Item 1. Financial Statements
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
Notes to the Condensed Consolidated Financial Statements
(in thousands, except share and per share data and percentages)
(Unaudited)
NOTE 1. DESCRIPTION OF BUSINESS
Description of Business
Veritone, Inc., a Delaware corporation (“Veritone”) (together with its wholly owned subsidiaries, collectively, the “Company”), is a provider of artificial intelligence (“AI”) computing solutions. The Company’s AI platform, aiWARETM, incorporates proprietary technologies that perform a wide variety of functions, including mimicking traditional human cognitive tasks such as perception, prediction and problem solving, in order to more effectively and efficiently transform unstructured data into structured data and automate and improve core processes, insights and decision-making. aiWARE is based on an open architecture that enables new cognitive engines and applications to be added more efficiently, resulting in a future-proof, scalable and evolving solution that can be leveraged across a broad range of industries, including media and entertainment, government, legal and compliance, and other vertical markets.
The Company also offers cloud-native digital content management solutions and content licensing services, primarily to customers in the media and entertainment market. These offerings leverage the Company’s aiWARE technologies, providing customers with unique capabilities to enrich and drive expanded revenue opportunities from their content.
In addition, the Company operates a full-service advertising agency that leverages the Company’s aiWARE technologies to provide differentiated services to its clients. The Company’s advertising services include media planning and strategy, advertisement buying and placement, campaign messaging, clearance verification and attribution, and custom analytics, specializing in host-endorsed and influencer advertising across primarily radio, podcasting, streaming audio, social media and other digital media channels. The Company’s advertising services also include its VeriAdsTM Network, which is comprised of programs that enable broadcasters, podcasters and social media influencers to generate incremental advertising revenue.
NOTE 2. PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Preparation
The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial statements and the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not contain all information and footnotes required by GAAP for annual financial statements. Such unaudited condensed consolidated financial statements and accompanying notes are based on the representations of the Company’s management, who is responsible for their integrity and objectivity. The information included in this Form 10-Q should be read in conjunction with the information included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 11, 2020. Interim results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results the Company will have for the full year ending December 31, 2020.
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 December 31, 2019 balance sheet included herein was derived from the audited financial statements but does not include all disclosures or notes required by GAAP for complete financial statements.
Reclassifications
Certain reclassifications to other assets have been made to prior year amounts for consistency and comparability with the current year’s financial statements presentation. These reclassifications had no effect on the reported total assets and liabilities.
Amortization expense, which was presented in prior year periods within cost of revenue, sales and marketing, research and development, and general and administrative operating expenses, has been reclassified and is presented as a single separate line item in operating expenses. The Company believes that this presentation more accurately reflects the Company’s cost of revenue and operating expenses. The reclassification had no effect on reported net loss.
Liquidity and Capital Resources
During the years ended December 31, 2019 and 2018, the Company generated negative cash flows from operations of $30,117 and $41,770, respectively, and incurred net losses of $62,078 and $61,104, respectively. In the nine months ended September 30, 2020, the Company generated cash flows from operations of $1,282 and incurred a net loss of $35,490. As of September 30, 2020, the Company had an accumulated deficit of $267,979. Historically, the Company has satisfied its capital needs with the net proceeds from sales of equity securities, issuances of convertible
7
debt, and the exercise of common stock warrants. In the first nine months of 2020, the Company raised net proceeds of $5,996 through sales of its common stock under an Equity Distribution Agreement dated June 1, 2018 (the “Equity Distribution Agreement”). In the first nine months of 2020, the Company received net proceeds of $2,100 through the exercise of common stock warrants. As of September 30, 2020, the Company’s cash and cash equivalents totaled $54,315.
In April 2020, the Company applied and was approved for unsecured loans under the Paycheck Protection Program (the “PPP”) established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) in the aggregate amount of $6,491. The Company believes that it qualified to apply for and receive the funds pursuant to the provisions of the CARES Act and the guidance in effect at that time. However, in light of (i) revised guidance that was issued by the Small Business Administration subsequent to the Company’s receipt of the PPP Loans, and (ii) the improvement in the Company’s business outlook and access to the capital markets, the Board of Directors of the Company determined to repay the full amount of the PPP Loans. The Company completed the repayment of the PPP Loans in May 2020.
