Document

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
 
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2017
 
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission File No. 001-35982
 
TELARIA, INC.
(Name of registrant as specified in its Charter)
 
Delaware
 
20-5480343
(State or other jurisdiction of incorporation or organization)
 
(I.R.S Employer Identification No.)
 
1501 Broadway, Suite 801
New York, New York 10036 
(Address of Principal Executive Offices)
 
(646) 723-5300 
(Registrant’s Telephone Number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act: 

Title of each class
 
Name of each exchange on which registered
Common Stock, par value $0.0001 per share
 
New York Stock Exchange

Securities Registered Pursuant to Section 12(g) of the Act: None
 
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  No x
 
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes No x
 
Indicate by check mark if the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 o
 
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.o
 
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
o
Accelerated filer
x
Non-accelerated filer
o
Smaller reporting company
o
Emerging growth company
x
 
 
 
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. x
 
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No x
 
The aggregate market value of the voting and non-voting common stock held by non-affiliates computed by reference to the price at which the common stock was last sold, or the average bid and asked price of such common stock, as of the last business day of the Registrant’s most recently completed second quarter was approximately $104.3 million.
  
As of February 26, 2018, there were 52,017,481 shares of the Registrant's common stock, par value $0.0001 per share, outstanding.
 




Telaria, Inc.
Form 10-K
For the Fiscal Year Ended December 31, 2017
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unless the context otherwise requires, we use the terms "Telaria," the "Company," "we," "us" and "our" in this Annual Report on Form 10-K, or this Annual Report, to refer to Telaria, Inc. and, where appropriate, its consolidated subsidiaries.

The Telaria logo, name and other trademarks or service marks of Telaria, Inc. appearing in this report are the property of Telaria, Inc. and its consolidated subsidiaries. This Annual Report contains additional trade names, trademarks and service marks of others, which are the property of their respective owners.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report contains forward-looking statements that involve substantial risks and uncertainties.  In some cases, you can identify forward-looking statements by the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “objective,” “ongoing,” “plan,” “predict,” “project,” “potential,” “should,” “will,” or “would,” and or the negative of these terms, or other comparable terminology intended to identify statements about the future. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. The forward-looking statements and opinions contained in this prospectus are based upon information available to us as of the date of this Annual Report and, while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. Forward-looking statements include statements about:
 
the expansion of the online video advertising market;
 the adoption of our seller platform by premium publishers and our ability to increase the amount of video advertising inventory made available through our seller platform;
our ability to increase the amount of advertising spend and revenue transacted through our seller platform by buyers, including third party demand side platforms, or DSPs;
our ability to develop and maintain relationships with premium video publishers on terms that are favorable to us;
the effects of increased competition as well as innovations by new and existing competitors in our market;
our ability to effectively innovate and scale our technology and to continue to address the rapidly evolving requirements of our clients;
our ability to effectively manage our growth;
the shift in video consumption from linear TV to digital mediums such as connected TV, or CTV, and over-the-top, or OTT;
our ability to protect viewers’ information and adequately address privacy concerns;
our ability to ensure a high level of brand safety for our clients and to detect “bot” traffic and other fraudulent or malicious activity;
the effect of regulatory developments and industry standards regarding internet privacy and other matters;
 our ability to maintain, protect and enhance our intellectual property;
costs associated with defending intellectual property infringement, securities and other claims;
potential acquisitions and integrations of complementary business and technologies;
expected investments or expenditures;
our ability to attract and retain qualified employees and key personnel; and
statements regarding future revenue or the sources of such revenue, gross margins, net income, hiring plans, expenses, capital expenditures, capital requirements and stock performance;

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Annual Report.
You should refer to the section titled Part I, Item 1A. “Risk Factors” of this Annual Report for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this report will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame or at all.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Annual Report and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
 We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. You should read this report and the documents that we reference in this report and have filed or incorporated by reference as exhibits to this report completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

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PART I

ITEM 1.  BUSINESS

Overview
 
Telaria, Inc. (formerly Tremor Video, Inc.) is a software company providing a fully programmatic, self-service, seller platform to monetize and manage premium video content across all internet-connected screens and devices.

We automate the sales process for publishers of premium video content by allowing them to efficiently identify, package and deliver their advertising inventory to advertisers, agencies and other buyers, while protecting the integrity of their brand and the consumer viewing experience. Our seller platform connects publishers to buyers via direct integrations with leading third-party demand-side platforms, or DSPs. This allows publishers to efficiently monetize their advertising inventory however they want to transact, whether through open auctions or private marketplaces. Private marketplaces can be transacted through invite only auctions, where select buyers are given the opportunity to bid on a curated set of inventory, or through direct connections that allow publishers to programmatically transact with a specific buyer. Integrations with DSPs are done through server-to-server connections and, as a result, we are able to significantly reduce latency and response time for our clients’ ad campaigns.

Our technology provides publishers with the real-time control and insights they require to optimize and automate their video advertising sales and manage their inventory across sales channels, devices and platforms. Our seller platform was built specifically for digital video and to support the unique requirements of mobile, over-the-top, or OTT, and connected TV, or CTV, platforms. We enable publishers to exercise complete control over their monetization strategy by defining supply hierarchies and demand tiers, minimum price floors, and advertiser and category-level black and white lists to manage potential sales channel conflicts. We offer publishers a full suite of tools to ensure the integrity of their brand and the consumer viewing experience, including the ability to review and block specific ad creative units, manage ad frequency, and control for factors such as the volume of an ad. Our seller platform provides publishers with up-to-the-second reporting, which allows them to effectively monitor buying patterns and make real-time changes to take advantage of market dynamics and extensive analytics that leverage billions of historical data points to drive long term monetization strategy. We also offer innovative diagnostic capabilities and transparency to our publishers so that they have a complete picture of how their inventory is represented in the marketplace. This allows publishers to immediately identify and act to resolve any issues impacting revenue generation. In addition, DSPs that connect through our seller platform have access to real-time bidding data, insights and analytics enabling them to more effectively manage buying.

We have built long-standing relationships with premium video publishers, and we believe the scale and quality of our client base makes us an important partner to video ad buyers. We provide our platform to publishers outside the United States through our international operations in Europe, Latin America, and the Asia Pacific regions. Buyers on our seller platform include some of the largest brand advertisers in the world and our platform is integrated with the leading video volume buyers in digital advertising.
 
We generate revenue each time a transaction occurs on our platform based on a simple and transparent fee structure established with our publisher partners. We do not purchase and re-sell inventory from publishers and do not collect any fees directly from buyers. We act as an agent on behalf of publishers and revenue is recognized, net of any inventory costs that we remit to publishers, when a buyer purchases inventory from a publisher on our platform.

Historically, we operated a buyer platform business in addition to offering our seller platform. The buyer platform enabled advertisers, agencies and other buyers of advertising to discover, buy, optimize and measure the effectiveness of their video ad campaigns across digital screens. We recently made the strategic decision to focus our business exclusively on offering our seller platform, and on August 7, 2017, we announced that we had completed the sale of our buyer platform to an affiliate of Taptica International Ltd. for total consideration of $50 million in cash, subject to adjustment for working capital. Following the sale, we no longer provide a buyer platform solution. As a result, we are able to fully concentrate our resources on expanding our seller platform, while avoiding the inherent conflicts of interest that exist when serving both buy and sell-side clients.

On September 11, 2017, we changed our name from “Tremor Video, Inc.” to “Telaria, Inc.” In connection with the name change, our NYSE ticker symbol was changed to “TLRA” and our corporate website address was changed to www.telaria.com. Information on or accessible through our website is not incorporated by reference to this report.


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Our Industry

Online video is among the fastest growing advertising formats worldwide. Several factors, including the availability of high-speed broadband and mobile network infrastructure, penetration of internet-connected devices, a proliferation of online content publishers and a behavioral shift towards online and non-linear video viewing, are driving robust growth in online video consumption.

Consumers are rapidly shifting their viewing habits towards digital mediums and expect to be able to consume content seamlessly across multiple devices, including computers, tablets, smartphones, and CTVs. The rapid adoption of OTT viewing and CTV has disrupted the traditional linear TV distribution model, creating new options for consumers and new economic opportunities for content publishers and advertisers.

The continued growth of online video consumption is resulting in a corresponding increase in the amount of advertising dollars being spent by brands through digital video channels. According to estimates from eMarketer, the global online video advertising market is expected to grow from $17.1 billion in 2016 to $42 billion in 2020, representing a compound annual growth rate of 25%. Online video advertising provides a number of advantages over traditional television advertising for both publishers and buyers. For publishers, digital advertising enables content owners to realize the greatest value of their video content by providing tools to maximize advertising yield and manage inventory allocation, while providing advanced real-time reporting and analytics that can inform the sales process. For buyers, online video advertising combines the rich “sight, sound and motion” of television with the advanced optimization, targeting and analytics of digital.

As online video advertising continues to scale and evolve, the need for software solutions that automate the process for planning, buying, selling and measuring video advertising across screens has become more pronounced. As a result, the amount of online video advertising being bought and sold programmatically has increased. Programmatic buying refers to the automated purchase and sale of digital advertising through technology, including the use of real-time bidding technology that allows for the dynamic purchase and sale of advertising inventory on an impression-by-impression basis. We believe that programmatic buying will continue to grow as a percentage of video advertising spend. A report from eMarketer estimates that programmatic digital video ad spending will represent 74% of total U.S. digital video ad spending by the end of 2018.

Despite the tremendous growth opportunity in the online video advertising market, publishers of video advertising face a number of challenges that require sophisticated technology to solve. Publishers face a complex advertising landscape with an increasing number of buyers and technology intermediaries and multiple channels for content consumption for consumers. Furthermore, for content providers to increase their audience, they must focus on the high expectations those audiences have for the end user experience. For instance, publishers must ensure that ads load properly and do not cause delays, are brand safe, match the quality of the premium content that is being viewed, are played at the appropriate volume, and are not overly repetitive. Publishers also need tools to ensure proper management of sales channel and advertiser conflicts. All of these requirements must be executed in real-time and at scale, across multiple channels and devices, while continuously monitoring and controlling their inventory to maximize yield.

Our Platform

Our software platform features:


Yield optimization.  Our seller platform is integrated with the leading video volume buyers in digital advertising, creating a robust marketplace through which publishers are able to efficiently monetize their advertising inventory through multiple channels and transaction types, including open auction, private auction and private direct.  We provide tools that enable publishers to define supply hierarchies and demand tiers, minimum price floors, and advertiser and category level black and white lists to manage potential sales channel conflicts and ensure that our seller platform complements their direct selling efforts.

Advanced brand safety controls. We provide publishers with essential tools and controls to ensure the integrity of their brand and the consumer viewing experience. For instance, our creative review tool lets publishers review the specific creative ad unit that is being served to their inventory, including the volume of the ad relative to their content. If the creative ad unit does not align with the publisher’s brand parameters or content guidelines, they can easily block the ad from serving. We recently introduced an ad-pod feature, which provides long-form video publishers with a tool analogous to commercial breaks in traditional linear television, so that they can request several ads at once. Using this tool, publishers can establish business rules within the ad-pod to increase their value, such as competitive separation of advertisers within an ad-pod and the ability to filter out repetitive ads.


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Real time reporting, analytics and diagnostics.  Our platform provides publishers with access to up-to-the-second reporting, which allows them to effectively monitor buying patterns and make real-time changes to take advantage of market dynamics and maximize their yield. We also provide access to extensive analytics that leverage billions of historical data points derived through our platform to drive long-term monetization strategy for publishers. Our real-time diagnostic tools enable publishers to discover and resolve any revenue impacting issues within seconds.
 
Our Competitive Strengths


Built exclusively for video. Our seller platform is focused exclusively on managing and monetizing digital video inventory. Unlike other platforms that were originally built to monetize display advertising, our platform was built from day one to address the special requirements of online video, in particular applications running on mobile or CTV devices. Online video poses a number of unique challenges compared to display such as the ability to dynamically inserts ads into live streams, control for ad volume, ensure ad formats play across devices and best match the viewer’s environment, and accommodate spikes in video consumption around landmark events. Any failure to address these challenges could significantly impair the user experience, which is of utmost importance to premium publishers.

Fully agnostic platform for publishers. We are fully aligned with the interests of our publisher partners.  Because we do not offer a buyer solution, we are able to avoid inherent conflicts of interest that exist when serving both the buy- and sell-side. In addition, because we do not own or publish content we are agnostic and have no preference towards delivering demand to any specific publisher. As a result, we are able to build trust with clients, many of whom incorporate their proprietary data into our platform. This trust provides us the benefit of long-term and stable relationships with our clients.

Scalability and continuous innovation. Our seller platform is built with a flexible architecture and an adaptable data pipeline at its center, so that we can easily expand the platform as well as integrate with ecosystem partners, enabling our clients to use our platform as a full-suite solution to serve all of their needs. Our open architecture allows us to implement rapid product cycles so that we are continuously innovating to enhance our platform for our clients and stay ahead of the curve in a rapidly evolving industry.  For example, we believe that we were the first sell-side solution to deliver programmatic ads into live streaming content and first in market with features optimized for CTV inventory.

Self-service model. We offer a self-service model that lets publishers direct their own sale and management of video ad inventory without extensive involvement by our personnel.  This model allows us to scale efficiently and grow our business at a faster pace than the growth of our sales and support organization. As a result, we are able to achieve a high degree of operating leverage, which positions our business for growing profitability.

Transparent pricing. We generate revenue each time a transaction occurs on our platform based on a simple and transparent fee structure established with our publisher partners. We do not purchase and re-sell inventory from publishers and do not collect any fees directly from buyers. This allows publishers to get a true measure of the value of their inventory.

Premium unique inventory. We believe the scale and quality of our client base makes us an important partner to video ad buyers. We have expanded significant time and resources cultivating and building long-term relationships with premium content providers that offer a high-quality TV-like production and viewing experience, in particular in the OTT and CTV space. This inventory is highly sought after by advertisers looking to capitalize on the shift in video consumption from linear TV to digital.

Clients and Sales

As of December 31, 2017, we had total sales and marketing staff of 89 employees. For 2017, 2016 and 2015 our total sales and marketing expenses were $28.1 million, $22.3 million and $13.8 million, respectively.
Our sales strategy is focused on serving the following core client constituencies: publishers that use our seller platform to manage and monetize their video inventory and buyers that transact on our seller platform, including DSPs that directly purchase inventory on behalf of their clients as well as brand advertiser and advertising agencies who ultimately control and direct advertising spend through DSPs.

