NOTE 3. CONVERTIBLE NOTES PAYABLE

In March 2017, the Company and Acacia Research Corporation (“Acacia”) amended certain terms of the warrants that were included in the Investment Agreement that was entered into by the two companies on August 15, 2016 (refer to the Company’s Prospectus for the full discussion of the Investment Agreement). If the Company completes an initial public offering (“IPO”) of its common stock with gross proceeds of at least $15,000 (a “Qualifying IPO”), the exercise price for all warrants issued to Acacia will be the lower of $13.6088 or the price of common stock issued in the IPO (see discussion of the IPO in Note 8). Also, the Primary Warrant will automatically be exercised upon the Company completing a Qualifying IPO. As a result of this amendment, the fair value of the Primary Warrant decreased by $3,118 and the credit associated with the reduction in fair value was recorded as a gain in Other Income (Expense) in the Company’s condensed consolidated statement of operations for the three months ended March 31, 2017.

In March 2017, the Company entered into a Note Purchase Agreement with Acacia and Veritone LOC I, LLC (“VLOC”) (collectively, the “Lenders”), which provides for a line of credit of up to $8,000 (the “Bridge Loan”). The convertible promissory notes issued to the Lenders pursuant to the Bridge Loan accrue interest at the rate of eight percent (8%) per annum, compounded quarterly, and such accrued interest amounted to $5 as of March 31, 2017. The borrowings are due and payable on November 25, 2017, and the Company’s obligations under this facility are secured by a security interest in substantially all of the assets of the Company, which is of equal priority to the security interests of Acacia under the Convertible Note Payable. The Company drew down the initial $2,000 installment under the Bridge Loan upon the execution of the Note Purchase Agreement, and the remaining amounts could be drawn down in tranches of $2,000 per month commencing April 15, 2017; provided, however, that if the Company’s IPO was not completed by April 30, 2017, the Lenders could, but were not obligated to, continue making advances under the Bridge Loan after that date. The Note Purchase Agreement provided that, upon the completion of a Qualifying IPO, the outstanding borrowings under the Bridge Loan, including accrued interest, would automatically be converted into shares of the Company’s common stock at a conversion price per share equal to the lesser of (i) $13.6088 and (ii) the IPO price per share to the public. In addition, the Note Purchase Agreement provided that, immediately prior to the completion of the IPO, the Lenders would have the option to fund the remaining undrawn amounts under the Bridge Loan, which amounts would then be automatically converted as provided above. Upon the execution of the Note Purchase Agreement, the Company issued an aggregate of 120,000 shares of the Company’s common stock to the Lenders. In addition, the Note Purchase Agreement provided that, upon the funding of each $2,000 installment, the Company would issue to the Lenders, in the aggregate, (a) an additional 45,000 shares of the Company’s common stock, and (b) fully vested warrants to purchase a number of shares of the Company’s common stock equal to the greater of (i) 60,000 shares of common stock, and (ii) 0.375% of the Company’s fully diluted shares outstanding following completion of the IPO. Such warrants have a term of ten years following the date of issuance and have an exercise price per share equal to the lower of $13.6088 or the IPO price per share to the public. The members of VLOC include entities controlled by Chad Steelberg and Ryan Steelberg, the Company’s Chief Executive Officer and President, respectively, who own 50% of the VLOC’s membership interests, and certain holders of the Company’s redeemable convertible preferred stock.

The following table represents a reconciliation of the principal amounts of the First Loan, Second Loan and the Bridge Loan (as described above) to the convertible notes payable included in the condensed consolidated balance sheets as of: