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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number: 001-38093

 

Veritone, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

47-1161641

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

575 Anton Blvd., Suite 100, Costa Mesa, CA 92626

(Address of principal executive offices, including zip code)

(888) 507-1737

(Registrant’s telephone number, including area code)

 

 

Securities registered pursuant to Section 12(b) of the Exchange Act:

 

Title of each class

 

Trading Symbol

 

Name of each exchange on which registered

Common Stock, par value $0.001 per share

 

VERI

 

The NASDAQ Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2) of the Exchange Act.    Yes      No  

As of November 6, 2020, 27,733,322 shares of the registrant’s common stock were outstanding.

 

 

 


VERITONE, INC.

QUARTERLY REPORT ON FORM 10-Q

September 30, 2020

TABLE OF CONTENTS

 

Special Note Regarding Forward-Looking Statements

 

 

PART I.

  

FINANCIAL INFORMATION

 

2

Item 1.

  

Financial Statements (Unaudited)

 

2

 

  

Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019

 

2

 

  

Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2020 and 2019

 

3

 

  

Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2020 and 2019

 

4

 

  

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019

 

6

 

  

Notes to the Condensed Consolidated Financial Statements

 

7

Item 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

19

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

 

27

Item 4.

  

Controls and Procedures

 

27

PART II.

  

OTHER INFORMATION

 

28

Item 1.

  

Legal Proceedings

 

28

Item 1A.

  

Risk Factors

 

28

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

 

28

Item 3.

  

Defaults Upon Senior Securities

 

28

Item 4.

  

Mine Safety Disclosures

 

28

Item 5.

  

Other Information

 

28

Item 6.

  

Exhibits

 

29

Signatures

 

30

 

 

 


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and we intend that such forward-looking statements be subject to the safe harbors created thereby. For this purpose, any statements made in this Quarterly Report on Form 10-Q that are not historical or current facts may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as “anticipates,” “believes,” “seeks,” “estimates,” “expects,” “intends,” “continue,” “can,” “may,” “plans,” “potential,” “projects,” “should,” “could,” “will,” “would” or similar expressions and the negatives of those expressions are intended to identify forward-looking statements. Such statements include, but are not limited to, any statements that refer to projections of our future financial condition and results of operations, capital needs and financing plans, competitive position, industry environment, potential growth and market opportunities, acquisition plans and strategies, compensation plans, governance structure and policies and/or the price of our common stock.

The forward-looking statements included herein represent our management’s current expectations and assumptions based on information available as of the date of this report. These statements involve numerous known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Factors that may cause or contribute to such differences include, but are not limited to, those discussed in more detail in Item 2 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) of Part I, and Item 1A (Risk Factors) of Part II, of this Quarterly Report on Form 10-Q, and in Item 1 (Business) and Item 1A (Risk Factors) of Part I of our Annual Report on Form 10-K for the year ended December 31, 2019. Readers should carefully review these risks, as well as the additional risks described in other documents we file from time to time with the Securities and Exchange Commission. In light of the significant risks and uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by us or any other person that such results will be achieved, and readers are cautioned not to place undue reliance on such forward-looking information, which speak only as of the date of this report.

Moreover, we operate in an evolving environment. New risks and uncertainties emerge from time to time and it is not possible for our management to predict all risks and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual future results to be materially different from those expressed or implied by any forward-looking statements.

Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. We qualify all of our forward-looking statements by these cautionary statements.

1


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

VERITONE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share and share data)

(Unaudited)

 

 

 

As of

 

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

54,315

 

 

$

44,065

 

Accounts receivable, net

 

 

17,470

 

 

 

21,352

 

Expenditures billable to clients

 

 

20,108

 

 

 

10,286

 

Prepaid expenses and other current assets

 

 

5,116

 

 

 

5,409

 

Total current assets

 

 

97,009

 

 

 

81,112

 

Property, equipment and improvements, net

 

 

2,499

 

 

 

3,214

 

Intangible assets, net

 

 

12,086

 

 

 

16,126

 

Goodwill

 

 

6,904

 

 

 

6,904

 

Long-term restricted cash

 

 

855

 

 

 

855

 

Other assets

 

 

229

 

 

 

315

 

Total assets

 

$

119,582

 

 

$

108,526

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Accounts payable

 

$

21,268

 

 

$

17,014

 

Accrued media payments

 

 

41,226

 

 

 

26,664

 

Client advances

 

 

13,767

 

 

 

9,080

 

Other accrued liabilities

 

 

7,643

 

 

 

6,978

 

Total current liabilities

 

 

83,904

 

 

 

59,736

 

Other non-current liabilities

 

 

1,251

 

 

 

1,379

 

Total liabilities

 

 

85,155

 

 

 

61,115

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

 

Common stock, par value $0.001 per share; 75,000,000 shares authorized;

27,719,753 and 25,670,737 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively

 

 

28

 

 

 

26

 

Additional paid-in capital

 

 

302,321

 

 

 

279,828

 

Accumulated deficit

 

 

(267,979

)

 

 

(232,489

)

Accumulated other comprehensive income

 

 

57

 

 

 

46

 