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Our publisher sales team is responsible for increasing the number of premium content providers using our seller platform as well as the amount of ad inventory being monetized through our platform. Our buyer sales team is responsible for increasing the amount of spend and bidding activity being transacted by buyers on our platform.
Publishers
Publishers own or operate websites and applications through which video advertisements can be delivered to consumers as they navigate across screens. Publishers use our seller platform as a yield-optimization and supply management tool to improve their selling efforts.

We are focused on establishing direct relationships with premium content providers that offer high- quality production and viewing experiences, in particular in the OTT and CTV space. This inventory is highly sought after by advertisers looking to capitalize on the shift from linear TV to digital, as it combines a TV-like viewing experience with the significant advantages of online advertising, including the ability to target engaged viewers that have actively opted-into the content.
Our publisher focused sales initiatives use a full-service development and support strategy. Sales executives and account managers are assigned to specific publishers to ensure that they are receiving the maximum benefits offered by our seller platform, and are supported by engineers with deep technical expertise.
We have invested significant resources in identifying and cultivating relationships with publishers to ensure they understand the potential benefits of using our seller platform. Because we seek to build long term direct relationships with premium content providers, the sales process can be time consuming and resource intensive.
Buyers

DSPs are technological intermediaries through which advertisers and agencies transact on our seller platform. DSPs provide ad delivery and related technology solutions for advertisers and agencies and purchase video inventory on behalf of those advertisers and agencies. These DSPs are directly connected to our technology through server-to-server integrations and are responsible for bidding on and purchasing advertising inventory on our seller platform pursuant to a master service agreement.

We maintain close relationships with DSPs to maximize the amount of spend being transacted through our platform. For instance, our sales team collaborates with DSPs to create custom private marketplaces that fit specific targeting criteria for inventory being sought by the DSP. Our team of technical account managers continually monitors DSP bidding activities and provides recommendations that inform their trading practices, including insights around bidding behaviors and forecasting tools that assist in media planning.
While each DSP is responsible for bidding decisions, the overall direction of an advertising campaign is typically determined by the advertiser or advertising agency that has engaged the DSP. Accordingly, in order to increase the amount of spend transacted on our seller platform, we also maintain close relationships directly with brand advertisers and agencies. Our brand-focused sales strategy is to target most “video ready” brand advertisers, including large traditional TV advertising spenders, who are looking to capitalize on the shift in video consumption from linear-TV to online. Our agency sales team is focused on establishing relationships with key decision makers within the largest advertising agencies and agency trading desks.
Technology and Development

We have incurred substantial technology and development expenses developing, maintaining and improving the technology that underlies our seller platform. We believe that technology innovation is key to our success and we intend to continue to invest in the development of new feature sets and functionalities as well as enhancements to our existing product suite. As of December 31, 2017, we had a total of 20 employees engaged in technology and development functions. The majority of our technology and development team is located in Mountain View, California. For 2017, 2016, and 2015, our total technology and development expenses were $8.6 million, $7.0 million and $4.8 million, respectively.
Competition

We operate in a dynamic and competitive market, influenced by trends in both the overall advertising market as well as the online video advertising industry. The competitive dynamics of our market are unpredictable because our market is in an early stage of development, rapidly evolving, fragmented and subject to potential disruption by new technological innovations. We compete with large internet and media companies such as Alphabet, Inc., Facebook, Inc. and Comcast, Inc. that offer video

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advertising services and sell video advertising inventory as part of a larger solution, as well as advertising technology companies, advertising networks, and supply side platforms that represent publishers. Publishers that use our seller platform may also use other technology partners to sell their inventory or may sell a significant portion of their inventory through their own sales organizations without use of our seller platform. Many of our competitors have significant client relationships, much larger financial resources and longer operating histories than we have.
We believe that we compete on the basis of our ability to technologically innovate, the speed, reliability, scale and ease of use of our self-service platform, our ability to bring demand to publishers at scale, the quality of tools that we provide to publishers to manage their inventory and our real-time reporting and analytics. We believe that we compete favorably with respect to all of these factors. Other competitive strengths include our video-only focus, first mover advantage in OTT and CTV, independent business model that allows us to fully align with our publisher partners, and our emphasis on transparency in pricing and inventory quality.
Intellectual Property

Our ability to protect our intellectual property and our technology will be an important factor in the success and continued growth of our business. We rely on a combination of trade secrets, copyrights, and trademarks, as well as contractual protections, to establish and protect our intellectual property and protect our proprietary technology. We register certain domain names, trademarks and service marks in the United States and in certain locations outside the United States. We also rely upon common law protection for certain marks. We generally enter into confidentiality and invention assignment agreements with our employees and contractors, and confidentiality agreements with parties, with whom we conduct business in order to limit access to, and disclosure and use of, our proprietary information. We also use measures designed to control access to our technology and proprietary information. We view our trade secrets and know-how as a significant component of our intellectual property assets, which we believe differentiate us from our competitors.
Our efforts to preserve and protect our intellectual property, may not prevent the misappropriation of such intellectual property or technology, or deter independent development of similar intellectual property or technology by others. Policing unauthorized use of our technology and intellectual property is difficult. Third-parties may attempt to copy, reverse engineer or otherwise obtain our proprietary technology, or otherwise violate our intellectual property rights. Unauthorized disclosure by our employees, contractors or other third-parties could also occur. Effective intellectual property protection may not be available in the United States or other jurisdictions in which we operate and the efforts we have taken to protect our proprietary rights may not be sufficient or effective. Any impairment or loss of our intellectual property, or any inability to enforce our intellectual property rights effectively, could harm our business or our ability to compete. Also, protecting our technology and intellectual property is costly and time-consuming. Any unauthorized disclosure or use of our intellectual property or technology could make it more expensive for us to do business and could harm our operating results.
Additionally, we expect that products in our industry may be subject to third-party infringement lawsuits as the number of competitors grows and the functionality of products in different industry segments overlaps. From time to time, we may face claims by third-parties that we infringe upon or misappropriate their intellectual property rights, and we may be found to be infringing upon or to have misappropriated such rights. We cannot assure you that we are not infringing on or violating any third-party intellectual property rights.
Governmental Regulation; Industry Alliances
We are subject to numerous U.S. and foreign laws and regulations that are applicable to companies engaged in the online video advertising business. In addition, many areas of law that apply to our business are still evolving, and could potentially affect our business to the extent they restrict our business practices or impose a greater risk of liability. We are aware of several ongoing lawsuits filed against companies in our industry alleging various violations of privacy or data security related laws.
Privacy and Data Protection
We are subject to or affected by federal, state and foreign laws and regulations, as well as regulatory guidance, governing the collection, use, disclosure, retention, and security of personal data, such as the use of personal data for online analytics, use of online tracking technologies, or collection or precise geo-location of mobile devices. The global data protection landscape is rapidly evolving, and implementation standards and enforcement practices are likely to remain uncertain for the foreseeable future. Changes to these laws, regulations and guidelines may affect our ability to collect, use, and share personal data, and to provide services to customers that rely upon our ability to leverage data. The use of personal data for online and digital advertising is a topic of active interest among federal, state, and foreign regulatory bodies. Proposed legislation, regulations and guidelines could, if enacted or implemented, prohibit or limit our ability to use certain technologies that track individuals’

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activities on web pages, in emails or on the Internet. We also participate in industry self-regulatory programs that set standards for privacy and security of personal data, such as the Payment Card Industry Data Security Standard, or PCI DSS, or standards governing online advertising, or mobile carriers’ rules governing interactions with mobile devices that operate on the carriers’ networks. We may be required by comply with these standards by our partners, vendors, or clients. Evolving global privacy and data protection requirements may create uncertainty in our business, result in liability or impose additional costs on us. As a result of any continuing legislative initiatives and customer demands, we may have to modify our operations to enable us to continue to leverage personal data and other content. The cost of compliance with these laws, regulations and standards is high and is likely to increase in the future. Any failure or perceived failure by us to comply with federal, state, or foreign laws or self-regulatory standards could result in negative publicity, diversion of management time and effort and proceedings against us by governmental entities or others. In many jurisdictions, enforcement actions and consequences for noncompliance are rising. Additionally, if we fail to follow the commitments we make in public privacy notices or applicable self-regulatory security standards, such as those set forth in the PCI DSS, even if no customer information is compromised, we may incur significant fines or experience a significant increase in costs
Our solutions reach devices and users throughout the world, including in Australia, North America, South America, Europe and Asia. Our operations abroad may also be subject to increased scrutiny or attention from data protection authorities. Many countries in these regions have established or are in the process of establishing privacy and data security legal frameworks with which we, our customers, or our vendors must comply. For example, the EU has adopted the General Data Protection Regulation, or GDPR, which is scheduled to go into effect in May 2018 and introduces strict requirements for processing personal data. The GDPR is likely to increase compliance burden on us, including by mandating potentially burdensome documentation requirements, granting certain rights to individuals to control how we collect, use, disclose, retain and leverage information about them. In addition, the GDPR provides for breach reporting requirements, more robust regulatory enforcement and fines of up to 20 million euros or up to 4% of annual global revenue. As we continue to expand into other foreign countries and jurisdictions, we may be subject to additional laws and regulations that may affect how we conduct business.
Information security risks have generally increased in recent years, in part because of the proliferation of new technologies and the use of the Internet, and the increased sophistication and activity of organized crime, hackers, terrorists, activists, and other external parties, some of which may be linked to terrorist organizations or hostile foreign governments. Any person who circumvents our security measures could steal proprietary or confidential customer information or cause interruptions in our operations. Numerous state, federal and foreign laws and regulations impose requirements regarding the security and protection of personal data, as well as notification to persons whose personal data is affected by a breach. Breaches we may experience could significantly harm our reputation and business and financial results.
Industry Alliances
Given the developmental stage of video advertising, industry practices are rapidly evolving. We participate in a wide range of Interactive Advertising Bureau committees, councils and working groups, as well as other industry groups that are focused on establishing best practices for the online video advertising industry.
Employees
As of December 31, 2017, we had 136 employees, of which 20 were primarily engaged in technology and development functions, 89 were engaged in sales and marketing functions, and 27 were engaged in general and administrative functions. Substantially all of these employees are located in the United States. None of our employees are represented by a labor union or covered by a collective bargaining agreement. We consider our relationship with our employees to be favorable.
Facilities
        Our principal office occupies approximately 26,000 square feet of leased office space in New York, New York pursuant to a lease agreement that expires in 2029. We also lease offices in San Francisco, California; Santa Monica, California; Mountain View, California; London, England; Sydney, Australia; Melbourne, Australia; New Zealand; Malaysia; and Singapore. We believe our facilities are adequate for our current and near-term needs.
Information about Segment and Geographic Revenue; Seasonal Variations
Information about segment and geographic revenue is set forth in “Note 19 - Segment and Geographic Information” in the notes to the consolidated financial statements included in Part II, Item 8 of this Annual Report, and information regarding seasonality is set forth in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Results of Operations-Seasonality.”

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Corporate Information
On September 11, 2017, we changed our name from “Tremor Video, Inc.” to “Telaria, Inc.” We were originally organized as Tremor Media, LLC under the laws of the State of Delaware in November 2005 and converted into a corporation in September 2006. We changed our name to Tremor Video, Inc. in June 2011.
Available Information
Our website is located at www.telaria.com, and our investor relations website is located at http://investor.telaria.com. The contents of our website are not intended to be incorporated by reference into this Annual Report or in any other report or document we file with the U.S. Securities and Exchange Commission, or SEC, and any references to our websites are intended to be inactive textual references only. The following filings are available for download free of charge through our investor relations website as soon as reasonably practicable after we file them with the SEC: Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, as well as any amendments to such reports and all other filings pursuant to Section 13(a) or 15(d) of the Securities Act. Additionally, copies of materials filed by us with the SEC may be accessed at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 or at www.sec.gov. For information about the SEC’s Public Reference Room, contact 1-800-SEC-0330.
ITEM 1A.  RISK FACTORS
The following is a summary description of some of the material risks and uncertainties that may affect our business, including our future financial and operational results.  In addition to the other information in this Annual Report, the following statements should be carefully considered in evaluating us.
Risks Relating to Our Business and Industry
 
We have incurred significant net losses in recent periods, and we expect our operating expenses to increase in the foreseeable future. Accordingly, we may never achieve or sustain profitability.
 
Our seller platform was introduced in 2015. We incurred net income of $2.2 million for the year ended December 31, 2017, and net losses for the fiscal years 2016 and 2015 of $20.9 million and $43.2 million, respectively.  We have an accumulated deficit of $196.5 million and $198.6 million as of December 31, 2017 and 2016, respectively. We do not know if we will be able to achieve profitability or maintain profitability on a continued basis. Although our revenue has grown significantly since the introduction of our seller platform, we may not be able to maintain our historical rate of growth as our business continues to mature. Furthermore, the amount of revenue we generate on our seller platform as a percentage of the spend transacted varies across clients and depending on the type of transaction being executed, which makes it more difficult to predict the revenue that may result from any anticipated level of spend being transacted through our seller platform. We anticipate that our operating expenses in respect of our seller platform will continue to increase in absolute dollars as we scale our business and expand our operations. In particular, we plan to continue to invest in our technology and development efforts and sales and marketing efforts. Our ability to achieve or sustain profitability is based on numerous factors, many of which are beyond our control and we may never be able to generate sufficient revenue to achieve or sustain profitability.

Because our business model has substantially changed and is continuing to develop, our past operating results may not be indicative of future performance.

Historically, we operated a buyer platform business, which enabled advertisers, agencies and other buyers of advertising to discover, buy, optimize and measure the effectiveness of their video ad campaigns across digital screens. Our business model has substantially changed with the sale of our buyer platform in August 2017 and is continuing to develop. Accordingly, it may be difficult to assess our future prospects based on our historical performance and operating history.

In particular, as a result of the sale of the buyer platform we are smaller and less diversified. This may result in the loss of synergies between the buyer platform and our seller platform, cause our cash flow and growth prospects to be more volatile and make us more vulnerable to focused competition.