The Company expects to continue to generate net losses for the foreseeable future as it makes significant investments in developing and selling its aiWARE SaaS solutions. Also, the Company will continue to evaluate potential acquisitions of, or investments in, companies or technologies that complement its business, which acquisitions may require the use of cash. Management believes that the Company’s existing balances of cash and cash equivalents will be sufficient to meet its anticipated cash requirements for at least twelve months from the date that these financial statements are issued. However, the Company does not expect that its current cash and cash equivalents will be sufficient to support the development of its business to the point at which the Company has continued positive cash flows from operations, particularly if it uses cash to finance any acquisitions or investments in the future. The Company plans to meet its future needs for additional capital through equity and/or debt financings. Equity financings may include sales of common stock under the Company’s Equity Distribution Agreement pursuant to which the Company may offer and sell, from time to time, shares of its common stock having an aggregate available offering price of up to $18,538. Such financing may not be available on terms favorable to the Company or at all. If the Company is unable to obtain adequate financing or financing on terms satisfactory to it when required, the Company’s ability to continue to support its business growth, scale its infrastructure, develop product enhancements and to respond to business challenges could be significantly impaired.
Use of Accounting Estimates
The preparation of the accompanying condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the accompanying condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. The principal estimates relate to revenue recognition, allowance for doubtful accounts, purchase accounting, impairment of long lived assets, the valuation of stock awards and stock warrants and income taxes.
There has been uncertainty and disruption in the global economy and financial markets due to the COVID-19 pandemic. The Company is not aware of any specific event or circumstance that would require an update to its estimates or assumptions or a revision of the carrying value of its assets or liabilities as of the date of filing of this Quarterly Report on Form 10-Q.
These estimates and assumptions may change as new events occur and additional information is obtained. As a result, actual results could differ materially from these estimates and assumptions.
Remaining Performance Obligations
As of September 30, 2020, the aggregate amount of the transaction prices under the Company’s contracts allocated to the Company’s remaining performance obligations was $3,814, approximately 78% of which the Company expects to recognize as revenue over the next twelve months, and the remainder thereafter. This aggregate amount excludes amounts allocated to remaining performance obligations under contracts that have an original duration of one year or less and variable consideration that is allocated to remaining performance obligations.
Significant Accounting Policies
There have been no material changes in the Company’s significant accounting policies from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2019.
Recently Adopted Accounting Pronouncements
Effective for the Company’s fiscal year ended December 31, 2019, the Company adopted the provisions and expanded disclosure requirements described in ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“Topic 606”), for its annual financial statements. The Company adopted the standard using the modified retrospective method. Accordingly, the results for the prior comparable periods were not adjusted to conform to the current year measurement and recognition of results. As of the beginning of 2019, the impact of the adoption of Topic 606 was not material. However, in adopting Topic 606, the Company has modified its revenue recognition policy in the following ways:
|
•
|
Some multi-year contracts include fixed annual price increases. Historically, the Company recognized revenue based on the price allocated to each year. Now, the Company recognizes the aggregate fixed price as revenue ratably over the full term of the contract.
|
8
|
•
|
Historically, certain variable consideration was recognized one month in arrears when the amount became known. These revenues are now recognized in the month in which the service is provided based on an estimate of the amount that the Company expects to be entitled to receive for the services. These revenues do not represent a material portion of the Company’s total revenue.
|
During the year ended December 31, 2019, the Company’s quarterly financial statements were prepared using the prior revenue recognition standard, Topic 605, Revenue Recognition. Beginning in the first quarter of 2020, the Company’s quarterly financial statements are presented using Topic 606.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, as part of its disclosure framework project intended to improve the effectiveness of disclosures in the notes to the financial statements by updating certain disclosure requirements related to fair value measurements. The standard became effective for the Company beginning in the first quarter of fiscal year 2020. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
Recently Issued Accounting Pronouncements
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 impact this standard will have on its policies and procedures pertaining to its existing and future lease arrangements, its disclosure requirements and its consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326). which requires measurement and recognition of expected credit losses for financial assets held. This standard will be effective for the Company beginning in the first quarter of fiscal year 2023. The Company is currently evaluating the impact that this standard will have on its consolidated financial statements and related disclosures as well as the timing of adoption.
In December 2019, the FASB issued ASU No. 2019-12 to simplify the accounting in ASC 740, Income Taxes. This standard removes certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. This guidance also clarifies and simplifies other areas of ASC 740. This standard will be effective for the Company beginning in the first quarter of fiscal year 2022. 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.
