What changed in this filing

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Item 1. Financial Statements

2022-08-15 compared with 2022-05-10 · 236 added, 121 removed, 506 unchanged (41% of the section changed)

26 unchanged sentences

75,000,000 shares authorized;

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

36,128,363 and 34,972,256 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively

Additional paid-in capital

9 unchanged sentences

Three Months Ended

Six Months Ended

Operating expenses:

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Loss before provision for income taxes

Provision for income taxes

(Benefit from) provision for income taxes

Net loss per share:

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(in thousands, except share amounts)

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022

Comprehensive

Balance as of March 31, 2022

Common stock issued under employee stock plans

Common stock withheld for employee taxes

Stock-based compensation expense

Other comprehensive gain

Balance as of June 30, 2022

Six Months Ended June 30, 2022

Comprehensive

Balance as of December 31, 2021

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

Common stock issued under employee stock plans

Common stock issued under employee stock plans, net

Common stock withheld for employee taxes

Common stock issued for acquisitions

Common stock issued for acquisition

Common stock issued as part of contingent consideration

Stock-based compensation expense

Other comprehensive loss

Other comprehensive gain

Balance as of June 30, 2022

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 June 30, 2021

Comprehensive

Balance as of March 31, 2021

Three Months Ended March 31, 2021

Common stock issued under employee stock plans, net

Common stock issued for services

Stock-based compensation expense

Other comprehensive gain

Balance as of June 30, 2021

Six Months Ended June 30, 2021

Comprehensive

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Other comprehensive gain

Balance as of March 31, 2021

Balance as of June 30, 2021

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

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(in thousands)

Three Months Ended

Six Months Ended

Cash flows from operating activities:

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

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

Depreciation and amortization

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Amortization of debt issuance costs

Amortization of right-of-use assets

Changes in assets and liabilities:

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Other liabilities

Net cash provided by operating activities

Net cash used in operating activities

Cash flows from investing activities:

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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.

aiWARE is based on an open architecture that enables new AI models, applications and workflows to be added quickly and efficiently, resulting in a 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.

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.

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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 June 10, 2022, the Company acquired VocaliD, Inc.

(“VocaliD”), a U.S.-based company that pioneered the creation of personalized synthetic voices.

On March 1, 2022, the Company acquired an influencer-based management company.

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”), a company incorporated under the laws of the state of Israel, and a leading provider of intelligent hiring solutions.

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

For further details on these acquisitions, refer to Note 3.

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

Interim results for the three and six months ended June 30, 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 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 six 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.

Restatement and Adjustment of Financial Statements

Restatement of Previously Issued Financial Statements

On August 9, 2022, the management of the Company and the Audit Committee of the Board of Directors of the Company, after consideration of the relevant facts and circumstances, determined that the Company’s previously issued financial statements as of and for the three months ended March 31, 2022 included in its Quarterly Report for the quarter ended March 31, 2022, that was originally filed with the U.S.

Securities and Exchange Commission (the “SEC”) on May 9, 2022 (the “Original Report”) should be restated, and that such financial statements should no longer be relied upon due to an error related to the calculation of fair value of contingent consideration at the time of the acquisition of PandoLogic, which led to an understatement of goodwill, intangible assets and contingent consideration at the time of the acquisition, an overstatement of subsequent changes to the fair value of contingent consideration, and an understatement of subsequent intangible amortization expense.

The restatement resulted in a non-cash charge that reduced general and administrative expenses and resulted

in a favorable change to net loss for the three months ended March 31, 2022.

The Company has restate d its financial statements for the three months ended March 31, 2022 for such errors in its Amendment No.

1 on Form 10Q/A for the three months ended March 31, 2022 filed with the SEC on August 15, 2022.

Adjustment of Previously Issued Financial Statements

The Company also evaluated the aggregate effects of the errors to its previously issued financial statements in accordance with SEC Staff Accounting Bulletins No.

108 and, based upon quantitative and qualitative factors, determined that the errors were not material to the previously issued financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2021 or for any quarterly periods included therein.

However, in order to correctly state equity in connection with the filing of this Form 10-Q, the December 31, 2021 consolidated balance sheet has been corrected to reflect the impact of this immaterial error.

The Company will adjust its consolidated financial statements for the year ended December 31, 2021 when it files its Form 10-K for the period ended December 31, 2022.

