts payable — Commercial Managed Services

Accounts payable — Managed Services (1)

Accounts payable — Other

Accounts payable – Managed Services 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

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Three Months Ended

Nine Months Ended

September 30,

Commercial Enterprise

Government & Regulated Industries

Government & Regulated Entities

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.

In the third quarter of fiscal year 2021, the Company realigned its organization to improve focus and growth into two customer groups:

(1) Commercial Enterprise (“CE”), which today consists of customers in the commercial sector, including media and entertainment customers, advertising customers, content licensing customers and PandoLogic customers;

and (2) Government & Regulated Industries (“GRI”), which today consists of customers in the government and regulated industries sectors, including state, local and federal government, legal, compliance and energy customers.

Software Products & Services consists of revenue generated from the Company’s aiWARE platform and PandoLogic’s talent acquisition 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 content licensing customers and advertising agency customers and related services.

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

March 31, 2022

Total Software Products & Services (1)

Managed Services

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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.

Software Products & Services consists of aiWARE revenues of $ 3,371 and PandoLogic revenues of $ 14,796 .

Three Months Ended

Nine Months Ended

September 30, 2020

Revenue Presentation

Software Products & Services

March 31, 2021

Total Software Products & Services

Managed Services

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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

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Three Months Ended

Nine Months Ended

September 30,

Interest (expense) income, net

Change in fair value of warrant liability

Other expense, net

COMMITMENTS AND CONTINGENCIES

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.

Provision for Income Taxes

The provision or benefit from income taxes for interim periods is determined using an estimate of the Company’s annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period.

Each quarter, the Company updates the estimate of the annual effective tax rate, and if the estimated tax rate changes, the Company records a cumulative adjustment.

The income tax expense for the three months ended March 31, 2022 and 2021 resulted in an effective tax rate of ( 0.6 )% and ( 0.1 )%, respectively.

The difference between the effective tax rate and the U.S.

federal statutory rate is primarily due to a valuation allowance established on the majority of the Company’s federal and state net deferred tax assets and certain of its foreign operations.

Due to tax losses and an offsetting valuation allowance against a majority of the U.S deferred tax assets, the Company recorded a tax provision in the amount of $ 177 for the three months ended March 31, 2022 as compared to $ 22 for the three months ended March 31, 2021.

The increase is mainly attributed to the US and foreign income taxes resulted from the profitability of PandoLogic.

As of March 31, 2022, the Company continues to provide a valuation allowance against certain federal and state deferred tax assets.

The Company continues to evaluate the realizability of deferred tax assets and the related valuation allowance.

If the Company’s assessment of the deferred tax assets or the corresponding valuation allowance were to change, the Company would record the related adjustment to income during the period in which the determination is made.

The Company is subject to taxation in the U.S.

and various foreign jurisdictions.

The tax years subsequent to 2016 remain open and subject to examination by federal, state, and foreign taxing authorities in which the Company is subject to tax.

The Company is not under examination in any other jurisdictions.

LEASES, COMMITMENTS AND CONTINGENCIES

Adoption of the New Lease Accounting Standard

On January 1, 2022, the Company adopted ASU No.

2016-02, Leases (Topic 842), using the modified retrospective transition method applied at the adoption date of the standard.

Results for reporting periods beginning after January 1, 2022 are presented under the new leasing standard, while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historic accounting.

The Company has elected to utilize the package of practical expedients at the time of adoption, which allows the Company to (1) not reassess whether any expired or existing contracts are or contain leases, (2) not reassess the lease classification of any expired or existing leases, and (3) not reassess initial direct costs for any existing leases.

The Company also has elected to utilize the short-term lease recognition exemption and, for those leases that qualified, the Company did not recognize right-of-use (“ROU”) assets or lease liabilities.

As a result of adoption, the Company recorded ROU assets related to office facility leases which are recognized on the consolidated balance sheet within “other assets” and the associated lease liabilities are recognized on the consolidated balance sheet within “other accrued liabilities” and “other non-current liabilities.” The present value of the Company’s remaining lease payments, which comprise the lease liabilities, was estimated using the incremental borrowing rate as of the adoption date.

The cumulative effects of the changes made to the Company’s January 1, 2022 consolidated balance sheet were as follows:

December 31, 2021

Adjustments Due to Adoption of New Leasing Standard

Prepaid expenses and other current assets

Other accrued liabilities

Other non-current liabilities

Stockholders' Equity

Accumulated deficit

New Lease Accounting Policies

The Company determines if an arrangement is a lease at inception and determine the classification of the lease, as either operating or finance, at commencement.

The Company has various operating leases for its offices.

These existing leases have remaining lease terms ranging from 1 to 5 years .

Certain lease agreements contain options to renew, with renewal terms that generally extend the lease terms by 1 to 5 years for each option.

The Company determined that none of its current leases are reasonably certain to renew.

For short-term leases with expected terms of less than 1 year, the Company does not recognize ROU assets or lease liabilities.

The Company does not have any finance leases.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease.

Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

As the rate implicit in the Company’s leases is not readily determinable, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments.

The Company estimates the incremental borrowing rate to reflect the profile of secured borrowing over the expected term of the leases based on the information available at the later of the initial date of adoption or the lease commencement date.

The operating lease ROU asset also includes any lease payments made and excludes lease incentives received at or before lease commencement.

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

Sublease rental income is recognized as a reduction to the related lease expense on a straight-line basis over the sublease term.

As of March 31, 2022, on its condensed consolidated balance sheet the Company has right-of-use assets of $ 2,556 recorded within other assets, the current portion of operating lease liabilities of $ 2,106 recorded within other accrued liabilities, and the non-current portion of operating lease liabilities of $ 2,851 recorded within other non-current liabilities.