NOTE 3. NET LOSS PER SHARE
The following table presents the computation of basic and diluted net loss per share:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(11,013
|
)
|
|
$
|
(14,197
|
)
|
|
$
|
(35,490
|
)
|
|
$
|
(47,194
|
)
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
|
27,606,061
|
|
|
|
22,382,973
|
|
|
|
27,180,059
|
|
|
|
20,936,860
|
|
Less: Weighted-average shares subject to repurchase
|
|
|
(12,746
|
)
|
|
|
(37,851
|
)
|
|
|
(17,179
|
)
|
|
|
(54,567
|
)
|
Denominator for basic and diluted net loss per share
|
|
|
27,593,315
|
|
|
|
22,345,122
|
|
|
|
27,162,880
|
|
|
|
20,882,293
|
|
Basic and diluted net loss per share
|
|
$
|
(0.40
|
)
|
|
$
|
(0.64
|
)
|
|
$
|
(1.31
|
)
|
|
$
|
(2.26
|
)
|
9
The Company reported net losses for all periods presented and, as such, all potentially dilutive shares of common stock would have been antidilutive for such periods. The table below presents the weighted-average securities (in common equivalent shares) outstanding during the periods presented that have been excluded from the calculation of diluted net loss per share because their effect would be anti-dilutive:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Common stock options and restricted stock units
|
|
|
10,022,826
|
|
|
|
10,079,101
|
|
|
|
9,954,904
|
|
|
|
9,837,968
|
|
Warrants to purchase common stock
|
|
|
1,592,840
|
|
|
|
1,297,151
|
|
|
|
1,521,720
|
|
|
|
1,297,151
|
|
|
|
|
11,615,666
|
|
|
|
11,376,252
|
|
|
|
11,476,624
|
|
|
|
11,135,119
|
|
NOTE 4. FINANCIAL INSTRUMENTS
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, the first two of which are considered observable and the last unobservable, that may be used to measure fair value, as follows:
|
•
|
Level 1—quoted prices (unadjusted) in active markets for identical assets or liabilities;
|
|
•
|
Level 2—inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or
|
|
•
|
Level 3—unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
|
Cash and Cash Equivalents
The Company’s money market funds are categorized as Level 1 within the fair value hierarchy. As of September 30, 2020, the Company’s cash and cash equivalents balances were as follows:
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Cash and
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Cash
|
|
|
|
Cost
|
|
|
Losses
|
|
|
Value
|
|
|
Equivalents
|
|
Cash
|
|
$
|
43,289
|
|
|
$
|
—
|
|
|
$
|
43,289
|
|
|
$
|
43,289
|
|
Level 1:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
|
11,026
|
|
|
|
—
|
|
|
|
11,026
|
|
|
|
11,026
|
|
Total
|
|
$
|
54,315
|
|
|
$
|
—
|
|
|
$
|
54,315
|
|
|
$
|
54,315
|
|
As of December 31, 2019, the Company’s cash and cash equivalents balances were as follows:
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Cash and
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Cash
|
|
|
|
Cost
|
|
|
Losses
|
|
|
Value
|
|
|
Equivalents
|
|
Cash
|
|
$
|
23,710
|
|
|
$
|
—
|
|
|
$
|
23,710
|
|
|
$
|
23,710
|
|
Level 1:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
|
20,355
|
|
|
|
—
|
|
|
|
20,355
|
|
|
|
20,355
|
|
Total
|
|
$
|
44,065
|
|
|
$
|
—
|
|
|
$
|
44,065
|
|
|
$
|
44,065
|
|
Stock Warrants
All of the Company’s outstanding stock warrants are categorized as Level 3 within the fair value hierarchy. Stock warrants have been recorded at their fair value using either a probability weighted expected return model, the Monte Carlo simulation model or the Black-Scholes option-pricing model. These models incorporate contractual terms, maturity, risk-free interest rates and volatility. The value of the Company’s stock warrants would increase if a higher risk-free interest rate was used, and would decrease if a lower risk-free interest rate was used. Similarly, a higher volatility assumption would increase the value of the stock warrants, and a lower volatility assumption would decrease the value of the stock warrants. The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s management with the assistance of a third-party valuation specialist.
10
In April 2020, in connection with a consulting agreement between the Company and a consulting firm, the Company issued to such firm a warrant to purchase up to 50,000 shares of the Company’s common stock (the “Compensation Warrant”). The Compensation Warrant was fully vested and exercisable upon issuance, has an exercise price of $3.01 per share and expires on December 31, 2021. The holder is able to redeem the warrant for a number of shares having a value equal to the in-the-money value of the warrant. The fair value of this stock warrant is $59, which was determined using the Black-Scholes option-pricing model and was recorded in general and administrative operating expenses in the nine months ended September 30, 2020. The Company also issued to such firm in connection with the consulting agreement an additional warrant to purchase up to 400,000 shares of the Company’s common stock (the “Performance Warrant” and collectively with the Compensation Warrant, the “2020 Stock Warrants”). The Performance Warrant has an exercise price of $3.01 per share, shall vest and become exercisable in three substantially equal installments of 133,333 shares upon the achievement of specified performance goals and/or a market condition, and expires on December 31, 2023. The market condition has been achieved and, accordingly, the first installment of 133,333 shares underlying the Performance Warrant has vested and is exercisable. The fair value of the installment of the Performance Warrant tied to the market condition is $43, which was determined using a Monte Carlo simulation model and was recorded in general and administrative operating expenses in the nine months ended September 30, 2020. The Company has not recorded any fair value with respect to the remaining installments linked to performance goals, because the achievement of such performance goals is not yet considered probable.