The following tables reflect the impact of the adjustments to the specific line items presented in the Company’s previously reported consolidated financial statements as of and for the year-ended December 31, 2021 (in thousands, except per share amounts):

Consolidated Balance Sheet

As of December 31, 2021

Intangible assets, net

Contingent consideration, current

Total current liabilities

Contingent consideration, non-current

Other non-current liabilities

Total liabilities

Accumulated deficit

Total stockholders' equity

Total liabilities and stockholders' equity

Consolidated Statement of Operations and Comprehensive Loss

December 31, 2021

General and administrative

Total operating expenses

Loss from operations

Loss before provision for income taxes

Provision for income taxes

Basic and diluted net loss per share

Total comprehensive loss

Consolidated Statement of Stockholders’ Equity

Accumulated Deficit

Balance as of December 31, 2021

Total Stockholders' Equity

Balance as of December 31, 2021

Consolidated Statement of Cash Flows

December 31, 2021

Cash flows from operating activities:

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

Depreciation and amortization

Change in fair value of contingent consideration

Change in deferred taxes

There was no impact on cash flows from investing or financing activities.

The accompanying applicable Notes to the Condensed Consolidated Financial Statements have been updated to reflect the revision for the year ended December 31, 2021.

Liquidity and Capital Resources

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 $ 64,672 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 .

In the six months ended June 30, 2022, the Company used cash in operations of $ 4,285 and incurred a net loss of $ 25,382 .

As of June 30, 2022, the Company had an accumulated deficit of $ 371,096 .

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 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.

In the first six months of 2022, the Company received net proceeds of $ 782 from the issuance of common stock under the Company’s employee stock plans, and used $ 9,509 for taxes paid related to net share settlement of equity awards and $ 14,376 for payment of the 2021 earnout for PandoLogic.

Management believes that the Company’s existing balances of cash and cash equivalents, which totaled $ 220,463 as of June 30, 2022, 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 and the war in Ukraine.

There has been uncertainty and disruption in the global economy and financial markets due to the COVID-19 pandemic, the war in Ukraine, the recent inflationary environment and rising interest rates.

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

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.

One individual customer accounted for 10 % or more of the Company’s revenue for the three months ended June 30, 2022 and one individual customer accounted for 10 % of the Company’s revenue for the three months ended June 30, 2021.

One individual customer accounted for 10 % or more of the Company’s revenue for the six months ended June 30, 2022 and no individual customer accounted for 10 % of the Company’s revenues for the six months ended June 30, 2021.

One individual customers accounted for 10 % or more of the Company’s accounts receivable as of June 30, 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 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.

As of June 30, 2022, the aggregate amount of the transaction prices under the Company’s contracts allocated to the Company’s remaining performance obligations was $ 9,489 , approximately 51 % 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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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

VocaliD Acquisition

On June 10, 2022 , the Company acquired 100 % of VocaliD , a U.S.-based company that specializes in the creation of personalized synthetic voices, pursuant to a stock purchase agreement dated as of June 10, 2022 .

The total purchase consideration was $ 3,394 (the “VocaliD Acquisition Consideration”), which consisted of cash payments of $ 1,609 at closing and deferred cash payments to be made in 2023 totaling $ 2,000 , which deferred payments were estimated to have a fair value of $ 1,785 as of the acquisition date.

The VocaliD Acquisition Consideration is preliminary and subject to net working capital adjustments that the Company expects to finalize and settle in the measurement period.

The Company incurred $ 200 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 VocaliD Acquisition Consideration (in thousands):

VocaliD Acquisition Consideration

Cash consideration at closing

Deferred consideration

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

Preliminary allocation of VocaliD Acquisition Consideration**

Intangible assets

Total assets acquired

Accounts payable

Accrued expenses and other current liabilities

Deferred tax liability

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 the assembled workforce.

For income tax purposes, the Company elected to treat the transaction as a stock acquisition and none of the goodwill generated from the acquisition was tax deductible.

Identifiable Intangible Assets

The identifiable intangible assets acquired consisted of developed technology valued at $ 2,700 with estimated useful lives of 3 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 cost approach.

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.

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 consideration was $ 5,844 (the “March Acquisition Consideration”), which consisted of a cash payment of $ 1,500 at closing, $ 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 deferred payments were 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 March Acquisition Consideration is preliminary and subject to net working capital adjustments that the Company expects to finalize and settle in the measurement period.

The fair value of the March Acquisition 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

The following table summarizes the fair value of the March Acquisition Consideration (in thousands):

March Acquisition Consideration

Cash consideration at closing

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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**

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

Preliminary allocation of March Acquisition Consideration**

Accounts receivable

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PandoLogic Acquisition

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.

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 dated as of July 21, 2021 .

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 $ 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.

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 total purchase consideration for PandoLogic was $ 135,563 (the “Merger Consideration”), which consisted of cash payments of $ 58,733 at closing, $ 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 “PandoLogic 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 PandoLogic Earnout.

The fair value of the PandoLogic Earnout was estimated to be $ 44,900 as of September 14, 2021, $ 39,512 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 $ 5,388 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 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).

Subsequent to the closing date, the Company is required to reassess its estimate of the fair value of the PandoLogic Earnout, including certain future PandoLogic 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):

Acquisition consideration

The following table summarizes the fair value of the Merger Consideration (in thousands):

Merger Consideration

Cash consideration at closing

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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):

Purchase price allocation**

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

Allocation of Merger Consideration**

Accounts receivable

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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 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.

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Three Months Ended

Six Months Ended

Loss before provision for income taxes

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

Interest accrues from November 19, 2021 and is 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;

(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;

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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.

For the three and six months ended June 30, 2022, interest expense related to the Convertible Notes and amortization of the issuance costs was $ 1.2 million and $ 2.4 million, respectively.

The effective annual interest rate for the three and six months ended June 30, 2022 was approximately 2.42 %.

As of June 30, 2022, the if-converted value of the Convertible Notes did no t exceed the outstanding principal amount.

As of June 30, 2022, the total estimated fair value of the Convertible Notes was $ 142.2 million, which was determined based on a market approach using actual bids and offers of the Convertible Notes in an over-the-counter market during 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.

The capped call transactions 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.

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.

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Three Months Ended

Six Months Ended

Weighted-average common shares outstanding

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Three Months Ended

Six Months Ended

Common stock options and restricted stock units

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

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

As of June 30 , 202 2 , the Company’s cash and cash equivalents were as follows:

Money market funds

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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

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 June 30, 2022, the Company’s contingent consideration liabilities current and non-current balances were as follows:

Non-current to Current

Contingent consideration, current

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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.

During the six months ended June 30, 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.

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GOODWILL AND INTANGIBLE ASSETS, NET

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

The carrying amount of goodwill was $ 45,787 as of June 30, 2022 and $ 42,028 December 31, 2021.

Balance at December 31, 2021

March 2022 acquisition

Balance at March 31, 2022

VocaliD acquisition

Balance at June 30, 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:

March 31, 2022

June 30, 2022

December 31, 2021

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Noncompete agreements

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

The following table presents future amortization of the Company’s finite-lived intangible assets at June 30, 2022:

2022 (6 months)

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Cash and cash equivalents

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.

As of June 30, 2022 and December 31, 2021, the Company had cash and cash equivalents of $ 220,463 and $ 254,722 , respectively, including $ 63,977 and $ 66,401 , respectively, of cash received from advertising customers for future payments to vendors.

Accounts Receivable, Net

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Property, equipment and improvements, net

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

Depreciation expense was $ 245 and $ 444 for the three and six months ended June 30, 2022, respectively.

Depreciation expense was $ 78 and $ 253 for the three and six months ended June 30, 2021, respectively.

Accounts Payable

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Three Months Ended

Six Months Ended

Commercial Enterprise

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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.

Software P roducts & S ervices consists of revenue generated from the Company’s aiWARE platform and Pando L ogic’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.

1 unchanged sentence

Three Months Ended

March 31, 2022

Six Months Ended

June 30, 2022

Total Software Products & Services (1)

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Total Revenue

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

Software Products & Services consists of aiWARE revenues of $ 9,486 and $ 12,857 for the three and six months ended June 30, 2022, respectively, as well as PandoLogic revenues of $ 8,893 and $ 23,689 for the three and six months ended June 30, 2022, respectively.

Three Months Ended

March 31, 2021

Six Months Ended

June 30, 2021

Total Software Products & Services

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Three Months Ended

Six Months Ended

Interest (expense) income, net

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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 income tax benefit for the three and six months ended June 30, 2022 resulted in an effective tax rate of 33.1 % and 5.5 %, respectively.

The income tax expense for the three and six months ended June 30, 2021 resulted in an effective tax rate of 0.4 % and 0.2 %, 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.

federal statutory rate of 21% is primarily due to a valuation allowance established on the majority of the Company’s federal and state net deferred tax assets.

Due to year to date losses generated by the Company’s foreign subsidiary and a change in valuation allowance resulting from the acquisition of VocaliD, the Company recorded a tax benefit in the amount of $ 1,607 and $ 1,468 for the three and six months ended June 30, 2022, respectively, as compared to income tax expense in the amount of $ 55 and $ 77 for the three and six months ended June 30, 2021, respectively.

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

As of June 30, 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.

The Company is subject to taxation in the United States, Israel, the United Kingdom, and various U.S.