The success of our business faces a number of challenges, including:
 
· developing market acceptance for our self-service programmatic seller platform;

· continuing to innovate and improve the technology that underlies our seller platform;

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· maintaining and expanding our existing relationships, and developing new relationships with publishers and buyers on our seller platform;
 
· increasing the amount of advertising inventory made available and bid on through our seller platform;
  
· the growth, evolution and rate of adoption of industry standards;

· ensuring that our business complies with evolving industry standards;
 
· offering competitive rates to publishers;
 
· providing publishers with increased yield and monetization, and access to unique data and feature sets, compared to competitors;
 
· competing effectively to increase our share of brand advertising spend;

· ensuring that we have access to premium advertising inventory in brand-safe environments and effectively combating fraudulent activities;
 
· maintaining and increasing the value of our brand and goodwill with buyers and publishers;
 
· effectively controlling our costs as we grow our business;
 
· responding to evolving government regulations relating to the internet, telecommunications, privacy, marketing and advertising aspects of our business; and
 
· identifying, attracting, retaining and motivating qualified personnel.
 
Our ability to meet these challenges will help determine whether we can successfully leverage our business model to achieve profitability and growth in the future. We cannot assure our ability to achieve this goal, to generate consistent and improving operating results, or even to maintain the same level of success that we have had to date.
 
Unfavorable conditions in the global economy could limit our ability to grow our business and negatively affect our operating results.
 
Instability in general worldwide economic and political conditions make it extremely difficult for advertisers and us to accurately forecast and plan future business activities, and unfavorable conditions could cause buyers to reduce or delay their advertising spending. Historically, economic downturns have resulted in overall reductions in advertising spending. If macroeconomic conditions deteriorate, buyers may curtail or freeze spending on advertising in general, which would impact the amount of spend transacted through our seller platform. Furthermore, our contracts and relationships with demand side partners generally do not include long-term obligations requiring them to purchase advertising on our seller platform and are cancelable upon short or no notice and without penalty. Any reduction in advertising spending could limit our ability to grow our business and negatively affect our operating results.
 
We cannot predict the timing, strength or duration of any economic slowdown or recovery. In addition, even if the overall economy improves, we cannot assure you that the market for online video advertising solutions will experience growth or that we will experience growth.
 
If we fail to adapt and respond effectively to rapidly changing technology and client needs, our solutions may become less competitive or obsolete.
 
Our future success will depend on our ability to adapt and innovate. To attract new clients and increase spend transacted through our seller platform, we will need to expand and enhance our solutions to meet client needs, add functionality and address technological advancements, including with respect to the sale of video advertising through new and developing mediums and platforms such as CTV and OTT.  If we fail to develop new solutions that address our client’s needs, or enhance and improve our solutions in a timely manner or conform to industry standards, we may not be able to achieve or maintain adequate market acceptance of our solutions, and our solutions may become less competitive or obsolete.

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Our ability to grow is also subject to the risk of future disruptive technologies. If new technologies emerge that are able to deliver to publishers increased yield and monetization more efficiently or effectively than our solutions, such technologies could adversely impact our ability to compete. Programmatic technologies are continuously evolving; for instance, some publishers of digital advertising, in particular with respect to display advertising, have begun to embrace so-called header bidding, a programmatic technique that enables publishers to offer inventory to multiple demand sources simultaneously through a tag in the header of the publisher’s website. We do not currently offer a header bidding solution. 
 
The market in which we participate is intensely competitive and fragmented, and we may not be able to compete successfully with our current or future competitors.
 
We operate in a dynamic and competitive market, influenced by trends in both the overall advertising market as well as the online video advertising industry. The competitive dynamics of our market are unpredictable because our market is in an early stage of development, rapidly evolving, fragmented and subject to potential disruption by new technological innovations. We compete with large internet companies such as Google, Inc. and Facebook, Inc. that offer video advertising services and sell video advertising inventory as part of a larger solution, as well as advertising technology companies, advertising networks, and supply side platforms that represent publishers. Publishers that utilize our seller platform may also use other technology partners to sell their inventory or may sell a significant portion of their inventory through their own sales organizations without use of our seller platform.

Many of our competitors and potential competitors have significant client relationships, much larger financial resources and longer operating histories than we have and may be less severely affected by changes in consumer preferences, regulations or other developments that may impact the online video advertising industry as a whole. They, or other companies that offer competing advertising solutions, may establish or strengthen cooperative relationships with buyers or publishers, thereby limiting our ability to promote our solutions and generate revenue. Many of these companies are also providers of content, and have access to large amounts of first party data, which are not available to us.
 
Our business may suffer to the extent that buyers and publishers purchase and sell online video advertising directly from each other without the use of technological intermediaries. New technologies and methods of buying advertising present a dynamic competitive challenge, as market participants offer multiple new products and services aimed at capturing advertising spend such as analytics and bundled offline and online video advertising. If the market shifts towards such new technologies and we are unable to either provide such solutions in a compelling manner or otherwise compete with such shift in ad spending, we may incur increased pricing pressure, reduced profit margins, increased sales and marketing expenses or the loss of market share.
 
We believe that we compete primarily on the basis of the speed, reliability, scale and ease of use of our self-service platform, the quality of tools that we provide to publishers to control their inventory, our real-time reporting and analytics, our ability to continuously innovate and our ability to provide and attract demand to publishers at scale. Historically, our buyer platform was a source of demand for our seller platform and we cannot predict how the sale of our buyer platform will impact our ability to provide demand at scale to our publisher clients.  If we are unable to compete favorably with respect to any of these factors our business could suffer.
 
Our competitors or potential competitors may adopt certain aspects of our business model, which could reduce our ability to differentiate our solutions. As market dynamics change, or as new and existing competitors introduce more competitive pricing or new or disruptive technologies, we may be unable to maintain or attract new buyers or publishers or increase spend transacted through our platform. As a result, we may be required to change our business model and incur additional expenses in response to competitive pressures, which could harm our revenue, profitability and operating results. For all of these reasons, we may not be able to compete successfully against our current and future competitors.
 
We operate in a new and rapidly evolving industry. If the online video advertising industry, or programmatic solutions in particular, do not develop or develop more slowly than we expect, our operating results and growth prospects could be harmed.
 
Online video advertising is an emerging industry, and future demand and market acceptance for online video advertising is uncertain.  For example, the online video advertising industry is in the midst of shifting, in part, towards programmatic solutions that automate the sales process and allow for the purchase of inventory through dynamic marketplaces.  Many buyers and publishers of advertising have limited experience with online video advertising, and in particular programmatic buying and

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selling of inventory.  Our seller platform is fully-programmatic self-service solution.  Accordingly, if buyers and publishers of video inventory are slow to adopt programmatic solutions our operating results and growth prospects could be harmed.

We recently made the strategic decision to focus our business exclusively on our seller platform. If we fail to manage our evolving business effectively, our financial performance may suffer.
 
We recently made the strategic decision to dispose of our buyer platform and focus our business exclusively on our seller platform. The strategic shift in our business has placed and will continue to place, a significant strain on our managerial, operational, product development, sales and marketing, administrative, financial and other resources. In addition, the sale of the buyer platform may negatively impact market perception of our prospects, result in the loss of key employees or generate post-closing disputes with the purchaser. If we do not manage these changes effectively, successfully forecast demand for our seller platform or manage our expected expenses accordingly, our operating results will be harmed. If we fail to manage our evolving business effectively, our financial performance may suffer.

The sale of assets relating to our buyer platform may expose us to certain post-closing liabilities.
 
Under the terms of the purchase agreement pursuant to which we sold our buyer platform business, we remain responsible for certain pre-closing liabilities relating to the buyer platform, including certain liabilities which may be contingent or unknown, and are subject to certain indemnification obligations in favor of the purchaser for, among other things, breaches of representations, warranties and covenants under the purchase agreement. In addition, we may be subject to liabilities and obligations under and with respect to contracts and assets relating to the buyer platform that were not transferred to or assumed by the buyer.
 
If the market for our seller platform develops more slowly than we expect then our operating results and growth prospects may be adversely affected.
 
Our seller platform is still developing, and the future demand and acceptance for it is uncertain and will likely depend on its perceived effectiveness by publishers.  The growth of our seller platform is, in part, dependent on the continued proliferation of digital video content, including the pace of adoption of CTV and OTT as a substitute for traditional cable and broadcast TV.  If the market for our seller platform develops more slowly than we expect, or fails to develop, our operating results and growth prospects could be harmed.
 
Our business depends in part on the success of our strategic relationships with third parties.
 
Our business depends in part on our ability to continue to successfully manage and enter into successful strategic relationships with third parties. We currently have and are seeking to establish new relationships with third parties, including with respect to the development of integrations with complementary technologies and data vendors.
 
Our results are dependent, in part, on our ability to integrate our technology with third party demand side platforms, or DSPs. These DSPs bid on and purchase ad inventory on our seller platform on behalf of their advertiser and agency clients. Accordingly, we are reliant on third party DSPs, including the Tremor Video DSP which we divested in the sale of our buyer platform, to access buyer demand and increase the amount of spend that is transacted through our seller platform. We do not have exclusive relationships with DSPs and they are generally free to stop transacting on our seller platform with little or no notice. Moreover, a DSP may reduce its spending on our seller platform for reasons outside of our control, including a loss of their clients or adjustment in strategy. As a result, we may have limited visibility as to our future advertising revenue streams from our buyers. DSPs often control significant amounts of advertising spend across a broad spectrum of buyers; therefore, any material reduction in spending on our platform by a DSP could materially impair our operating results. As of December 31, 2017, three of our DSPs accounted for an aggregate of 48.4% of our outstanding accounts receivables. In some instances, the DSPs that transact on our seller platform are also our competitors. As a result, they may be more likely to decrease or eliminate their spending on our seller platform.

Integrations with third parties are often costly and time consuming, and can present technological challenges. If there are delays in our integration efforts or we are unable to attract new strategic third parties with whom to integrate our technology, it could impact the efficacy of our solutions and hurt our ability to compete in the marketplace. Furthermore, if we experience connectivity or other technical problems with our integrations with DSPs they may be unable to transact on our platform, and any such technical difficulties could lead to a negative perception of our product that could impact future spend decisions.

 We may be unable to maintain or expand our relationships with key advertisers and agencies, or attract new advertisers and agencies.

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Advertisers and agencies generally transact on our seller platform through third party DSPs that are integrated with our platform.  While the DSP is responsible for bidding decisions and purchasing ad inventory, the overall direction of the advertising spend is typically determined by the advertiser or advertising agency.  Accordingly, our ability to increase spend transacted through our seller platform requires us to maintain and expand our relationships with brand advertisers, including the ad agencies that represent them, in addition to servicing DSPs directly. A buyer’s willingness to purchase inventory through our seller platform depends on a number of factors, including our ability to secure sought after high performing inventory, our access to inventory across multiple screens and devices, our client support and sales efforts, seasonal pattern in buyers’ spending, and reductions in spending levels or changes in strategies. In addition, an advertiser or agency may direct its advertising campaigns through a DSP that is not integrated with our technology, in which case we would not be able to attract such spend through our platform. We cannot assure that buyers will continue to transact through our seller platform or that we will be able to replace departing buyers with new buyers from whom we generate comparable revenue.
 
We may be unable to provide access to inventory in a brand safe environment, which could harm our reputation and cause our business to suffer.
 
It is important to buyers that advertisements not be placed in or near content that is unlawful or would be deemed offensive or inappropriate by their customers. Unlike advertising on other mediums, online content can be more unpredictable, and we cannot guarantee that advertisements will appear in a brand safe environment. If we are not successful in providing inventory in a brand environment, our reputation could suffer and our ability to attract potential buyers and retain and expand business with existing buyers could be harmed, or our customers may seek to avoid payment or demand refunds, any of which could harm our business and operating results.
 
If we fail to detect fraud or other actions that impact video ad campaign performance, we could lose the confidence of buyers, which would cause our business to suffer.
 
The success of our seller platform depends in part on our ability to assure buyers access to quality, high performing inventory. We have in the past, and may in the future, be subject to fraudulent and malicious activities with respect to publisher inventory offered through our seller platform. An example of such activities would be the use of bots, non-human traffic delivered by machines that are designed to simulate human users and artificially inflate user traffic on websites. These activities could overstate the performance of any given video ad campaign and could harm our reputation. It may be difficult to detect fraudulent or malicious activity because we do not own content and rely in part on our publisher partners for controls with respect to such activity. These risks become more pronounced when programmatic buying is in place. If fraudulent or other malicious activity is perpetrated by others, and we fail to detect or prevent it, the affected buyers may experience or perceive a reduced return on their investment and our reputation may be harmed. Fraudulent or malicious activity could lead to dissatisfaction with our solutions, refusals to pay, refund demands or withdrawal of future business. If we fail to detect fraud or other actions that impact the performance of our video ad campaigns, we could lose the confidence of our buyers, which could cause our business to suffer.
 
Activities of our publisher clients with which we do business could damage our reputation or give rise to legal claims against us.
 
Failure of our seller platform clients to comply with federal, state, local or foreign laws or our policies could damage our reputation and expose us to liability under these laws. We may also be liable to third-parties with respect to the content of the video inventory in which an ad is served if the content violates intellectual property rights of third-parties or if the content is in violation of applicable laws. A third-party or regulatory authority may file a claim against us even if our client has represented that its use of the content is lawful and that they have the right to use the intellectual property. In addition, we rely on publishers to provide us with accurate information regarding the details of their inventory and any inaccuracy may subject us to third party claims. Any of these claims could be costly and time-consuming to defend and could also hurt our reputation. Further, if we are exposed to legal liability, we could be required to pay substantial fines or penalties, redesign our business methods, discontinue some of our solutions or otherwise expend significant resources.
 
If we fail to maintain or increase our access to premium advertising inventory, our operating results may be harmed.
 
Our success requires us to maintain and expand our access to premium video advertising inventory. We do not own or control the video ad inventory upon which our business depends. Publishers are generally not required to offer a specified level of inventory on our seller platform, and we cannot be assured that any publisher will continue to make their ad inventory available on our seller platform. Publishers may seek to change the terms on which they offer inventory on our platform,

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including with respect to pricing, or may elect to make advertising inventory available to our competitors who offer more favorable economic terms. Furthermore, publishers may enter into exclusive relationships with our competitors, which preclude us from offering their inventory.  In addition, we review our publishers on an on-going basis and have ceased, and may in the future cease, doing business with publishers based on the quality of their inventory.  As a result of these factors, we may have limited visibility as to our future access to inventory from publishers or the terms on which such inventory will be made available.
 
Publishers have a variety of channels in which to sell their video ad inventory, including direct sales forces. Any increase in a publisher’s direct sales efforts may negatively impact our access to that inventory.
 
If we are unable to maintain or increase our access to premium video ad inventory or if publishers seek to change the terms on which they offer such inventory, our operating results may be harmed.
 