Total stockholders' equity

 

 

34,427

 

 

 

47,411

 

Total liabilities and stockholders' equity

 

$

119,582

 

 

$

108,526

 

 

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

2


VERITONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE LOSS

(in thousands, except per share and share data)

(Unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenue

 

$

15,718

 

 

$

12,805

 

 

$

40,890

 

 

$

37,200

 

Cost of revenue (exclusive of amortization shown separately below)

 

 

4,553

 

 

 

4,196

 

 

 

11,566

 

 

 

11,725

 

Gross profit

 

 

11,165

 

 

 

8,609

 

 

 

29,324

 

 

 

25,475

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

5,255

 

 

 

6,081

 

 

 

15,116

 

 

 

17,921

 

Research and development

 

 

3,587

 

 

 

5,473

 

 

 

10,673

 

 

 

18,250

 

General and administrative

 

 

11,950

 

 

 

11,899

 

 

 

34,836

 

 

 

35,228

 

Amortization

 

 

1,346

 

 

 

1,352

 

 

 

4,040

 

 

 

3,515

 

Total operating expenses

 

 

22,138

 

 

 

24,805

 

 

 

64,665

 

 

 

74,914

 

Loss from operations

 

 

(10,973

)

 

 

(16,196

)

 

 

(35,341

)

 

 

(49,439

)

Other (expense) income, net

 

 

(4

)

 

 

184

 

 

 

(108

)

 

 

446

 

Loss before provision for income taxes

 

 

(10,977

)

 

 

(16,012

)

 

 

(35,449

)

 

 

(48,993

)

Provision for (benefit from) income taxes

 

 

36

 

 

 

(1,815

)

 

 

41

 

 

 

(1,799

)

Net loss

 

$

(11,013

)

 

$

(14,197

)

 

$

(35,490

)

 

$

(47,194

)

Net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.40

)

 

$

(0.64

)

 

$

(1.31

)

 

$

(2.26

)

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

27,593,315

 

 

 

22,345,122

 

 

 

27,162,880

 

 

 

20,882,293

 

Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(11,013

)

 

$

(14,197

)

 

$

(35,490

)

 

$

(47,194

)

Unrealized gain on marketable securities, net of income taxes

 

 

 

 

 

 

 

 

 

 

 

48

 

Foreign currency translation gain (loss), net of income taxes

 

 

6

 

 

 

(31

)

 

 

11

 

 

 

(8

)

Total comprehensive loss

 

$

(11,007

)

 

$

(14,228

)

 

$

(35,479

)

 

$

(47,154

)

 

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

3


VERITONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share amounts)

(Unaudited)

 

 

 

 

 

 

 

Three Months Ended September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Comprehensive

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income

 

 

Total

 

Balance as of June 30, 2020

 

 

27,516,307

 

 

$

28

 

 

$

296,967

 

 

$

(256,966

)

 

$

51

 

 

$

40,080

 

Common stock offerings, net

 

 

 

 

 

 

 

 

(10

)

 

 

 

 

 

 

 

 

(10

)

Common stock issued under employee stock plans, net

 

 

97,548

 

 

 

 

 

 

216

 

 

 

 

 

 

 

 

 

216

 

Release of Machine Box holdback consideration

 

 

105,898

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

5,148

 

 

 

 

 

 

 

 

 

5,148

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(11,013

)

 

 

 

 

 

(11,013

)

Other comprehensive gain

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6

 

 

 

6

 

Balance as of September 30, 2020

 

 

27,719,753

 

 

$

28

 

 

$

302,321

 

 

$

(267,979

)

 

$

57

 

 

$

34,427

 

 

 

 

 

 

Nine Months Ended September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Comprehensive

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income

 

 

Total

 

Balance as of December 31, 2019

 

 

25,670,737

 

 

$

26

 

 

$

279,828

 

 

$

(232,489

)

 

$

46

 

 

$

47,411

 

Common stock offerings, net

 

 

1,491,317

 

 

 

2

 

 

 

5,994

 

 

 

 

 

 

 

 

 

5,996

 

Common stock issued under employee stock plans, net

 

 

297,490

 

 

 

 

 

 

356

 

 

 

 

 

 

 

 

 

356

 

Release of Machine Box holdback consideration

 

 

105,898

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

13,735

 

 

 

 

 

 

 

 

 

13,735

 

Exercise of warrants

 

 

154,311

 

 

 

 

 

 

2,100

 

 

 

 

 

 

 

 

 

2,100

 

Issuance of warrants

 

 

 

 

 

 

 

 

308

 

 

 

 

 

 

 

 

 

308

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(35,490

)

 

 

 

 

 

(35,490

)

Other comprehensive gain

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11

 

 

 

11

 

Balance as of September 30, 2020

 

 

27,719,753

 

 

$

28

 

 

$

302,321

 

 

$

(267,979

)

 

$

57

 

 

$

34,427

 

 

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

4


VERITONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share amounts)

(Unaudited)

 

 

 

 

Three Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Comprehensive

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income

 

 

Total

 

Balance as of June 30, 2019

 

 

21,918,406

 

 

$

22

 