The following table summarizes quantitative information with respect to the significant inputs that were used to value the 2020 Stock Warrants during the nine months ended September 30, 2020:
|
Compensation Warrant
|
|
|
Performance Warrant
|
|
Volatility
|
|
88
|
%
|
|
|
85
|
%
|
Risk-free rate
|
|
0.23
|
%
|
|
|
0.34
|
%
|
Term
|
1.7 years
|
|
|
3.7 years
|
|
In April 2018, in connection with the advisory agreement between the Company and a financial advisory firm, the Company issued such firm a warrant to purchase up to 20,000 shares of the Company’s common stock (“April 2018 Warrant”). The April 2018 Warrant was fully vested and exercisable upon issuance, has an exercise price of $11.73 per share and expires on April 6, 2023. The Company recorded this stock warrant at its fair value of $207 using the Black-Scholes option-pricing model. The holder is able to redeem the warrant for a number of shares having a value equal to the in-the-money value of the warrant. The April 2018 Warrant was outstanding at September 30, 2020.
NOTE 5. GOODWILL AND INTANGIBLE ASSETS, NET
Goodwill
The carrying amount of goodwill was $6,904 as of September 30, 2020 and December 31, 2019.
Intangible Assets
The following table sets forth the Company’s finite-lived intangible assets resulting from business acquisitions and other purchases, which continue to be amortized:
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
|
|
Weighted
Average
Remaining
Useful Life
|
|
|
Gross
Carrying
|
|
|
Accumulated
|
|
|
Net
Carrying
|
|
|
Gross
Carrying
|
|
|
Accumulated
|
|
|
Net
Carrying
|
|
|
|
(in years)
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
Software and technology
|
|
|
1.0
|
|
|
$
|
3,582
|
|
|
$
|
(3,061
|
)
|
|
$
|
521
|
|
|
$
|
3,582
|
|
|
$
|
(2,171
|
)
|
|
$
|
1,411
|
|
Licensed technology
|
|
|
1.0
|
|
|
|
500
|
|
|
|
(333
|
)
|
|
|
167
|
|
|
|
500
|
|
|
|
(208
|
)
|
|
|
292
|
|
Developed technology
|
|
|
2.9
|
|
|
|
9,600
|
|
|
|
(4,000
|
)
|
|
|
5,600
|
|
|
|
9,600
|
|
|
|
(2,560
|
)
|
|
|
7,040
|
|
Customer relationships
|
|
|
2.9
|
|
|
|
9,300
|
|
|
|
(3,875
|
)
|
|
|
5,425
|
|
|
|
9,300
|
|
|
|
(2,480
|
)
|
|
|
6,820
|
|
Trademarks and trade names
|
|
|
0.2
|
|
|
|
100
|
|
|
|
(93
|
)
|
|
|
7
|
|
|
|
100
|
|
|
|
(59
|
)
|
|
|
41
|
|
Noncompete agreements
|
|
|
1.8
|
|
|
|
800
|
|
|
|
(434
|
)
|
|
|
366
|
|
|
|
800
|
|
|
|
(278
|
)
|
|
|
522
|
|
Total
|
|
|
2.8
|
|
|
$
|
23,882
|
|
|
$
|
(11,796
|
)
|
|
$
|
12,086
|
|
|
$
|
23,882
|
|
|
$
|
(7,756
|
)
|
|
$
|
16,126
|
|
11
The following table presents future amortization of the Company’s finite-lived intangible assets at September 30, 2020:
2020 (three months)
|
|
$
|
1,342
|
|
2021
|
|
|
4,261
|
|
2022
|
|
|
3,963
|
|
2023
|
|
|
2,520
|
|
Total
|
|
$
|
12,086
|
|
NOTE 6. CONSOLIDATED FINANCIAL STATEMENTS DETAILS
Consolidated Balance Sheets Details
Cash and cash equivalents
As of September 30, 2020 and December 31, 2019, the Company had cash and cash equivalents of $54,315 and $44,065, respectively, including $34,195 and $15,003, respectively, of cash received from advertising clients and content licensees for future payments to vendors.
Accounts Receivable, Net
Accounts receivable consisted of the following:
|
|
As of
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Accounts receivable — Advertising
|
|
$
|
14,553
|
|
|
$
|
19,184
|
|
Accounts receivable — aiWARE SaaS Solutions
|
|
|
2,354
|
|
|
|
1,269
|
|
Accounts receivable — aiWARE Content Licensing and Media Services
|
|
|
668
|
|
|
|
928
|
|
|
|
|
17,575
|
|
|
|
21,381
|
|
Less: allowance for doubtful accounts
|
|
|
(105
|
)
|
|
|
(29
|
)
|
Accounts receivable, net
|
|
$
|
17,470
|
|
|
$
|
21,352
|
|
The amount that the Company invoices and collects from advertising clients includes the cost of the advertisements placed for them with media vendors and the amount of the commission earned by the Company. The average commission earned by the Company is less than 15% of the total amount invoiced and collected from the advertising clients.