We may not be able to provide publishers with sufficient access to buyer demand with respect to inventory they make available through our seller platform
 
Publishers use our seller platform, in part, in order access demand generated by DSPs and other buyers that are integrated with our seller platform. One of the primary factors by which a publisher judges our seller platform is the ability to increase their yield and monetization opportunities. We do not have exclusive relationships with buyers and they are generally free to stop transacting, or reduce their spending, on our seller platform with little or no notice. Moreover, we do not control the bid price for any inventory submitted by a buyer, or the floor price that a publisher sets for such inventory. If we are unable to fill ad inventory that publishers make available through our seller platform with suitable bids from buyers, publishers may negatively view our seller platform compared to competitive offerings and our results may be harmed.

Our sales efforts with buyers and publishers require significant time and expense.
 
Attracting new buyers and publishers to our seller platform requires significant time and expense, and we may not be successful in establishing new relationships or in maintaining or advancing our current relationships. Our technology and online video brand advertising are relatively new and often require us to spend substantial time and effort educating potential clients about our solutions, including providing demonstrations and comparisons against other available services. Some clients undertake a significant evaluation process that frequently involves not only our platform but also the offerings of our competitors. This process can be costly and time-consuming. As a result, it is difficult to predict when we will obtain new customers and begin generating revenue from these new customers. As part of our sales cycle, we may incur significant expenses. We have no assurance that the substantial time and money spent on our sales efforts will generate significant revenue.
 
We are focused on increasing adoption by publishers of our seller platform. As a result, we invest significant time in cultivating relationships with our publishers to ensure they understand the potential benefits of our platform and monetization of their inventory with us rather than with third-party media networks, exchanges and other supply side platforms. The relationship building process can take many months and may not result in us winning an opportunity with any given publisher.
 
Because of competitive market conditions and the negotiating leverage enjoyed by large publishers, we are sometimes forced to choose between losing the opportunity or contracting on terms that allocate more risk to us than or are otherwise less favorable than we prefer to accept.
 
If we are not successful in streamlining our sales processes with buyers and publishers, our ability to grow our business may be adversely affected.
 
We have experienced and may continue to experience fluctuations in our operating results due to a number of factors, which make our future results difficult to predict and could cause our operating results to fall below expectations.
 
Our operating results have historically fluctuated and our future operating results may vary significantly from quarter to quarter due to a variety of factors, including our recent sale of our buyer platform.  Period-to-period comparisons of our operating results should not be relied upon as an indication of our future performance. Given our relatively short operating history, the rapidly evolving online video advertising industry and our recent sale of the buyer platform, our historical operating results may not be useful in predicting our future operating results.
 
Factors that may affect our operating results include the following:
 
· changes in demand for our seller platform from publishers or buyers of video advertising;

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· changes in the amount and quality of available video advertising inventory from publishers;
 
· the timing and amount of sales and marketing expenses incurred to attract new clients;
 
· changes in the economic prospects of buyers or the economy generally, which could reduce current or prospective buyers’ spend for online video advertising;
 
· changes in our pricing policies, the pricing policies of our competitors or the pricing of online video advertising inventory generally; and
 
· costs related to acquisitions of other businesses or dispositions of assets.
 
Our operating results may fall below the expectations of market analysts and investors in some future periods. If this happens, even just temporarily, the market price of our common stock may fall.
 
Our revenue tends to be seasonal in nature.
 
Our revenue and the spend transacted through our seller platform tends to be seasonal in nature and varies from quarter to quarter. During the first quarter, advertisers generally devote less of their budgets to ad spending, which impacts the amount of revenue we generate through our seller platform. Our operating cash flows could also fluctuate materially from period to period as a result of these seasonal fluctuations.
 
Our take rates may be difficult to forecast and any decrease in our take rates may result in a decrease in our revenue notwithstanding an increase in the amount of spend transacted through our seller platform.
 
Revenue on our seller platform is booked net of inventory costs.  Our take rate, or our revenue as a percentage of the total spend transacted by buyers on our platform, varies by publisher and transaction type.  For instance, we may receive a different take rate with respect to a transaction executed via open auction compared to a private marketplace transaction.  Our take rate may also be negatively impacted by competitive pricing pressures and the negotiating leverage enjoyed by large publishers.  Even if we are able to accurately forecast the anticipated total ad spend transacted by buyers across our seller platform, we may have limited visibility regarding our overall take rate and the revenue we will generate. Decreases in our take rate could cause our revenue and earnings to decrease notwithstanding an increase in the total spend transacted through our seller platform.
 
Acquisitions or dispositions could entail significant execution, integration and operational risks.
 
As part of our business strategy, we may acquire or dispose of certain businesses, assets or technologies. For example, we recently disposed of our buyer platform. Acquisitions and dispositions involve numerous risks, any of which could harm our business, including:
 
· difficulties in integrating the technologies, solutions, operations, existing contracts and personnel of a target company or business unit;
 
· difficulties in supporting and transitioning clients, if any, of a target company or business unit;
 
· diversion of financial and management resources from existing operations or alternative opportunities;
 
· failure to realize the anticipated benefits or synergies of a transaction;

· potential loss of synergies resulting from a disposition;
 
· failure to identify all of the problems, liabilities or other shortcomings or challenges of an acquired company, technology, or solution, including issues related to intellectual property, solution quality or architecture, regulatory compliance practices, revenue recognition or other accounting practices or employee or client issues;
 
· risks of entering new markets, including international markets, in which we have limited or no experience;
 
· potential loss of key employees, customers or suppliers;
 

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· increased potential for litigation;
 
· inability to generate sufficient revenue to offset acquisition or divestiture costs; and
 
· possible write-offs or impairment charges relating to acquired or divested businesses.
 
In addition, we may incur indebtedness to complete an acquisition, which may impose operational limitations, or issue equity securities, which would dilute our stockholders’ ownership. We may also unknowingly inherit liabilities from acquired businesses or assets that arise after the acquisition and are not adequately covered by indemnities. Additionally, acquisitions also frequently result in the recording of goodwill and other intangible assets which are subject to potential impairments in the future that could harm our financial results and dispositions may result in an immediate impairment of goodwill.
 
Foreign acquisitions involve unique risks in addition to those mentioned above, including those related to integration of operations across different cultures and languages, currency risks and the particular economic political and regulatory risks associated with specific countries. The failure to successfully evaluate and execute acquisitions, divestitures or investments or otherwise adequately address the risks described above could materially harm our business and financial results.
 
Our international operations and any future international expansion may expose us to several risks, such as difficulty adapting our solutions for international markets.
 
During each of fiscal years 2017, 2016, 2015 and 2014, a substantial majority of our revenue was generated in the United States. While we have offices outside of North America in Australia, Brazil, and the United Kingdom, a substantial majority of our operations are located in the United States.
 
Our current international operations and any future international expansion of our business will involve a variety of risks, including:
 
· localization of our solutions, including translation into foreign languages and adaptation for local practices;
 
· unexpected changes in regulatory requirements, taxes, trade laws, tariffs, export quotas, custom duties or other trade restrictions;
 
· differing labor regulations where labor laws may be more advantageous to employees as compared to the United States;
 
· more stringent regulations relating to data security and the unauthorized use of, or access to, commercial and personal information, particularly in the European Union;
 
· reluctance to allow personally identifiable data related to non-U.S. citizens to be stored in databases within the United States;
 
· changes in a specific country’s or region’s political or economic conditions;
 
· challenges inherent in efficiently managing an increased number of employees over large geographic distances, including the need to implement appropriate systems, policies, benefits and compliance programs;
 
· risks resulting from changes in currency exchange rates;
 
· limitations on our ability to reinvest earnings from operations in one country to fund the capital needs of our operations in other countries;
 
· different or lesser intellectual property protection; and
 
· exposure to liabilities under anti-corruption and anti-money laundering laws, including the U.S. Foreign Corrupt Practices Act and similar laws and regulations in other jurisdictions.
 
Operating internationally requires significant management attention and financial resources. We cannot be certain that the investment and additional resources required in establishing and expanding our international operations will produce desired

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levels of revenue or profitability. If we invest substantial time and resources to establish and expand our international operations and are unable to do so successfully and in a timely manner, our business and operating results will suffer.
 
We have not engaged in currency hedging activities to limit risk of exchange rate fluctuations. Changes in exchange rates affect our costs and earnings, and may also affect the book value of our assets located outside the United States and the amount of our stockholders’ equity.

Failure to comply with anti-bribery, anti-corruption, and anti-money laundering laws could subject us to penalties and other adverse consequences.
We are subject to the U.S. Foreign Corrupt Practices Act of 1977, as amended, or FCPA, the U.K. Bribery Act of 2010, and other anti-corruption, anti-bribery, and anti-money laundering laws in various jurisdictions both domestic and abroad. Anti-corruption and anti-bribery laws have been enforced aggressively in recent years and are interpreted broadly and generally prohibit companies and their employees and agents from promising, authorizing, making or offering improper payments or other benefits to government officials and others in the private sector.  While we have policies and procedure to address compliance with such laws, we cannot assure you that all of our employees and agents will not take actions in violation of our policies and applicable law, for which we may be ultimately held responsible. Any violation of the FCPA or other applicable anti-bribery, anti-corruption laws, and anti-money laundering laws could result in whistleblower complaints, adverse media coverage, investigations, significant diversion of management’s resource’s attention, loss of export privileges, severe criminal or civil sanctions, or suspension, or debarment, any of which may have a material adverse effect on our reputation, business, results of operations, and financial condition.
Our ability to raise capital in the future may be limited, and our failure to raise capital when needed could prevent us from growing.
 
Our business and operations may consume resources faster than we anticipate. In the future, we may need to raise additional funds to expand our marketing and sales and technology development efforts or to make acquisitions. Additional financing may not be available on favorable terms, if at all. Our credit facility matures in January 2020, and we may be unable to renew the credit facility on terms that are acceptable to us.  If adequate funds are not available on acceptable terms, we may be unable to fund the expansion of our marketing and sales and technology development efforts or take advantage of acquisition or other opportunities, which could harm our business and results of operations. Furthermore, if we issue additional equity securities, stockholders will experience dilution, and the new equity securities could have rights senior to those of our common stock. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. As a result, our stockholders bear the risk of our future securities offerings reducing the market price of our common stock and diluting their interest.
 
Provisions of our credit facility and any future debt instruments may restrict our ability to pursue our business strategies.
 
Our credit facility requires us, and any future debt instruments we may enter into in the future may require us, to comply with various covenants that limit our ability to, among other things:
 
· dispose of assets;
 
· complete mergers or acquisitions;
 
· incur indebtedness;
 
· encumber assets;
 
· pay dividends or make other distributions to holders of our capital stock;
 
· make specified investments; and
 
· engage in transactions with our affiliates.
 
These restrictions could inhibit our ability to pursue our business strategies. We are also subject to a financial covenant with respect to a minimum quick ratio, tested monthly, and Adjusted EBITDA for trailing periods which vary from three to twelve months, tested quarterly. If we default under our credit facility, and such event of default is not cured or waived, the

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lender could cause all amounts outstanding with respect to the debt to be due and payable immediately, which in turn could result in cross defaults under other debt instruments.
 
Our assets and cash flow may not be sufficient to fully repay borrowings under all of our outstanding debt instruments if some or all of these instruments are accelerated upon a default. We may incur additional indebtedness in the future. The debt instruments governing such indebtedness could contain provisions that are as, or more, restrictive than our existing debt instruments. If we are unable to repay, refinance or restructure our indebtedness when payment is due, the lenders could proceed against the collateral granted to them to secure such indebtedness or force us into bankruptcy or liquidation.

 
Forecasts of market growth may prove to be inaccurate, and even if the market in which we compete achieves the forecasted growth, our business may not grow at similar rates, if at all.
 
We have in the past provided, and may continue to provide, forecasts related to the market in which we operate. Market forecasts are subject to significant uncertainty and are based on assumptions and estimates that may prove to be inaccurate. Even if these forecasts prove to be correct, we may not be successful in maintaining or increasing our share of any relevant market.
 
We depend on key personnel to operate our business, and if we are unable to retain, attract and integrate qualified personnel, our ability to develop and successfully grow our business could be harmed.
 
We believe that our future success is highly dependent on the contributions of our senior management, as well as our ability to attract and retain additional senior management and highly skilled and experienced technical and other personnel in the United States and abroad. All of our employees, including our senior management, are free to terminate their employment relationship with us at any time, and their knowledge of our business, technology and industry may be difficult to replace. Qualified technical personnel are in high demand, particularly in the digital media industry, and we may incur significant costs to attract them. Many of the companies with which we compete for experienced personnel also have greater resources than us. Additionally, volatility or lack of performance in our stock price may also affect our ability to attract employees and retain our key employees. If we are unable to attract and retain our senior management and key employees, our ability to develop and successfully grow our business could be harmed.
 
Defects or errors in our solutions could harm our reputation and result in significant costs to us.
 
The technology underlying our solutions, including our proprietary technology and technology provided by third-parties, may contain material defects or errors that can adversely affect our ability to operate our business and cause significant harm to our reputation. This risk is compounded by the complexity of the technology underlying our solutions and the large amounts of data we utilize. Errors, defects, disruptions in service or other performance problems in our solutions could result in the failure of an ad campaign. Any such failure, malfunction, or disruption in service could harm our reputation and result in significant costs to us.
 
System failures could significantly disrupt our operations and cause us to lose clients.
 
Our success depends on the continuing and uninterrupted performance of our solutions. Sustained or repeated system failures that interrupt our ability to provide our solutions, including technological failures affecting our ability to process publisher ad requests or bids for inventory, could significantly reduce the attractiveness of our solutions and reduce our revenue. Our systems are vulnerable to damage from a variety of sources, including telecommunications failures, power outages, malicious human acts and natural disasters. In addition, any steps we take to increase the reliability and redundancy of our systems may be expensive and may not be successful in preventing system failures. Any such system failures could significantly disrupt our operations and cause us to lose clients.
 
Security breaches, computer viruses and computer hacking attacks could harm our business and results of operations.
 