Due to the Company’s tax loss carryovers in some jurisdictions, certain U.S.

federal tax returns and state tax returns are open for examination since inception.

The Israeli statute of limitations period is generally three years commencing at the end of the year in which the return was filed.

The Company is not currently under examination from income tax authorities in any jurisdiction in which the Company does business.

LEASES, COMMITMENTS AND CONTINGENCIES

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The Company has various operating leases for its offices.

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

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.

T he 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.

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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.

As of June 30, 2022, on its condensed consolidated balance sheet the Company has right-of-use assets of $ 2,276 recorded within other assets, the current portion of operating lease liabilities of $ 2,103 recorded within other accrued liabilities, and the non-current portion of operating lease liabilities of $ 2,403 recorded within other non-current liabilities.

The Company made cash payments for its operating leases of $ 669 and $ 1,321 for the three and six months ended June 30, 2022, respectively, 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 2.4 years and weighted average discount rate of 7.8 %.

3 unchanged sentences

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

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.

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.

The total rent expense for all operating leases was $ 756 and $ 1,262 for the three and six months ended June 30, 2022, respectively, with short-term leases making up an immaterial portion of such expenses.

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, respectively, with short-term leases making up an immaterial portion of such expenses.

For its sublease, the Company recorded sublease income of $ 277 and $ 554 for the three and six months ended June 30, 2022, respectively.

Lease Commitments

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Years ended December 31,

2022 (nine months)

2022 (six months)

Total future minimum lease payments, including short-term leases

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Sublease Income

2022 (nine months)

2022 (six months)

Total sublease income

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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.

In connection with its VocaliD acquisition, the Company committed to make purchase consideration payments of $ 1,000 on the first anniversary of the closing date of the acquisition and an additional $ 1,000 on the 18-month anniversary of the closing date of the acquisition.

Refer to Note 3 for further details.

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Common Stock Issuances

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.

During the six months ended June 30, 2022 and 2021, the Company issued an aggregate of 1,152,345 and 803,367 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, 2022, the Company issued a total of 116,550 shares of its common stock in connection with its March 2022 acquisition.

During the six months ended June 30, 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 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, 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 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.

During the six months ended June 30, 2022, the Company granted options to purchase an aggregate of 291,850 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 three months ended March 31, 2022:

The following assumptions were used to compute the grant date fair values of the stock options granted during the six months ended June 30, 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 three months ended March 31, 2022 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 June 30, 2022 are set forth in the table below:

Expected term (in years)

4 unchanged sentences

Three Months Ended

Six Months Ended

Stock-based compensation expense by type of award:

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Restricted Stock Units

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

The Company’s restricted stock unit activity for the six months ended June 30, 2022 was as follows:

Average Grant

1 unchanged sentence

Unvested at December 31, 2021

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.

Unvested at June 30, 2022

As of June 30, 2022, total unrecognized compensation cost related to restricted stock units was $ 12,994 , which is expected to be recognized over a weighted average period of 1.95 years.

Performance-Based Stock Options

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:

The activity during the six months ended June 30, 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 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 .

Outstanding at June 30, 2022

Exercisable at June 30, 2022

The aggregate intrinsic value of the options exercised during the six months ended June 30, 2022 and 2021 was $ 271 and $ 6,517 , respectively.

No performance-based stock options were granted during the six months ended June 30, 2022 and 2021 and no performance-based stock options vested during the six months ended June 30, 2022.

During the six months ended June 30, 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 three months ended March 31, 2022 related to all other stock options was as follows:

The activity during the six months ended June 30, 2022 related to all other stock options was as follows:

Weighted-Average

Outstanding at December 31, 2021

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.

Outstanding at June 30, 2022

Exercisable at June 30, 2022

The weighted average grant date fair value of stock options granted during the six months ended June 30, 2022 and 2021 was $ 12.00 and $ 23.09 per share, respectively.

The aggregate intrinsic value of the stock options exercised during the six months ended June 30, 2022 and 2021 was $ 264 and $ 8,198 , respectively.

The total grant date fair value of stock options vested during the six months ended June 30, 2022 and 2021 was $ 2,032 and $ 1,313 , respectively.

At June 30, 2022, total unrecognized compensation expense related to stock options was $ 13,691 and is expected to be recognized over a weighted average period of 3.1 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 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 .

During the six months ended June 30, 2022, a total of 67,386 shares of common stock were purchased under the Company’s ESPP.

As of June 30, 2022, accrued employee contributions for future purchases under the ESPP totaled $ 464 .

RELATED PARTY TRANSACTIONS

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

There were no related party transactions during the three and six months ended June 30, 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