Property, Equipment and Improvements, Net
Property, equipment and improvements, net consisted of the following:
|
|
As of
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Property and equipment
|
|
$
|
2,276
|
|
|
$
|
2,247
|
|
Leasehold improvements
|
|
|
2,908
|
|
|
|
2,876
|
|
|
|
|
5,184
|
|
|
|
5,123
|
|
Less: accumulated depreciation
|
|
|
(2,685
|
)
|
|
|
(1,909
|
)
|
Property, equipment and improvements, net
|
|
$
|
2,499
|
|
|
$
|
3,214
|
|
Depreciation expense was $264 and $776 for the three and nine months ended September 30, 2020, respectively. Depreciation expense was $271 and $822 for the three and nine months ended September 30, 2019, respectively.
12
Accounts Payable
Accounts payable consisted of the following:
|
|
As of
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Accounts payable — Advertising
|
|
$
|
19,961
|
|
|
$
|
15,697
|
|
Accounts payable — Other
|
|
|
1,307
|
|
|
|
1,317
|
|
Total
|
|
$
|
21,268
|
|
|
$
|
17,014
|
|
Accounts payable – Advertising reflects the amounts due to media vendors for advertisements placed on behalf of the Company’s advertising clients.
Consolidated Statement of Operations and Comprehensive Loss Details
Revenue
Revenue for the periods presented were comprised of the following:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Advertising
|
|
$
|
8,764
|
|
|
$
|
6,291
|
|
|
$
|
21,803
|
|
|
$
|
17,847
|
|
aiWARE SaaS Solutions
|
|
|
3,351
|
|
|
|
2,350
|
|
|
|
9,461
|
|
|
|
7,781
|
|
aiWARE Content Licensing and Media Services
|
|
|
3,603
|
|
|
|
4,164
|
|
|
|
9,626
|
|
|
|
11,572
|
|
Total revenue
|
|
$
|
15,718
|
|
|
$
|
12,805
|
|
|
$
|
40,890
|
|
|
$
|
37,200
|
|
During the three and nine months ended September 30, 2020, the Company made $71,101 and $180,297, respectively, in gross media placements, of which $66,187 and $166,877 respectively, were billed directly to clients. Of the amounts billed directly to clients, $59,058 and $148,668 represented media-related costs netted against billings during the three and nine months ended September 30, 2020, respectively.
During the three and nine months ended September 30, 2019, the Company made $55,799 and $158,370, respectively, in gross media placements, of which $51,429 and $147,989 respectively, were billed directly to clients. Of the amounts billed directly to clients, $45,668 and $131,345 represented media-related costs netted against billings during the three and nine months ended September 30, 2019, respectively.
Disaggregated Revenue
Revenue disaggregated was as follows:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Advertising (by service type):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
$
|
7,372
|
|
|
$
|
6,197
|
|
|
$
|
19,393
|
|
|
$
|
17,753
|
|
VeriAds
|
|
|
1,392
|
|
|
|
94
|
|
|
|
2,410
|
|
|
|
94
|
|
Sub-total
|
|
|
8,764
|
|
|
|
6,291
|
|
|
|
21,803
|
|
|
|
17,847
|
|
aiWARE SaaS Solutions (by market):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Media and Entertainment
|
|
|
2,462
|
|
|
|
2,257
|
|
|
|
7,686
|
|
|
|
6,962
|
|
Government, Legal and Compliance
|
|
537
|
|
|
93
|
|
|
|
1,172
|
|
|
819
|
|
Other Markets
|
|
352
|
|
|
|
-
|
|
|
|
603
|
|
|
|
-
|
|
Sub-total
|
|
|
3,351
|
|
|
|
2,350
|
|
|
|
9,461
|
|
|
|
7,781
|
|
aiWARE Content Licensing and Media Services (by service type):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Content Licensing
|
|
|
3,062
|
|
|
|
3,571
|
|
|
|
9,085
|
|
|
|
10,679
|
|
Media Services
|
|
541
|
|
|
593
|
|
|
|
541
|
|
|
893
|
|
Sub-total
|
|
|
3,603
|
|
|
|
4,164
|
|
|
|
9,626
|
|
|
|
11,572
|
|
Total revenue
|
|
$
|
15,718
|
|
|
$
|
12,805
|
|
|
$
|
40,890
|
|
|
$
|
37,200
|
|
13
Other (Expense) Income, Net
Other (expense) income, net for the periods presented was comprised of the following:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Interest income, net
|
|
$
|
2
|
|
|
$
|
133
|
|
|
$
|
84
|
|
|
$
|
462
|
|
Change in fair value of warrant liability
|
|
|
—
|
|
|
|
57
|
|
|
|
(200
|
)
|
|
|
7
|
|
Other
|
|
|
(6
|
)
|
|
|
(6
|
)
|
|
|
8
|
|
|
|
(23
|
)
|
Other (expense) income, net
|
|
$
|
(4
|
)
|
|
$
|
184
|
|
|
$
|
(108
|
)
|
|
$
|
446
|
|
NOTE 7. COMMITMENTS AND CONTINGENCIES
Leases
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.
As of September 30, 2020, future minimum lease payments were as follows:
2020 (three months)
|
|
$
|
655
|
|
2021
|
|
|
2,242
|
|
2022
|
|
|
1,884
|
|
2023
|
|
|
1,685
|
|
2024
|
|
|
1,730
|
|
Total minimum payments
|
|
$
|
8,196
|
|
The total rent expense for all operating leases was $748 and $2,265 for the three and nine months ended September 30, 2020, respectively. The total rent expense for all operating leases was $755 and $2,235 for the three and nine months ended September 30, 2019, respectively.
Other Contingencies
From time to time, the Company may be involved in litigation relating to claims arising out of its operations in the normal course of business. The Company currently is not a party to any legal proceedings, the adverse outcome of which, in management’s opinion, individually or in the aggregate, would have a material adverse effect on the Company’s results of operations, financial position or cash flows.
NOTE 8. STOCKHOLDERS’ EQUITY (DEFICIT)
Common Stock Issuances
In June 2018, the Company entered into an Equity Distribution Agreement with JMP Securities as sales agent, pursuant to which it may offer and sell, from time to time, through JMP Securities, shares of its common stock having an aggregate offering price of up to $50,000. During the nine months ended September 30, 2020 and 2019, the Company issued an aggregate of 1,491,317 and 2,772,600 of shares of its common stock, respectively, which were sold pursuant to the Equity Distribution Agreement. During the nine months ended September 30, 2020 and 2019, the Company received net proceeds from such sales of $5,996 and $17,531 after deducting expenses of $281 and $601, respectively.
During the nine months ended September 30, 2020, the Company issued a total of 154,311 shares of its common stock upon the exercise of warrants for an aggregate exercise price of $2,100.
On September 6, 2018, the Company acquired all of the outstanding capital stock of Machine Box, Inc. (“Machine Box”). The purchase consideration for the acquisition was comprised of the initial consideration paid at closing and additional contingent amounts that were payable if Machine Box achieved certain technical development and integration milestones within 12 months after the closing of the acquisition, and 80% of such consideration was payable by issuance of shares of the Company’s common stock to the former stockholders of Machine Box. During the nine months ended September 30, 2019, the Company determined that Machine Box had achieved the technical development and integration milestones required to be completed during such period and, as a result, the former Machine Box stockholders became entitled to receive an aggregate of 394,604 shares of the Company’s common stock, valued at $2,389 based on the closing price of the Company’s common stock on the respective milestone dates, of which an aggregate of 315,687 shares were issued to them, and 78,917 shares were held back from issuance by the Company to secure certain indemnification and other obligations of the former stockholders.
14
During the three months ended September 30, 2020, the Company issued an aggregate of 105,898 shares of common stock to the former stockholders of Machine Box, representing all of the shares previously held back from issuance by the Company with respect to the initial consideration and the additional contingent consideration.
On August 21, 2018, the Company acquired all of the outstanding capital stock of S Media Limited (d/b/a Performance Bridge Media) (“Performance Bridge”). The purchase consideration for the acquisition was comprised of the initial consideration paid at closing and additional earnout consideration that was payable if Performance Bridge achieved certain revenue milestones for its 2018 fiscal year, and 80% of such consideration was payable by issuance of shares of the Company’s common stock to the former stockholder of Performance Bridge. The initial consideration was subject to adjustment based on a final calculation of Performance Bridge’s net assets at closing, which was completed in the first quarter of 2019 and resulted in the issuance to the former stockholder of Performance Bridge an additional 6,482 shares of common stock valued at $34 based on the closing price of the Company’s common stock on January 25, 2019, which was the date both parties agreed upon the final calculation. In March 2019, the Company determined that the additional earnout consideration had been earned and the former stockholder of Performance Bridge became entitled to receive 574,231 shares of the Company’s common stock, valued at $3,026 based on the closing price of the Company’s common stock on March 28, 2019, which were paid and issued to the former stockholder of Performance Bridge in the second quarter of 2019.
During the nine months ended September 30, 2020 and 2019, the Company issued an aggregate of 297,490 shares of its common stock and 230,979 shares of its common stock, respectively, in connection with the exercise of stock options, issuance and forfeiture of restricted stock awards and vesting of restricted stock units under its stock incentive plans and purchases under its Employee Stock Purchase Plan (the “ESPP”).