We collect, store and transmit information in the provision of our services. We take steps to protect the security, integrity and confidentiality of the information we collect, store or transmit, but there is no guarantee that inadvertent or unauthorized use or disclosure will not occur or that third-parties will not gain unauthorized access to this information despite our efforts. Security breaches, computer malware and computer hacking attacks have become more prevalent in our industry and may occur on our systems or those of our information technology vendors in the future. Any security breach caused by hacking, which involves efforts to gain unauthorized access to information or systems, or to cause intentional malfunctions or loss or

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corruption of data, software, hardware or other computer equipment, or the inadvertent transmission of computer viruses or other harmful software code could result in the unauthorized disclosure, misuse, or loss of information, legal claims and litigation, indemnity obligations, regulatory fines and penalties, contractual obligations and liabilities, and other liabilities. In addition, if our security measures or those of our vendors are breached or unauthorized access to consumer data otherwise occurs our solutions may be perceived as not being secure, and our clients may reduce the use of or stop using our solutions.
 
While we have security measures in place, these systems and networks are subject to ongoing threats and, therefore, these security measures may be breached as a result of employee error, failure to implement appropriate processes and procedures, malfeasance, third-party action, including cyber-attacks or other international misconduct by computer hackers or otherwise. This could result in one or more third-parties obtaining unauthorized access to our client data or our data, including personally identifiable information or other viewer data, intellectual property and other confidential business information. Third-parties may also attempt to fraudulently induce employees into disclosing sensitive information such as user names, passwords or other information in order to gain access to client data or our data, including intellectual property and other confidential business information.
 
Because techniques used to obtain unauthorized access or sabotage systems change frequently and generally are not identified until they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative or mitigation measures. Though it is difficult to determine what harm may directly result from any specific interruption or breach, any failure to maintain performance, reliability, security and availability of our network infrastructure or otherwise to maintain the confidentiality, security, and integrity of data that we store or otherwise maintain on behalf of third-parties may harm our reputation and our relationships or harm our ability to retain existing clients and attract new clients. Any of these could harm our business, financial condition and results of operations.
 
If such unauthorized disclosure or access does occur, we may be required to notify our clients or those persons whose information was improperly used, disclosed or accessed. We may also be subject to claims of breach of contract for such use or disclosure, investigation and penalties by regulatory authorities and potential claims by persons whose information was improperly used or disclosed. The unauthorized use or disclosure of information may result in the termination of one or more of our commercial relationships or a reduction in confidence and usage of our solutions. We may also be subject to litigation and regulatory action alleging the improper use, transmission or storage of confidential information, which could damage our reputation among our current and potential clients, require significant expenditures of capital and other resources and cause us to lose business and revenue.
 
Even if we do not suffer a data security breach, the increase in the number and the scope of data security incidents has increased regulatory and industry focus on security requirements and heightened data security industry practices. New regulation, evolving industry standards, and the interpretation of both, may cause us to incur additional expense in complying with any new data security requirements. Further, any actual or perceived threats to the security of computers and computer networks, especially mobile devices and mobile networks, could lead existing and potential users to refrain from responding to online video advertising.
 
Interruptions or delays in service from our third-party data centers or other third-party hosting services could impair the delivery of our solutions and harm our business.
 
We utilize data center hosting facilities as well Amazon Web Services to deliver our solutions. We also rely on multiple bandwidth providers, multiple internet service providers, as well as content delivery network, or CDN providers, and domain name systems, or DNS providers, and mobile networks to deliver video ads. Any damage to, or failure of, these systems could result in interruptions to the availability or functionality of our service. If for any reason our arrangements with our data center hosting facilities or third-party providers are terminated, we could experience additional expense in arranging for new facilities, technology services and support. In addition, the failure of our data center hosting facilities or any other third-party providers to meet our capacity requirements could result in interruptions in the availability or functionality of our solutions or impede our ability to scale our operations.
 
The occurrence of a natural disaster, an act of terrorism, vandalism or sabotage, a decision to close our third-party data center hosting facilities or the facilities of any third-party provider without adequate notice, or other unanticipated problems at these facilities could result in lengthy interruptions in the availability of our solutions. While we have disaster recovery arrangements in place, they have not been tested under actual disasters or similar events and may not effectively permit us to continue to provide our solutions in the event of any problems with respect to our data center hosting facilities or any other third-party facilities. To date, we have not experienced these types of events, but we cannot provide any assurances that they will not occur in the future. If any such event were to occur to our business, the delivery of our solutions could be impaired and our business harmed.

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We intend to relocate our headquarters and we could experience unanticipated costs and disruption to our operations in connection with our relocation.
 
In October of 2017 we entered into a lease for our new corporate headquarters at 222 Broadway, New York, New York. We intend to relocate to this new office in the second quarter of 2018. In connection with this relocation we could experience unexpected costs or disruptions to our operations and diversion of management attention. Additionally, we are in the process of identifying a subtenant for our existing principal executive offices. We may be unable to identify a subtenant for this office space on acceptable terms. Even if we do identify a subtenant, if the subtenant is unable to meet its obligations under the sublease, we may remain responsible for the obligations under the lease.
 
Our net operating loss carryforwards may expire unutilized or underutilized, which could prevent us from offsetting future taxable income.
 
We may be limited in the portion of net operating loss carry-forwards, or NOLs, that we can use in the future to offset taxable income for U.S. federal income tax purposes. As of December 31, 2017, we had U.S. Federal and State NOLs of $100.8 million and $56.9 million, respectively and foreign NOLs of $14.5 million related to our operations in United Kingdom, Germany and Brazil. Our U.S. federal NOLs will expire in various years beginning in 2025 through 2036. Our foreign NOLs can be carried forward without limitation in each respective country. While we expect to be able to use a portion of our available NOL’s to offset gain in respect of the sale of our buyer platform, a lack of future taxable income would adversely affect our ability to utilize the remaining NOLs. In addition, under Section 382 of the Internal Revenue Code, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its NOLs to offset future taxable income. We believe that we experienced an ownership change under Section 382 of the Internal Revenue Code in prior years that may limit our ability to utilize a portion of the NOLs in the future.  In addition, future changes in our stock ownership, including as a result of this and future offerings, as well as other changes that may be outside of our control, could result in additional ownership changes under Section 382 of the Internal Revenue Code. Our NOLs may also be impaired under similar provisions of state law. We have recorded a full valuation allowance related to substantially all of our NOLs and other deferred tax assets due to the uncertainty of the ultimate realization of the future benefits of those assets, a portion of which is expected to be reversed in connection with the sale of our buyer platform. Our NOLs may expire unutilized or underutilized, which could prevent us from offsetting future taxable income.
We may experience fluctuations in our tax obligations and effective tax rate.
We are subject to taxation in the United States and in numerous other jurisdictions. We record tax expense based on current tax payments and our estimates of future tax payments, which may include reserves for estimates of probable settlements of tax audits. At any one time, multiple tax years could be subject to audit by various taxing jurisdictions. As a result, we could be subject to higher than anticipated tax liabilities as well as ongoing variability in our quarterly tax rates as audits close and exposures are re-evaluated. Further, our effective tax rate in a given financial statement period may be adversely impacted by changes in tax laws, changes in the mix of revenue among different jurisdictions, changes to accounting rules and changes to our ownership or capital structure. Fluctuations in our tax obligations and effective tax rate could adversely affect our business.
On December 22, 2017, President Trump signed into law the “Tax Cuts and Jobs Act,” or the TCJA, which significantly amends the Internal Revenue Code of 1986. The TCJA, among other things, reduces the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, limits the tax deduction for interest expense to 30% of adjusted earnings, eliminates net operating loss carrybacks, imposes a one-time tax on offshore earnings at reduced rates regardless of whether they are repatriated, allows immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifies or repeals many business deductions and credits. We continue to examine the impact these changes may have on our business. Notwithstanding the reduction in the corporate income tax rate, the overall impact of the TCJA is uncertain and our business and financial condition could be adversely affected.
Taxing authorities may successfully assert that we should have collected or in the future should collect sales and use, value added or similar taxes, and we could be subject to liability with respect to past or future sales, which could adversely affect our results of operations.
We do not collect sales and use, value added or similar taxes in all jurisdictions in which we have sales based on our belief that such taxes are not applicable. Sales and use, value added and similar tax laws and rates vary greatly by jurisdiction. Certain jurisdictions in which we do not collect such taxes may assert that such taxes are applicable, which could result in tax assessments, penalties and interest and we may be required to collect such taxes in the future. Such tax assessments, penalties and interest or future requirements may adversely affect our business and operating results.

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Risks Relating to Our Data Collection and Intellectual Property
 
We collect and use significant amounts of data to provide our seller platform, and any limitations on the collection and use of such data could significantly diminish the value of our solutions.

Our ability to increase adoption of our seller platform depends, in part, on our ability to collect and lawfully use data, including data that we receive from third parties, such as our publishers, buyers and third-party data providers. Any limitation on our ability to collect user data could make it more difficult for us to optimize sales of inventory and meet the demands of our publishers.
 
Our technology collects data about an online user in order to operate and enhance our seller platform (that is, to enable the placement of video ads on publisher inventory). We, and our third-party data providers, employ various tracking technologies to collect such data.

Internet users can, with increasing ease, implement practices or technologies that may limit our ability, or that of our third-party data providers, to collect data. For example, users may delete or block the use of the cookies used to collect data, including through their browser or mobile device settings. Internet users may also download “ad blocking” software that prevents certain cookies from being stored on a user’s computer or mobile device, including to prevent the display of targeted advertisements. Additionally, many applications and other online services allow users to avoid receiving advertisements by paying for subscriptions or services.
 
In addition, current versions of the most widely used web browsers allow users to send “Do Not Track” signals, to indicate that they do not wish to have their web usage tracked. There is currently no definition of “tracking” and no standards regarding how to respond to a “Do Not Track” preference that are accepted or standardized in the industry. Any such standard, law, or regulation could limit our ability to use online user data, which may diminish our ability to optimize inventory, and the value of our services, and place us at a competitive disadvantage to first-party data owners, such as large website operators, many of whom own or are developing or acquiring capabilities that compete with our solutions.
   
Finally, network carriers, providers of mobile device operating systems, and device manufacturers may also affect our ability to collect data on internet-connected devices, as they are increasingly promoting features that allow users to impair or disable the collection of data.
 
If consumer sentiment regarding privacy issues or the development and deployment of new browser solutions or other mechanisms that limit the use of tracking technologies or data collected through the use of such technologies results in a material increase in the number of consumers who block our collection of data, our ability to collect valuable and actionable data would be impaired. Consumers may become increasingly resistant to the collection, use, and sharing of data for targeted advertising and may take steps to prevent such collection and use.

Internet users also have the ability to block the ads that we deliver. Technologies have emerged that block the display of an online advertisement. Estimates of the use of such ad-blocking technologies vary by user population, type of media content, geography, and other factors, and the ultimate prevalence and effect of ad-blocking technologies are not certain, but they could have an adverse effect on our business if they reduce the volume of advertising we are able to deliver. Even if ad-blocking technologies do not have a material impact on our business, investor concerns about such technologies could cause our stock price to decline.
 
In order to effectively operate our services, and in addition to the data we may collect directly from online users, we collect data from buyers, publishers, and other third parties. If we are not able to obtain sufficient rights to data from these third parties, we may not be able to utilize the data in our solutions. Although our arrangements with publishers generally permit us to collect data from advertising campaigns on their sites, some of our publishers do not allow us to collect some or all of this data or limit our use of this data, and future publishers may do the same.
 
We and/or many of our publishers and buyers voluntarily participate in trade associations and industry self-regulatory groups that promulgate best practice guidelines or codes of conduct in connection with the delivery of online targeted advertising. We could be adversely affected by changes to these guidelines and codes that are inconsistent with our practices If we are perceived as not operating in accordance with industry best practices or codes, either because of our practices, or those of our third-party data providers, our reputation may suffer, we could lose relationships with publishers and buyers, and we could be subject to proceedings or actions by governmental entities or others as described below.

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Our business is subject to a variety of domestic and international laws, rules, and other obligations regarding data protection.

We are subject to a complex array of federal, state, and international laws relating to the collection, use, retention, disclosure, security, and transfer of personal data. Many jurisdictions have passed laws in this area, and other jurisdictions are considering imposing additional restrictions, including regulating the level of notice and consent required to use cookies or other tools to collect data from online users. The European General Data Protection Regulation, or (“GDPR”), will be in effect as of May 2018. Complying with the GDPR and other emerging and changing laws and requirements, including as we expand our operations globally, may cause us to incur substantial costs or require us to change our business practices. Noncompliance could result in penalties or significant legal liability and could affect our ability to retain and attract customers.

Any failure by us, our customers, our data suppliers, or other parties with whom we do business to comply with federal, state, or international privacy-related or data protection laws and regulations could result in proceedings against us by governmental entities or others. Any alleged or actual failure to comply with applicable privacy laws and regulations may:
    cause our customers to lose confidence in our solutions;
    harm our reputation;
    expose us to litigation and liability; and
    require us to incur significant expenses for remediation.
 
If web, smartphones, tablet and CTV devices, their operating systems or content distribution channels, including those controlled by our competitors, develop in ways that prevent our solutions from working effectively, our ability to grow our business could be impaired.
 
Our business model depends upon the continued compatibility of our solutions with most internet-connected devices across online, mobile, tablet, CTV and OTT distribution channels, as well as the major operating systems that run on them. The design of these devices and operating systems are controlled by third-parties with whom we do not have any formal relationships. These parties frequently introduce new devices, and from time to time they may introduce new operating systems or modify existing ones. In some cases, the parties that control the development of internet-connected devices and operating systems include companies that we regard as our competitors, including some of our most significant competitors.  If our solutions were unable to work or we were unable to collect data on these devices or operating systems, either because of technological constraints or because a maker of these devices or developer of these operating systems wished to impair our ability to sell video ads on them, our ability to grow our business could be impaired.
 
Any failure to protect our intellectual property rights could negatively impact our business.
 
We regard the protection of our intellectual property, which includes trade secrets, copyrights, trademarks and domain names as critical to our success. We strive to protect our intellectual property rights by relying on federal, state and common law rights, as well as contractual restrictions. We generally enter into confidentiality and invention assignment agreements with our employees and contractors, and confidentiality agreements with parties, with whom we conduct business in order to limit access to, and disclosure and use of, our proprietary information. However, we may not be successful in executing these agreements with every party who has access to our confidential information or contributes to the development of our intellectual property.
 
Those agreements that we do execute may be breached, and we may not have adequate remedies for any such breach. These contractual arrangements and the other steps we have taken to protect our intellectual property may not prevent the misappropriation of our intellectual property, or deter independent development of similar intellectual property by others. Breaches of the security of our solutions, databases or other resources could expose us to a risk of loss or unauthorized disclosure of information collected, stored, or transmitted for or on behalf of publishers, or of cookies, data stored in cookies, other user information, or other proprietary or confidential information.
 
We register certain domain names, trademarks and service marks in the United States and in certain locations outside the United States. Any of our trademarks or other intellectual property rights may be challenged by others or invalidated through administrative process or litigation. Any patents that may be issued in the future may not adequately protect our intellectual property or provide us with competitive advantages, or may be successfully challenged by third-parties. Our competitors and others could attempt to capitalize on our brand recognition by using domain names or business names similar to ours. Domain names similar to ours have been registered in the United States and elsewhere. We may be unable to prevent third-parties from acquiring or using domain names and other trademarks that infringe on, are similar to, or otherwise decrease the value of our brands, trademarks or service marks. Effective trade secret, copyright, trademark, domain name and patent protection are expensive to develop and maintain, both in terms of initial and ongoing registration requirements and the costs of defending our

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rights. We may be required to protect our intellectual property in an increasing number of jurisdictions, a process that is expensive and may not be successful or which we may not pursue in every location. We may, over time, increase our investment in protecting our intellectual property through patent filings that could be expensive and time-consuming.
 
Additionally, the Leahy-Smith America Invents Act, or AIA, among other things, switched U.S. patent rights from the former “first-to-invent” system to a “first inventor-to-file” system. This may result in inventors and companies having to file patent applications more frequently to preserve rights in their inventions. This may favor larger competitors that have the resources to file more patent applications.
 
Monitoring unauthorized use of our intellectual property is difficult and costly. Our efforts to protect our proprietary rights and intellectual property may not be adequate to prevent their misappropriation or misuse. Further, we may not be able to detect unauthorized use of, or take appropriate steps to enforce, our intellectual property rights. Our competitors may also independently develop similar technology, which avoids infringing on our intellectual property rights. The laws of some foreign countries may not be as protective of intellectual property rights as those in the United States, and mechanisms for enforcement of intellectual property rights may be inadequate. Effective patent, trademark, copyright and trade secret protection may not be available to us in every country in which our solutions or technology are hosted or available. Further, legal standards relating to the validity, enforceability and scope of protection of intellectual property rights are uncertain. The laws in the United States and elsewhere change rapidly, and any future changes could adversely affect us and our intellectual property. Our failure to meaningfully protect our intellectual property could result in competitors offering solutions that incorporate our most technologically advanced features, which could seriously reduce demand for our solutions. In addition, we may in the future find it necessary or appropriate to initiate infringement claims or litigation, whether to protect our intellectual property or to determine the enforceability, scope and validity of the intellectual property rights of others. Litigation, whether we are a plaintiff or a defendant, can be expensive, time-consuming and may divert the efforts of our technical staff and managerial personnel, which could harm our business, whether or not such litigation results in a determination that is unfavorable to us. In addition, litigation is inherently uncertain. Accordingly, despite our efforts, we may be unable to prevent third-parties from infringing upon or misappropriating our intellectual property.
 
Our business may suffer if it is alleged or determined that our solutions or another aspect of our business infringes the intellectual property rights of others.
 
The online advertising industry is characterized by the existence of large numbers of patents, copyrights, trademarks, trade secrets and other intellectual property and proprietary rights. Companies in this industry are often required to defend against litigation claims that are based on allegations of infringement or other violations of intellectual property rights. Our technologies may not be able to withstand any third-party claims or rights against their use.
 
Our success depends, in part, upon non-infringement of intellectual property rights owned by others and being able to resolve claims of intellectual property infringement or misappropriation without major financial expenditures or adverse consequences. From time to time we face claims by third-parties that we infringe upon or misappropriate their intellectual property rights, and we may be found to be infringing upon or to have misappropriated such rights. Such claims may be made by competitors or other parties. We cannot assure you that we are not infringing or violating any third-party intellectual property rights. From time to time, we or our clients may be subject to legal proceedings relating to our solutions or underlying technology and the intellectual property rights of others, particularly as we expand the complexity and scope of our business. As a result of disclosure of information in filings required of a public company, our business and financial condition will become more visible, which we believe may result in threatened or actual litigation, including by competitors and other third-parties.
 
Regardless of whether claims that we are infringing patents or infringing or misappropriating other intellectual property rights have any merit, these claims are time-consuming and costly to evaluate and defend, and can impose a significant burden on management and employees. The outcome of any litigation is inherently uncertain, and we may receive unfavorable interim or preliminary rulings in the course of litigation. There can be no assurances that favorable final outcomes will be obtained in all cases. We may decide to settle lawsuits and disputes on terms that are unfavorable to us. Some of our competitors have substantially greater resources than we do and are able to sustain the costs of complex intellectual property litigation to a greater degree and for longer periods of time than we could. Claims that we are infringing patents or other intellectual property rights could:
 
· subject us to significant liabilities for monetary damages, which may be tripled in certain instances, and the attorney’s fees of others;
 

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· prohibit us from developing, commercializing or continuing to provide some or all of our solutions unless we obtain licenses from, and pay royalties to, the holders of the patents or other intellectual property rights, which may not be available on commercially favorable terms, or at all;

· subject us to indemnification obligations or obligations to refund fees to, and adversely affect our relationships with, our current or future publishers;
 
· result in injunctive relief against us, or otherwise result in delays or stoppages in providing all or certain aspects of our solutions;
 
· cause publishers to avoid working with us;
 
· divert the attention and resources of management and technical personnel; and
 
· require technology or branding changes to our solutions that would cause us to incur substantial cost and that we may be unable to execute effectively or at all.
 
We use open source software in our solutions that may subject our technology to general release or require us to re-engineer our solutions, which may cause harm to our business.
 
Our technology incorporates or is distributed with software or data licensed from third-parties, including some software distributed under so-called “open source” licenses, which we use without charge. Some of these licenses contain requirements that we make available source code for modifications or derivative works we create based upon the open source software, and that we license such modifications or derivative works under the terms of a particular open source license or other license granting third-parties certain rights of further use. By the terms of certain open source licenses, we could be required to release the source code of our proprietary software, and to make our proprietary software available under open source licenses, if we combine and/or distribute our proprietary software with open source software in certain manners. Although we monitor our use of open source software, we cannot be sure that all open source software is reviewed prior to use in our proprietary software, that our programmers have not incorporated open source software into our proprietary software, or that they will not do so in the future. Additionally, the terms of many open source licenses to which we are subject have not been interpreted by U.S. or foreign courts. There is a risk that open source software licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to provide our solutions to our clients. In addition, the terms of open source software licenses may require us to provide software that we develop, using such open source software, to others, including our competitors, on unfavorable license terms. As a result of our current or future use of open source software, we may face claims or litigation, be required to release our proprietary source code, pay damages for breach of contract, re-engineer our technology, discontinue sales in the event re-engineering cannot be accomplished on a timely basis, or take other remedial action that may divert resources away from our development efforts, any of which could adversely affect our business, financial condition or operating results.
 
We rely on data, other technology, and intellectual property licensed from other parties, the failure or loss of which could increase our costs and delay or prevent the delivery of our solutions.
 
We utilize various types of data, other technology, and intellectual property licensed from unaffiliated third-parties in order to provide certain elements of our solutions. Any errors or defects in any third-party data or other technology could result in errors in our solutions that could harm our business and damage our reputation and losses in revenue, and we could be required to spend significant amounts of additional research and development resources to fix any problems. In addition, licensed technology, data, and intellectual property may not continue to be available on commercially reasonable terms, or at all. Any loss of the right to use any of these on commercially reasonable terms, or at all, could result in delays in producing or delivering our solutions until equivalent data, other technology, or intellectual property is identified and integrated, which delays could harm our business. In this situation we would be required to either redesign our solutions to function with technology, data or intellectual property available from other parties or to develop these components ourselves, which would result in increased costs. Furthermore, we might be forced to limit the features available in our current or future solutions. If we fail to maintain or renegotiate any of these technology or intellectual property licenses, we could face significant delays and diversion of resources in attempting to develop similar or replacement technology, or to license and integrate a functional equivalent of the technology or intellectual property. The occurrence of any of these events may have an adverse effect on our business, financial condition and operating results.
 
Risks Related to Being a Public Company and Public Company Financial Reporting
 

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We have identified in the past a material weakness in our internal control over financial reporting. If we fail to maintain proper and effective internal and disclosure controls, our ability to produce accurate financial statements and other disclosures on a timely basis could be impaired.
 
The Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting, that meet the applicable standards. We may err in the design or operation of our controls. In addition, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.

We are required to perform system and process evaluation and testing of our internal controls over financial reporting to allow management to report on the effectiveness of our internal controls over financial reporting. During the fiscal year ended December 31, 2015 management identified a material weakness in our internal control over financial reporting related to principal-agent considerations around revenue recognition. A material weakness is defined as a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. As a result of the material weakness, our management concluded that our internal control over financial reporting was not effective for fiscal year 2015 and engaged in implementing a remediation plan designed to address the material weakness. While we have remediated the material weakness we identified, we may in the future discover areas of our internal controls over financial reporting that need improvement. If additional material weaknesses or significant deficiencies in our internal control are discovered or occur in the future, our consolidated financial statements may contain material misstatements and we could be required to restate our financial results. In addition, the market price of our stock could decline and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources and could lead to substantial additional costs for accounting and legal fees.
 
The Sarbanes-Oxley Act also generally requires an attestation from an independent registered public accounting firm on the effectiveness of our internal control over financial reporting. As an “emerging growth company” under the Jumpstart Our Business Startups, or JOBS Act, we have in the past availed ourselves of the exemption from that requirement[, including in this Annual Report. However, when we cease to be an “emerging growth company” at the end of the fiscal year ending December 31, 2018, we will no longer be able to avail ourselves of this exemption. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating.

This may require us to incur substantial additional professional fees and internal costs to expand our accounting and finance functions and to expend significant management efforts to remediate the concerns expressed by our independent registered public accounting firm. We may not be able to remediate any future material weaknesses, or to complete our evaluation, testing and any required remediation in a timely fashion.

If we identify new or additional material weaknesses in our internal controls, or we are not able to conclude that our internal control over financial reporting is effective, or if our auditors are unable to express an opinion that our internal controls over financial reporting are effective when they are required to issue such opinion, investors could lose confidence in the accuracy and completeness of our financial reports, which could harm our stock price, and we could be subject to sanctions or investigations by the New York Stock Exchange, or NYSE, the SEC or other regulatory authorities. Failure to remediate any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.
 
Our accounting is becoming more complex, and relies upon estimates or judgments relating to our critical accounting policies. If our accounting is erroneous or based on assumptions that change or prove to be incorrect, our operating results could fall below the expectations of securities analysts and investors, resulting in a decline in our stock price.
 
The preparation of financial statements in conformity with generally accepted accounting principles in the United States, or U.S. GAAP, requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes, and also to comply with many complex requirements and standards. We devote substantial resources to compliance with accounting requirements and we base our estimates on our best judgment, historical experience, information derived from third parties, and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets, liabilities, equity, revenue and expenses that are not readily apparent from other sources. However, various factors, including the recent sale of our buyer platform, are causing our accounting to become complex. Ongoing evolution of our business, and any future

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acquisitions or dispositions, will compound these complexities. Our operating results may be adversely affected if we make accounting errors or our judgments prove to be wrong, assumptions change or actual circumstances differ from those in our assumptions, which could cause our operating results to fall below the expectations of securities analysts and investors or guidance we may have provided, resulting in a decline in our stock price and potential legal claims. Significant judgments, assumptions and estimates used in preparing our consolidated financial statements include those related to revenue recognition, stock-based compensation, business combinations, and income taxes.
 
Risks associated with being a public company.
 
As a public company, and particularly after we cease to be an “emerging growth company” at the end of the fiscal year ending December 31, 2018, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002 and rules subsequently implemented by the SEC and NYSE impose numerous requirements on public companies, including requiring changes in corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to compliance with these laws and regulations. These requirements have increased and will continue to increase our legal, accounting, and financial compliance costs and have made and will continue to make some activities more time consuming and costly. For example, these rules and regulations make it more difficult and more expensive for us to obtain director and officer liability insurance compared to when we were a private company. These rules and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors or our board committees or as executive officers.
 
 
Risks Related to Ownership of Our Common Stock
 
The market price of our common stock may be volatile, which could result in substantial losses for investors.
 
The trading price of our common stock has been, and is likely to continue to be, volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. Between January 1, 2017 and February 26, 2018, our stock price has ranged from $1.90 per share to $5.27 per share. In addition, the trading prices of the securities of advertising technology companies in general have been highly volatile, and the volatility in market price and trading volume of securities is often unrelated or disproportionate to the financial performance of the companies issuing the securities. In addition to the factors discussed in this “Risk Factors” section and elsewhere in our public filings with the SEC, factors affecting the market price of our common stock include:
 
· price and volume fluctuations in the overall stock market, or in the market for the stock of comparable companies, from time to time;
 
· adverse changes in the regulatory environment;
 
· actual or anticipated changes in our earnings or fluctuations in our operating results or the results of our competitors;

  
· changes in the market perception of online video advertising platforms generally or in the effectiveness of our solutions in particular;
 
· a lack of trading volume in our common stock;
 
·announcements of technological innovations, new solutions, strategic alliances or significant agreements by us or by our competitors;
 
· issuance of new or changed securities analysts’ reports or recommendations for our or our competitors’ stock;
 
· litigation involving us;
 
· changes in general economic, industry and market conditions and trends;
 
· recruitment or departure of key personnel;
 
· announcements of acquisitions or dispositions, including the sale of the Company’s buyer platform; and

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· the other factors described in this section of the report titled “Risk Factors.”
 
In the past, following periods of volatility in the market price of a company’s securities, securities class action or derivative litigation has often been brought against that company and its officers and directors. In November 2013, a class action lawsuit was filed against us, alleging certain misrepresentations in connection with our initial public offering. The claim was dismissed in March 2015. Because of the potential volatility of our stock price, we may become the target of additional securities litigation in the future. Securities litigation could result in substantial costs and divert management’s attention and resources from our business.
 
Sales of substantial amounts of our common stock in the public markets, or the perception that they might occur, could reduce the price that our common stock might otherwise attain and may dilute your voting power and your ownership interest in us.
 
Sales of a substantial number of shares of our common stock, or the perception that a substantial number of shares could be sold, including under our shelf registration statement filed with the SEC on November 6, 2017, could reduce the market price of our common stock. As of February 26, 2018, we had 52,017,481 shares of common stock outstanding.

In addition, an aggregate of 5,100,068 shares of common stock issuable upon exercise of options outstanding as of December 31, 2017 will become available for sale immediately upon the exercise of such option awards.
 
We have also registered for offer and sale all shares of common stock that we may issue under our stock-based compensation plans, including our employee stock purchase plan. These shares can be freely sold in the public market upon issuance. Sales of common stock by existing stockholders in the public market, whether as part of an underwritten public offering or pursuant to exemptions from registration, the availability of these shares for sale, our issuance of securities or the perception that any of these events might occur could materially and adversely affect the market price of our common stock. In addition, the sale of these securities could impair our ability to raise capital through the sale of additional stock.
 
In addition, in the future, we may issue additional shares of common stock or other equity or debt securities convertible into common stock in connection with a financing, acquisition, litigation settlement, and employee arrangements or otherwise. Any such issuance could result in substantial dilution to our existing stockholders and could cause our stock price to decline.
 
Concentration of ownership of our common stock among our existing executive officers, directors and principal stockholders may prevent new investors from influencing significant corporate decisions.
 
Our executive officers, directors and principal stockholders and their respective affiliates beneficially owned, in the aggregate, a significant percentage of our outstanding common stock as of December 31, 2017. These persons, acting together, are able to significantly influence all matters requiring stockholder approval, including the election and removal of directors and any merger or other significant corporate transactions. The interests of this group of stockholders may not coincide with our interests or the interests of other stockholders.
 
If securities or industry analysts do not publish, or cease publishing, research or reports about us, our business or our market, if they publish negative evaluations of our stock, or if we fail to meet the expectations of analysts, the price of our stock and trading volume could decline.
 
The trading market for our common stock will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors. We do not have any control over these analysts, and their reports or analyst consensus may not reflect our guidance, plans or expectations. If one or more of the analysts covering our business issues an adverse opinion of our company because we fail to meet their expectations or otherwise, the price of our stock could decline. If one or more of these analysts cease to cover our stock, we could lose visibility in the market for our stock, which in turn could cause our stock price to decline.

 
Anti-takeover provisions in our certificate of incorporation and bylaws as well as provisions of Delaware law might discourage, delay or prevent a change in control of our company or changes in our board of directors or management and, therefore, depress the price of our common stock.
 

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Our certificate of incorporation and bylaws and Delaware law contain provisions that may discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares of our common stock or transactions that our stockholders might otherwise deem to be in their best interests. These provisions may also prevent or frustrate attempts by our stockholders to replace or remove members of our board of directors or our management. Therefore, these provisions could adversely affect the price of our stock. Our corporate governance documents include provisions:
 
· establishing a classified board of directors with staggered three-year terms so that not all members of our board of directors are elected at one time;
 
· providing that directors may be removed by stockholders only for cause;
 
· preventing the ability of our stockholders to call and bring business before special meetings and to take action by written consent in lieu of a meeting;
 
· requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our board of directors;
 
· permitting the board of directors to issue up to 10,000,000 shares of preferred stock with any rights, preferences and privileges as they may designate;
 
· limiting the liability of, and providing indemnification to, our directors and officers;
 
· providing that vacancies may be filled by remaining directors;
 
· preventing cumulative voting; and
 
· providing for a supermajority requirement to amend our bylaws.
 
As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the General Corporation Law of the State of Delaware, which prohibits a Delaware corporation from engaging in a broad range of business combinations with any “interested” stockholder for a period of three years following the date on which the stockholder became an “interested” stockholder. Any provision of our certificate of incorporation or bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock and could also affect the price that some investors are willing to pay for our common stock.

ITEM 1B.  UNRESOLVED STAFF COMMENTS
None.

ITEM 2.  PROPERTIES
In October 2017, we entered into a sublease for our new corporate headquarters at 222 Broadway, New York, New York for approximately 26,664 square feet of office space. The initial 10 year term of the lease commenced January 16, 2018 and we intend to relocate to this new office in the second quarter of 2018.
We are seeking a subtenant with respect to our current headquarters at 1501 Broadway, New York, New York. Our lease for this space commenced in January 2015 and has a term of 10 years.
We also lease offices in Mountain View, California; San Francisco, California; Santa Monica, California; Melbourne, Australia; Sydney, Australia; London, England; Kuala Lumpur, Malaysia; São Paulo, Brazil; and Auckland, New Zealand. In addition, we utilize a third-party data center hosting facility located in New York, New York. We believe our facilities are adequate for our current and near-term needs.

ITEM 3.  LEGAL PROCEEDINGS

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From time to time we may be involved in legal proceedings or subject to claims arising in the ordinary course of our business. We do not believe we are a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, financial condition or cash flows. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

ITEM 4.  MINE SAFETY DISCLOSURES
Not applicable.


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Part II

ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock has been listed on the NYSE under the symbol "TLRA" since September 27, 2017 and was initially under the symbol “TRMR” from June 27, 2013 (the date of our initial listing) through September 27, 2017. Prior to June 27, 2013 there was no public market for our stock.
The following table sets forth for the indicated periods the intraday high and low sales prices per share for our common stock on the NYSE. 
 
2017
 
First
 Quarter
 
Second
 Quarter
 
Third
 Quarter
 
Fourth
 Quarter
High
$
2.52

 
$
2.57

 
$
4.36

 
$
5.00

Low
1.90

 
2.00

 
2.05
 
3.57
 
2016
 
First
 Quarter
 
Second 
Quarter
 
Third
 Quarter
 
Fourth
 Quarter
High
$
2.04

 
$
2.13

 
$
2.10

 
$
2.76

Low
1.29
 
1.63
 
1.45
 
1.59
Holders of Record
As of February 26, 2018, there were approximately 59 holders of record of our common stock. Because many of our shares of common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.
Stock Price Performance Graph
This performance graph shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or incorporated by reference into any filing of Telaria, Inc. under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
The following graph compares, for the period from June 26, 2013 through December 31, 2017, the cumulative total return on our common stock, the NYSE Composite Index and the Powershares S&P SmallCap Information Technology Portfolio Index.  The graph assumes $100 was invested on June 26, 2013, in the common stock of Telaria, Inc., the NYSE Composite Index and the Powershares S&P SmallCap Information Technology Portfolio Index, and assumes the reinvestment of any dividends. The stock price performance on the following graph is not necessarily indicative of future stock price performance.
The comparisons shown in the graph below are based upon historical data. We caution that the stock price performance shown in the graph below is not necessarily indicative of, nor is it intended to forecast, the potential future performance of our common stock.

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Relative Price Performance
chart2.jpg
Dividend Policy
We have never declared or paid any dividends on our common stock or any other securities. We anticipate that we will retain all of our future earnings, if any, for use in the operation and expansion of our business and do not anticipate paying cash dividends in the foreseeable future. Additionally, our ability to pay dividends on our common stock is limited by restrictions under the terms of the agreements governing our credit facility. Payment of future cash dividends, if any, will be at the discretion of the board of directors after taking into account various factors, including our financial condition, operating results, current and anticipated cash needs, the requirements of current or then-existing debt instruments and other factors the board of directors deems relevant.
Purchases of Equity Securities by the Issuer
On March 29, 2016, we announced that our board of directors had approved a share repurchase program, under which the we were authorized to purchase up to $15.0 million of common stock over an 18-month period commencing March 25, 2016. The share repurchase program expired on September 30, 2017.  For accounting purposes, common stock repurchased under our stock repurchase program is recorded based upon the purchase date of the applicable trade. Such repurchased shares are held in treasury and are presented using the cost method.
During the years ended December 31, 2017 and 2016, we repurchased 983,864 and 2,861,632 shares of our common stock, respectively, in open market purchases under our share repurchase program for a total of approximately $2.4 million and $6.0 million (at an average of $2.45 and $2.11 per share), respectively.
Recent Sales of Unregistered Securities
On June 30, 2017, Venture Lending & Leasing IV, LLC net exercised, in full, warrants to acquire 31,130 shares of common stock at an exercise price of $2.46 per share and we issued 406 shares of common stock to Venture Lending & Leasing IV, LLC. The offer, sale and issuance of such securities were deemed to be exempt from registration under the Securities Act in reliance on Regulation D promulgated thereunder.
On September 8, 2015, we granted John Rego, our Chief Financial Officer, options to purchase 570,000 shares of our common stock at an exercise price of $1.94 per share, the closing price of our common stock on the date of grant.  On October 20, 2015, we granted John Walsh, our former Chief Technology Officer, options to purchase 350,000 shares of our

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common stock at an exercise price of $1.90 per share, the closing price of our common stock on the date of grant.  On September 26, 2016, we granted Jennifer Catto, our Chief Marketing Officer, options to purchase 125,000 shares of our common stock at an exercise price of $1.58 per share, the closing price of our common stock on the date of grant.  On July 10, 2017, we granted Mark Zagorski, our Chief Executive Officer, options to purchase 900,000 shares of our common stock at an exercise price of $2.36 per share, the closing price of our common stock on the date of grant and 186,400 restricted stock units. These option grants were made as employment inducement awards, outside of our stockholder approved equity compensation plans in reliance on Section 303A.08 of the NYSE Listed Company Manual. The grants are generally subject to the same terms and conditions as grants under our 2013 Equity Incentive Plan, or 2013 Plan.  A description of our 2013 Plan is set forth in Note 15 - Stock-Based Compensation in the notes to the consolidated financial statements included in Part II, Item 8 of this Annual Report.  The offers, sales and issuances of the securities described in this paragraph were exempt from registration under Regulation D promulgated under the Securities Act.
Securities Authorized for Issuance under Equity Compensation Plans

Information about securities authorized for issuance under equity compensation plans is set forth in Part III, Item 12. “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters-Equity Compensation Plan Information.”

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ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA
The following tables set forth our selected consolidated financial data. The following selected consolidated financial data for the years ended December 31, 2017, 2016, and 2015 and the selected consolidated balance sheet data as of December 31, 2017 and 2016 are derived from our audited consolidated financial statements that are included in Part II, Item 8 of this Annual Report, which have been audited by Ernst & Young LLP, our independent registered public accounting firm. The selected consolidated financial data for the years ended December 31, 2014 and 2013 and the selected consolidated balance sheet data as of December 31, 2015, 2014 and 2013 are derived from audited consolidated financial statements that are not included in this Annual Report. Our historical results are not necessarily indicative of the results to be expected in the future.
The following data should be read together with the information set forth in Item II, Part 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in conjunction with the consolidated financial statements, related notes, and other financial information included elsewhere in this Annual Report.

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Years Ended
December 31,
 
2017(1)
 
2016(1)
 
2015(1)
 
2014(1)
 
2013(1)
 
 
 
(dollars in thousands, except per share data)
 
 
Revenue
$
43,799

 
$
29,121

 
$
9,611

 
$

 
$

Cost of revenue
3,448

 
2,211

 
945

 

 

Gross profit
40,351

 
26,910

 
8,666

 

 

 
 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
 
Technology and development(2)
8,586

 
6,961

 
4,762

 
3,281
 
707
Sales and marketing(2)
28,073

 
22,297

 
13,841

 
5,324
 
2,811
General and administrative(2)
20,197

 
16,069

 
16,883

 
14,472
 
10,804
Depreciation and amortization
4,586

 
3,754

 
2,176

 
839
 
703
Mark-to-market
148

 
1,263

 

 

 

Total operating expenses
61,590

 
50,344

 
37,662

 
23,916

 
15,025

 
 
 
 
 
 
 
 
 
 
Loss from continuing operations
(21,239
)
 
(23,434
)
 
(28,996
)
 
(23,916
)
 
(15,025
)
 
 
 
 
 
 
 
 
 
 
Interest and other income (expense):
 
 
 
 
 
 
 
 
 
Interest expense, net
(268
)
 
(129
)
 
(10
)
 
(4)
 
(127)
Other income (expense), net
1,460

 
(123
)
 
30

 
46
 
339
Total interest and other income (expense), net
1,192

 
(252
)
 
20

 
42

 
212

Loss from continuing operations before income taxes
(20,047
)
 
(23,686
)
 
(28,976
)
 
(23,874
)
 
(14,813
)
 
 
 
 
 
 
 
 
 
 
Provision for income taxes
(347
)
 
164

 
200

 
1

 
206

 
 
 
 
 
 
 
 
 
 
Loss from continuing operations, net of income taxes
(19,700
)
 
(23,850
)
 
(29,176
)
 
(23,875
)
 
(15,019
)
 
 
 
 
 
 
 
 
 
 
Gain on sale of discontinued operations, net of income taxes
14,626

 

 

 

 

Income (loss) from discontinued operations, net of income taxes(3)
7,301

 
2,903

 
(14,054
)
 
386
 
1,503
Total income (loss) from discontinued operations, net of income taxes
21,927

 
2,903

 
(14,054
)
 
386

 
1,503

 
 
 
 
 
 
 
 
 
 
Net income (loss)
2,227

 
(20,947
)
 
(43,230
)
 
(23,489
)
 
(13,516
)
 
 
 
 
 
 
 
 
 
 
Series F preferred stock deemed dividend

 

 

 

 
15,849

 
 
 
 
 
 
 
 
 
 
Net loss attributable to common shareholders
$
2,227

 
$
(20,947
)
 
$
(43,230
)
 
$
(23,489
)
 
$
(29,365
)
 
 
 
 
 
 
 
 
 
 
Net earnings (loss) per share - basic and diluted(4)(5)
 
 
 
 
 
 
 
 
 
Loss from continuing operations, net of income taxes
$
(0.39
)
 
$
(0.46
)
 
$
(0.57
)
 
$
(0.47
)
 
$
(0.52
)
Discontinued operations, net of income taxes
0.43

 
0.06

 
(0.27
)
 
0.01

 
0.05

Series F preferred stock deemed dividend

 

 

 

 
(0.55
)
Net income (loss)
$
0.04

 
$
(0.40
)
 
$
(0.84
)
 
$
(0.46
)
 
$
(1.02
)
 
 
 
 
 
 
 
 
 
 
Basic and diluted weighted-average number of shares outstanding(5)
50,511,366

 
52,279,738

 
51,684,397

 
50,637,541
 
28,761,700
 
 
 
 
 
 
 
 
 
 
Other Financial Data (unaudited):
 

 
 

 
 

 
 

 
 

 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA(6)
$
(6,517
)
 
$
(11,829
)
 
$
(22,565
)
 
$
(20,043
)
 
$
(12,140
)

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As of
December 31,
 
2017
 
2016
 
2015
 
2014
 
2013
 
(dollars in thousands)
Cash, cash equivalents and short-term investments
$
76,320