The Company made cash payments for its operating leases of $ 652 for the three months ended March 31, 2022, all of which were included in cash flows from operating activities within the condensed consolidated statements of cash flows.

The Company’s operating leases have a weighted average remaining lease term of 2.7 years and weighted average discount rate of 7.8 %.

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”).

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

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)

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

The total rent expense for all operating leases, excluding the charges related to the Sublease discussed above, was $ 506 and $ 571 for the three months ended March 31, 2022 and 2021, respectively, with short-term leases making up an immaterial portion of such expenses.

For its sublease, the Company recorded sublease income of $ 277 for the three months ended March 31, 2022.

Lease Commitments

Future undiscounted lease payments for the Company’s operating lease liabilities, a reconciliation of these payments to its operating lease liabilities, and related sublease income at December 31, 2021 are as follows:

Years ended December 31,

2022 (nine months)

Total future minimum lease payments, including short-term leases

future minimum lease payments for short-term leases

imputed interest

Present value of future minimum lease payments, excluding short-term leases

current portion of operating lease liabilities

Non-current portion of operating lease liabilities

Years ended December 31,

Sublease Income

2022 (nine months)

Total sublease income

As previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 under the previous lease accounting standard, future minimum lease payments at December 31, 2021, on an undiscounted basis, were as follows:

Total minimum payments

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 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.

As of December 31, 2021, minimum sublease rental income to be received in the future under noncancelable subleases was approximately $ 3,402 and the total rent expense for all operating leases was $ 4,668 for the year ended December 31, 2021.

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

During the three months ended March 31, 2022 and 2021, the Company recorded a $ 134 liability and a $ 138 liability, 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.

Purchase Consideration

In connection with its March 2022 acquisition, the Company committed to make purchase consideration payments of $ 1,500 within ten days of the first anniversary of the closing date of the acquisition and an additional $ 1,500 within ten days of the second anniversary of the closing date of the acquisition.

Refer to Note 3 for further details.

Other Contingencies

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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)

STOCKHOLDERS’ EQUITY

Common Stock Issuances

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.

During the three months ended March 31, 2022 and 2021, the Company issued an aggregate of 615,703 and 608,886 shares of its common stock, respectively, in connection with the exercise of stock options, issuance of stock awards and vesting of restricted stock units under its stock incentive plans and purchases under its Employee Stock Purchase Plan (the “ESPP”).

During the three months ended March 31, 2022, the Company issued a total of 116,550 shares of its common stock in connection with its March 2022 acquisition.

During the three months ended March 31, 2022, the Company issued a total of 352,330 shares of its common stock in connection with the contingent consideration arrangement related to the acquisition of PandoLogic.

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

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

Stock-Based Compensation

During the nine months ended September 30, 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.

During the three months ended March 31, 2022, the Company granted options to purchase an aggregate of 480,850 shares of its common stock that are subject to time-based vesting conditions.

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

The following assumptions were used to compute the grant date fair values of the stock options granted during the nine months ended September 30, 2021:

The following assumptions were used to compute the grant date fair values of the stock options granted during the three months ended March 31, 2022:

Expected term (in years)

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Expected dividend yield

The assumptions used in calculating the fair values of purchase rights granted under the ESPP during the nine months ended September 30, 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 three months ended March 31, 2022 are set forth in the table below:

Expected term (in years)

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Three 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

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Stock-based compensation expense by operating expense grouping:

Cost of revenue

Sales and marketing

2 unchanged sentences

Equity Award Activity Under Stock Plans

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

Average Grant

Date Fair Value

Unvested at December 31, 2020

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 nine months ended September 30, 2021 was as follows:

The Company’s restricted stock unit activity for the three months ended March 31, 2022 was as follows:

Average Grant

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Unvested at December 31, 2021

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.

Unvested at March 31, 2022

As of March 31, 2022, total unrecognized compensation cost related to restricted stock units was $ 14,362 , which is expected to be recognized over a weighted average period of 2.18 years.

Performance-Based Stock Options

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:

The activity during the three months ended March 31, 2022 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, 2021

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.

Outstanding at March 31, 2022

Exercisable at March 31, 2022

The aggregate intrinsic value of the options exercised during the three months ended March 31, 2022 and 2021 was $ 221 and $ 5,815 , respectively.

No performance-based stock options were granted during the three months ended March 31, 2022 and 2021 and no performance-

based stock options vested during the three months ended March 31 , 202 2 .

During the three months ended March 31, 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 .

Stock Options

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

The activity during the three months ended March 31, 2022 related to all other stock options was as follows:

Weighted-Average

Outstanding at December 31, 2021

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.

Outstanding at March 31, 2022

Exercisable at March 31, 2022

The weighted average grant date fair value of stock options granted during the three months ended March 31, 2022 and 2021 was $ 11.36 and $ 32.68 per share, respectively.

The aggregate intrinsic value of the stock options exercised during the three months ended March 31, 2022 and 2021 was $ 163 and $ 7,848 , respectively.

The total grant date fair value of stock options vested during the three months ended March 31, 2022 and 2021 was $ 1,085 and $ 733 , respectively.

At March 31, 2022, total unrecognized compensation expense related to stock options was $ 15,080 and is expected to be recognized over a weighted average period of 3.3 years.

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

Employee Stock Purchase Plan

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 .

During the three months ended March 31, 2022, a total of 67 shares of common stock were purchased under the Company’s ESPP.

As of March 31, 2022, accrued employee contributions for future purchases under the ESPP totaled $ 191 .

RELATED PARTY TRANSACTIONS

There were no related party transactions as of or during the three months ended March 31, 2022 and 2021.

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