 

$

257,813

 

 

$

(203,408

)

 

$

72

 

 

$

54,499

 

Common stock offerings, net

 

 

1,103,937

 

 

 

1

 

 

 

5,315

 

 

 

 

 

 

 

 

 

5,316

 

Common stock issued under employee stock plans, net

 

 

83,304

 

 

 

 

 

 

308

 

 

 

 

 

 

 

 

 

308

 

Machine Box holdback consideration

 

 

 

 

 

 

 

 

140

 

 

 

 

 

 

 

 

 

140

 

Common stock issued for acquisitions

 

 

129,552

 

 

 

 

 

 

27

 

 

 

 

 

 

 

 

 

27

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

4,736

 

 

 

 

 

 

 

 

 

4,736

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(14,197

)

 

 

 

 

 

(14,197

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(31

)

 

 

(31

)

Balance as of September 30, 2019

 

 

23,235,199

 

 

$

23

 

 

$

268,339

 

 

$

(217,605

)

 

$

41

 

 

$

50,798

 

 

 

 

 

Nine Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Comprehensive

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income

 

 

Total

 

Balance as of December 31, 2018

 

 

19,335,220

 

 

$

19

 

 

$

230,674

 

 

$

(170,411

)

 

$

1

 

 

$

60,283

 

Common stock offerings, net

 

 

2,772,600

 

 

 

3

 

 

 

17,528

 

 

 

 

 

 

 

 

 

17,531

 

Common stock issued under employee stock plans, net

 

 

230,979

 

 

 

 

 

 

722

 

 

 

 

 

 

 

 

 

722

 

Machine Box holdback consideration

 

 

 

 

 

 

 

 

760

 

 

 

 

 

 

 

 

 

760

 

Common stock issued for acquisitions

 

 

896,400

 

 

 

1

 

 

 

3,861

 

 

 

 

 

 

 

 

 

3,862

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

14,794

 

 

 

 

 

 

 

 

 

14,794

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(47,194

)

 

 

 

 

 

(47,194

)

Other comprehensive gain

 

 

 

 

 

 

 

 

 

 

 

 

 

 

40

 

 

 

40

 

Balance as of September 30, 2019

 

 

23,235,199

 

 

$

23

 

 

$

268,339

 

 

$

(217,605

)

 

$

41

 

 

$

50,798

 

 

 

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

5


VERITONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(35,490

)

 

$

(47,194

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

4,816

 

 

 

4,337

 

Deferred income taxes, net

 

 

 

 

 

(1,821

)

Warrant expense

 

 

102

 

 

 

 

Change in fair value of warrant liability

 

 

200

 

 

 

(7

)

Provision for doubtful accounts

 

 

291

 

 

 

54

 

Stock-based compensation expense

 

 

13,698

 

 

 

16,049

 

Other

 

 

 

 

 

(19

)

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

3,535

 

 

 

156

 

Expenditures billable to clients

 

 

(9,822

)

 

 

(3,472

)

Prepaid expenses and other assets

 

 

(131

)

 

 

(953

)

Accounts payable

 

 

4,254

 

 

 

(5,282

)

Accrued media payments

 

 

14,562

 

 

 

3,189

 

Client advances

 

 

4,687

 

 

 

15,057

 

Other accrued liabilities

 

 

708

 

 

 

1,447

 

Other liabilities

 

 

(128

)

 

 

31

 

Net cash provided by (used in) operating activities

 

 

1,282

 

 

 

(18,428

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Proceeds from sales of marketable securities

 

 

 

 

 

13,614

 

Proceeds from the sale of equipment

 

 

56

 

 

 

 

Capital expenditures

 

 

(61

)

 

 

(282

)

Intangible assets acquired

 

 

 

 

 

(477

)

Acquisition of businesses, net of cash acquired

 

 

 

 

 

(883

)

Net cash (used in) provided by investing activities

 

 

(5

)

 

 

11,972

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from common stock offerings, net

 

 

6,517

 

 

 

17,302

 

Proceeds from loan

 

 

6,491

 

 

 

 

Repayment of loan

 

 

(6,491

)

 

 

 

Proceeds from the exercise of warrants

 

 

2,100

 

 

 

 

Proceeds from issuances of stock under employee stock plans, net

 

 

356

 

 

 

722

 

Net cash provided by financing activities

 

 

8,973

 

 

 

18,024

 

Net increase in cash, cash equivalents and restricted cash

 

 

10,250

 

 

 

11,568

 

Cash, cash equivalents and restricted cash, beginning of period

 

 

44,920

 

 

 

38,776

 

Cash, cash equivalents and restricted cash, end of period

 

$

55,170

 

 

$

50,344

 

 

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

6


VERITONE, INC.

Notes to the Condensed Consolidated Financial Statements

(in thousands, except share and per share data and percentages)

(Unaudited)

NOTE 1. DESCRIPTION OF BUSINESS

Description of Business

Veritone, Inc., a Delaware corporation (“Veritone”) (together with its wholly owned subsidiaries, collectively, the “Company”), is a provider of artificial intelligence (“AI”) computing solutions. The Company’s 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