Common Stock Warrants
During the nine months ended September 30, 2020, the Company issued to a consulting firm warrants to purchase up to an aggregate of 450,000 shares of its common stock. As of September 30, 2020 and December 31, 2019, the Company had outstanding warrants to purchase an aggregate of 1,592,840 and 1,297,151 shares of the Company’s common stock, respectively.
NOTE 9. STOCK PLANS
Modifications to Performance-Based Stock Options
In August 2020, the disinterested members of the Board of Directors of the Company adopted certain amendments (the “Amendments”) to the Company’s 2018 Performance-Based Stock Incentive Plan (the “2018 Plan”), the stock option award agreements entered into pursuant to the 2018 Plan, and certain stock option award agreements entered into pursuant to the Company’s 2017 Stock Incentive Plan (the “2017 Plan”) on substantially the same terms as the stock option award agreements entered into pursuant to the 2018 Plan (collectively, the “Performance Awards”). Such Amendments were approved by the Company’s stockholders at the Company’s annual meeting of stockholders held on July 24, 2020. The Amendments include (i) amendment of the stock price milestones applicable to the Performance Awards, and (ii) reduction of the exercise prices of the Performance Awards held by the Company’s Chief Executive Officer and the Company’s President, which resulted in a modification of the Performance Awards.
The Company values the Performance Awards using a Monte Carlo simulation model. A fair value per share and a derived service period is determined for each of the three equal tranches of each Performance Award. The Company determined the fair values and the new derived service periods of the modified awards as of the date of modification and the fair values of the original awards immediately before the modification. The amount of incremental compensation expense resulting from the modification of each award is equal to the excess of the fair value of the modified award on the date of modification over the fair value of the original award immediately before the modification. The total incremental compensation expense resulting from the modification of the Performance Awards for approximately 215 employees is $3,011.
The assumptions used in the Monte Carlo simulation model for computing the fair values of the Performance Awards on the modification date and immediately before the modification are set forth in the table below:
Amendment date stock price
|
|
$
|
8.83
|
|
Expected volatility
|
|
|
80
|
%
|
Risk-free interest rate
|
|
|
0.6
|
%
|
Expected dividend yield
|
|
|
—
|
%
|
Cost of equity
|
|
|
12
|
%
|
Stock-Based Compensation
During the nine months ended September 30, 2020, the Company granted options to purchase an aggregate of 610,000 shares of its common stock that are subject to time-based vesting conditions.
15
The Company valued these stock options using the Black-Scholes Merton option pricing model. The following assumptions were used to compute the grant date fair values of the stock options granted during the nine months ended September 30, 2020:
Expected term (in years)
|
|
|
|
6.0 - 6.1
|
|
Expected volatility
|
|
|
|
68% - 82%
|
|
Risk-free interest rate
|
|
|
|
0.4% - 1.2%
|
|
Expected dividend yield
|
|
|
|
|
—
|
|
The assumptions used in calculating the fair values of purchase rights granted under the ESPP during the nine months ended September 30, 2020 are set forth in the table below:
Expected term (in years)
|
|
0.5 - 2.0
|
|
Expected volatility
|
|
65% - 130%
|
|
Risk-free interest rate
|
|
0.1% - 1.5%
|
|
Expected dividend yield
|
|
|
—
|
|
The Company’s stock-based compensation expense recognized for the periods presented was as follows:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Stock-based compensation expense by type of award:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units
|
|
$
|
2,308
|
|
|
$
|
251
|
|
|
$
|
3,203
|
|
|
$
|
748
|
|
Restricted stock awards
|
|
|
43
|
|
|
|
47
|
|
|
|
152
|
|
|
|
303
|
|
Machine Box contingent common stock issuances
|
|
|
(37
|
)
|
|
|
28
|
|
|
|
(37
|
)
|
|
|
1,255
|
|
Performance-based stock options
|
|
|
1,996
|
|
|
|
2,000
|
|
|
|
5,917
|
|
|
|
5,956
|
|
Stock options
|
|
|
644
|
|
|
|
2,329
|
|
|
|
4,099
|
|
|
|
7,389
|
|
Employee stock purchase plan
|
|
|
157
|
|
|
|
109
|
|
|
|
364
|
|
|
|
398
|
|
Total
|
|
$
|
5,111
|
|
|
$
|
4,764
|
|
|
$
|
13,698
|
|
|
$
|
16,049
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Stock-based compensation expense by operating expense grouping:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
$
|
278
|
|
|
$
|
281
|
|
|
$
|
654
|
|
|
$
|
795
|
|
Research and development
|
|
|
172
|
|
|
|
334
|
|
|
|
593
|
|
|
|
2,318
|
|
General and administrative
|
|
|
4,661
|
|
|
|
4,149
|
|
|
|
12,451
|
|
|
|
12,936
|
|
|
|
$
|
5,111
|
|
|
$
|
4,764
|
|
|
$
|
13,698
|
|
|
$
|
16,049
|
|
Equity Award Activity
Restricted Stock Awards
The Company’s restricted stock award activity for the nine months ended September 30, 2020 was as follows:
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average Grant
|
|
|
|
Shares
|
|
|
Date Fair Value
|
|
Unvested at December 31, 2019
|
|
|
22,813
|
|
|
$
|
7.50
|
|
Granted
|
|
|
5,310
|
|
|
$
|
2.98
|
|
Vested
|
|
|
(17,960
|
)
|
|
$
|
6.16
|
|
Unvested at September 30, 2020
|
|
|
10,163
|
|
|
$
|
7.50
|
|
At September 30, 2020, total unrecognized compensation cost related to restricted stock was $14, which is expected to be recognized over a weighted average period of 0.1 year.
16
Restricted Stock Units
The Company’s restricted stock unit activity for the nine months ended September 30, 2020 was as follows:
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average Grant
|
|
|
|
Shares
|
|
|
Date Fair Value
|
|
Unvested at December 31, 2019
|
|
|
142,145
|
|
|
$
|
6.71
|
|
Granted
|
|
|
835,157
|
|
|
$
|
10.20
|
|
Forfeited
|
|
|
(5,500
|
)
|
|
$
|
8.81
|
|
Vested
|
|
|
(116,295
|
)
|
|
$
|
6.84
|
|
Unvested at September 30, 2020
|
|
|
855,507
|
|
|
$
|
10.09
|
|
At September 30, 2020, total unrecognized compensation cost related to restricted stock units was $5,641, which is expected to be recognized over a weighted average period of 0.7 year.
Performance-Based Stock Options
The activity during the nine months ended September 30, 2020 related to stock options that are subject to performance-based vesting conditions tied to the future achievement of stock price goals by the Company was as follows:
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
|
Term
|
|
|
Value
|
|
Outstanding at December 31, 2019
|
|
|
4,484,739
|
|
|
$
|
16.68
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(298,956
|
)
|
|
$
|
5.65
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2020
|
|
|
4,185,783
|
|
|
$
|
10.45
|
|
|
7.8 years
|
|
|
$
|
3,507
|
|
Exercisable at September 30, 2020
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
The weighted average grant date fair values of the performance-based stock options granted during the nine months ended September 30, 2019 was $2.55 per share. No performance-based stock options were granted during the nine months ended September 30, 2020 and no performance-based stock options vested during the nine months ended September 30, 2020 and 2019. At September 30, 2020, total unrecognized compensation expense related to performance-based stock options was $18,092 and is expected to be recognized over a weighted average period of 2.0 years.
Stock Options
The activity during the nine months ended September 30, 2020 related to all other stock options was as follows:
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
Aggregate
|
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
|
Term
|
|
Value
|
|
Outstanding at December 31, 2019
|
|
|
5,196,778
|
|
|
$
|
13.09
|
|
|
|
|
|
|
|
Granted
|
|
|
610,000
|
|
|
$
|
3.88
|
|
|
|
|
|
|
|
Exercised
|
|
|
(59,488
|
)
|
|
$
|
2.89
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(163,634
|
)
|
|
$
|
8.37
|
|
|
|
|
|
|
|
Expired
|
|
|
(158,176
|
)
|
|
$
|
14.57
|
|
|
|
|
|
|
|
Outstanding at September 30, 2020
|
|
|
5,425,480
|
|
|
$
|
12.27
|
|
|
7.1 years
|
|
$
|
6,614
|
|
Exercisable at September 30, 2020
|
|
|
4,211,378
|
|
|
$
|
13.81
|
|
|
6.7 years
|
|
$
|
2,376
|
|
The weighted average grant date fair value of stock options granted during the nine months ended September 30, 2020 and 2019 was $2.46 and $3.65 per share, respectively. The aggregate intrinsic value of the options exercised during the nine months ended September 30, 2020 and 2019 was $484 and $183, respectively. The total grant date fair value of stock options vested during the nine months ended September 30, 2020 and 2019 was $4,659 and $8,056, respectively. At September 30, 2020, total unrecognized compensation expense related to stock options was $4,744 and is expected to be recognized over a weighted average period of 2.3 years.
The aggregate intrinsic values in the tables above represent the difference between the fair market value of the Company’s common stock and the average option exercise price of in-the-money options, multiplied by the number of such options.
17
Employee Stock Purchase Plan
During the nine months ended September 30, 2020, a total of 126,550 shares of common stock were purchased under the Company’s ESPP. As of September 30, 2020, accrued employee contributions for future purchases under the ESPP totaled $72.
18