 
$
43,160

 
$
59,887

 
$
77,787

 
$
92,691

Working capital
77,153

 
56,168

 
74,148

 
89,024

 
103,464

Total assets
150,428

 
154,225

 
168,124

 
178,005

 
190,560

Total liabilities
67,289

 
75,703

 
66,692

 
38,232

 
33,528

Total stockholders’ equity
$
83,139

 
$
78,522

 
$
101,432

 
$
139,773

 
$
157,032

(1)
Financial statements have been adjusted to reflect the sale of our buy side business, which was sold on August 7, 2017 as discontinued operations.
(2)
Includes stock-based compensation expense as follows:
 
Years Ended
December 31,
 
2017
 
2016
 
2015
 
2014
 
2013
 
(dollars in thousands)
Technology and development
615

 
459

 
301

 
113

 
262

Sales and marketing
2,062

 
476

 
472

 
538

 
201

General and administrative
2,044

 
1,551

 
1,683

 
2,189

 
1,637

Total stock-based compensation expense
$
4,721

 
$
2,486

 
$
2,456

 
$
2,840

 
$
2,100

(3)
Includes impairment charges incurred during the year ended December 31, 2015 of (i) $20.9 million related to goodwill, (ii) $1.2 million related to certain intangible assets, and (iii) $0.6 million related to certain property and equipment.
(4)
For the year ended December 31, 2013, basic and diluted net loss per share attributable to common stockholders includes $15.8 million deemed dividend from the conversion of our Series F preferred stock on July 2, 2013. 
(5)
As a result of our operating losses incurred for the years ended December 31, 2017, 2016, 2015, 2014 and 2013, all potentially dilutive securities are anti-dilutive and, accordingly, basic and diluted weighted-average number of shares of common stock outstanding is equal for the years presented.
(6)
Adjusted EBITDA represents our loss from continuing operations, net of income taxes, before depreciation and amortization expense, total interest and other expense (income), net, provision for income taxes, and as adjusted to eliminate the impact of non-cash stock-based compensation expense, acquisition-related expenses, mark-to-market expense, executive severance, retention and recruiting costs, disposition-related costs, expenses for transitional services, litigation costs and other adjustments.  Adjusted EBITDA is a key measure used by management to evaluate operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital.  In particular, the exclusion of certain expenses we do not consider to be indicative of our core operating performance in calculating adjusted EBITDA facilitates operating performance comparisons on a period-to-period basis.
Adjusted EBITDA is a non-GAAP financial measure. Our use of adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our financial results as reported under U.S. GAAP. Some of these limitations are: (a) although depreciation and amortization expense are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and adjusted EBITDA does not reflect cash and capital expenditure requirements for such replacements or for new capital expenditure requirements; (b) Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;(c) Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us; (d) Adjusted EBITDA does not reflect the potentially dilutive impact of equity-based compensation; (e) Adjusted EBITDA does not reflect acquisition-related costs; (f) Adjusted EBITDA does not reflect executive severance, retention and recruiting costs; (g) Adjusted EBITDA does not reflect disposition-related costs; (h) Adjusted EBITDA does not reflect expenses for transitional services; (i) Adjusted EBITDA does not reflect litigation costs associated with class action securities litigation; )  and other adjustments; and (i) other companies, including companies in our industry, may calculate adjusted EBITDA or similarly titled measures differently, which reduces its usefulness as a comparative measure.  Because of these and other limitations, you should consider adjusted EBITDA alongside our other U.S. GAAP-based financial performance measures, net loss and our other U.S. GAAP financial results. The following table presents a reconciliation of adjusted EBITDA to loss from continuing operations, net of income taxes, the most directly comparable U.S. GAAP measure, for each of the periods indicated:

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Years Ended
December 31,
 
2017
 
2016
 
2015
 
2014
 
2013
 
(dollars in thousands)
Loss from continuing operations, net of income taxes
$
(19,700
)
 
$
(23,850
)
 
$
(29,176
)
 
(23,875
)
 
(15,019
)
Adjustments
 
 
 
 
 
 
 
 
 
Depreciation and amortization expense
4,586

 
3,754

 
2176

 
839

 
703

Total interest and other income (expense), net
(1,192
)
 
252

 
(20
)
 
(42
)
 
(212
)
(Benefit) provision for income taxes
(347
)
 
164

 
200

 
1

 
206

Stock-based compensation expense
4,721

 
2,486

 
2456

 
2,840

 
2,100

Acquisition-related expenses(a)
1,810

 
3,583

 
892

 

 

Mark-to market expense(b)
148

 
1,263

 

 

 

Executive severance, retention and recruiting costs
1,421

 
59

 
579

 

 

Disposition related costs(c)
1,029

 

 

 

 

Expenses for transitional services(d)
905

 

 

 

 

Litigation costs

 
194

 
328

 
279

 
82

Other adjustments(e)
102

 
266

 

 

 

Total net adjustments
13,183

 
12,021

 
6,611

 
3,917

 
2,879

Adjusted EBITDA
$
(6,517
)
 
$
(11,829
)
 
$
(22,565
)
 
$
(19,958
)
 
$
(12,140
)
 
 
(a)
Reflects acquisition-related costs incurred in connection with our acquisition of The Video Network Pty, Ltd, an Australian proprietary limited company ("TVN").  Includes compensation-related expenses related to contingent consideration payments that were paid to certain TVN sellers that were subject to continued employment. Refer to Note 4 - Fair Value Measurements and Note 7 - Acquisition, in the notes to the consolidated financial statements included in Part II, Item 8 of this Form 10-K.
(b)
Reflects expense incurred based on the re-measurement of the estimated fair value of earn-out payments that were paid in connection with the acquisition of TVN and which were not conditioned on continued employment. Refer to Note 4 - Fair Value Measurements and Note 7 - Acquisition in the notes to the consolidated financial statements included in Part II, Item 8 of this Form 10-K.and 7 in notes to consolidated financial statements.
(c)
Professional fees incurred in connection with the sale of the buyer platform in August 2017. Refer to Note 3 - Disposition of Buyer Platform in the notes to the consolidated financial statements included in Part II, Item 8 of this Form 10-K
(d)
Reflects costs incurred providing transitional services to acquirer following the sale of our buyer platform.
(e)
Reflects amounts accrued in connection with a one-time change in our employee vacation policy.

ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
You should read the following discussion of our financial condition and results of operations in conjunction with the information set forth in Part II, Item 6. “Selected Consolidated Financial Data” and the consolidated financial statements and the related notes included elsewhere in this Annual Report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report, particularly in “Special Note Regarding Forward-Looking Statements” and “Risk Factors.”
Telaria, Inc. (formerly Tremor Video, Inc.) is a software company providing a fully programmatic, self-service, seller platform to monetize and manage premium video content across all internet-connected screens and devices.

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We automate the sales process for publishers of premium video content by allowing them to efficiently identify, package and deliver their advertising inventory to advertisers, agencies and other buyers, while protecting the integrity of their brand and the consumer viewing experience. Our seller platform connects publishers to buyers via direct integrations with leading third-party demand-side platforms, or DSPs. This allows publishers to efficiently monetize their advertising inventory however they want to transact, whether through open auctions or private marketplaces. Private marketplaces can be transacted through invite only auctions, where select buyers are given the opportunity to bid on a curated set of inventory, or through direct connections that allow publishers to programmatically transact with a specific buyer. Integrations with DSPs are done through server-to-server connections and, as a result, we are able to significantly reduce latency and response time for our clients’ ad campaigns.
Our technology provides publishers with the real-time control and insights they require to optimize and automate their video advertising sales and manage their inventory across sales channels, devices and platforms. Our seller platform was built specifically for digital video and to support the unique requirements of mobile, over-the-top, or OTT, and connected TV, or CTV, platforms. We enable publishers to exercise complete control over their monetization strategy by defining supply hierarchies and demand tiers, minimum price floors, and advertiser and category-level black and white lists to manage potential sales channel conflicts. We offer publishers a full suite of tools to ensure the integrity of their brand and the consumer viewing experience, including the ability to review and block specific ad creative units, manage ad frequency, and control for factors such as the volume of an ad. Our seller platform provides publishers with up-to-the-second reporting, which allows them to effectively monitor buying patterns and make real-time changes to take advantage of market dynamics and extensive analytics that leverage billions of historical data points to drive long term monetization strategy. We also offer innovative diagnostic capabilities and transparency to our publishers so that they have a complete picture of how their inventory is represented in the marketplace. This allows publishers to immediately identify and act to resolve any issues impacting revenue generation. In addition, DSPs that connect through our seller platform have access to real-time bidding data, insights and analytics enabling them to more effectively manage buying.
We have built long-standing relationships with premium video publishers, and we believe the scale and quality of our client base makes us an important partner to video ad buyers. We provide our platform to publishers outside the United States through our international operations in Europe, Latin America, and the Asia Pacific regions. Buyers on our seller platform include some of the largest brand advertisers in the world and our platform is integrated with the leading video volume buyers in digital advertising.
We generate revenue each time a transaction occurs on our platform based on a simple and transparent fee structure established with our publisher partners. We do not purchase and re-sell inventory from publishers and do not collect any fees directly from buyers. We act as an agent on behalf of publishers and revenue is recognized, net of any inventory costs that we remit to publishers, when a buyer purchases inventory from a publisher on our platform.
Historically, we operated a buyer platform business in addition to offering our seller platform. The buyer platform enabled advertisers, agencies and other buyers of advertising to discover, buy, optimize and measure the effectiveness of their video ad campaigns across digital screens, and included our “Tremor Video DSP” programmatic buying solution. We recently made the strategic decision to focus our business exclusively on offering our seller platform, and on August 7, 2017, we announced that we had completed the sale of the assets and liabilities primarily related to our buyer platform to an affiliate of Taptica International Ltd. or Taptica, for total consideration of $50 million, subject to adjustment for working capital. As a result of the sale, we no longer provide a buyer platform solution. Accordingly, the results of operations for the buyer platform are reflected as discontinued operations in our financial statements for all periods presented herein.

On September 27, 2017, we changed our name from “Tremor Video, Inc.” to “Telaria, Inc.” In connection with the name change, our NYSE ticker symbol was changed to “TLRA” and our corporate website address was changed to www.telaria.com.
 For the year ended December 31, 2017, our revenue from continuing operations increased to $43.8 million, compared to $29.1 million for the year ended December 31, 2016, an increase of 50.4%.  Over the same period, our gross margin remained relatively flat at approximately 92.1% and 92.4% for the year ended December 31, 2017 and December 31, 2016, respectively.  Our loss from continuing operations, net of income taxes decreased from a loss of $23.9 million for the year ended December 31, 2016 to a loss of $19.7 million for the year ended December 31, 2017, and our Adjusted EBITDA (refer to “Key Metrics-Adjusted EBITDA”) increased from a loss of $11.8 million to a loss of $6.5 million for the same respective periods.  Our results exclude the impact of our buyer platform, which is recorded in discontinued operations.

Key Metrics
We monitor the key metrics set forth in the table below to help us evaluate growth trends, establish budgets, measure the effectiveness of our sales and marketing efforts and assess our operational efficiencies.  Revenue, gross margin and net loss are

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discussed under the headings “Components of our Results of Operations.” Adjusted EBITDA is discussed immediately following the table below.
 
Years Ended
December 31,
 
2017
 
2016
 
2015
 
(dollars in thousands)
Revenue
$
43,799

 
$
29,121

 
$
9,611

Gross margin
92.1
%
 
92.4
%
 
90.2
%
Net loss from continuing operations
(19,700
)
 
(23,850
)
 
(29,176
)
Adjusted EBITDA
$
(6,517
)
 
$
(11,829
)
 
$
(22,565
)
Adjusted EBITDA
Adjusted EBITDA represents our loss from continuing operations, net of income taxes, before depreciation and amortization expense, total interest and other income (expense), net and (Benefit) provision for income taxes, and as adjusted to eliminate the impact of non-cash stock-based compensation expense, acquisition-related expenses, mark-to-market expense, executive severance, retention and recruiting costs, disposition-related costs, expenses for transitional services, litigation costs and other adjustments.  Adjusted EBITDA is a key measure used by management to evaluate operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital.  In particular, the exclusion of certain expenses we do not consider to be indicative of our core operating performance in calculating adjusted EBITDA facilitates operating performance comparisons on a period-to-period basis.
Adjusted EBITDA is not a measure calculated in accordance with U.S. GAAP. See footnote 8 to the table in Part II, Item 6. “Selected Consolidated Financial Data” in this Annual Report for a discussion of the limitations of adjusted EBITDA and a reconciliation of adjusted EBITDA to loss from continuing operations, net of income taxes, the most comparable U.S. GAAP measurement, for the years ended December 31, 2017, 2016 and 2015.
Components of Operating Results
We operate in one segment, online video advertising services.  The key elements of our operating results include:
Revenue
We generate revenue each time a transaction occurs on our seller platform based on a simple and transparent fee structure established with our publisher partners. We do not purchase and re-sell inventory from publishers and do not collect any fees directly from buyers. We act as an agent on behalf of publishers and revenue is recognized, net of any inventory costs that we remit to publishers, when a buyer purchases inventory from a publisher on our platform.

Our revenue recognition policies are discussed in more detail in the section below titled “—Critical Accounting Policies and Estimates.”
Cost of Revenue, Gross Profit and Gross Margin
Our cost of revenue primarily consists of third party hosting fees and licensing fees for third party data.   Costs owed to publishers but not yet paid are recorded in our consolidated balance sheets and included as part of accounts payable and accrued expenses.
 Gross margin is our gross profit expressed as a percentage of our total revenue.  Because we book campaigns from our seller platform net of inventory costs, our seller platform has historically generated gross margins in excess of 90%.
 Operating Expenses

Operating expenses consist of technology and development, sales and marketing, general and administrative, depreciation and amortization and mark-to-market expenses.  Salaries, incentive compensation, stock-based compensation and other personnel-related costs are the most significant components of each of technology and development, sales and marketing and general and administrative expenses.  We include stock-based compensation expense in connection with the grant of stock option awards or restricted stock unit awards in the applicable operating expense category based on the respective equity award recipient’s function.  Our employee head count increased from 129 employees at December 31, 2016, to 136 at December 31, 2017. We expect our operating expenses to continue to increase in future periods, to support our continued growth.

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Technology and Development Expense. Technology and development expense primarily consists of salaries, incentive compensation, stock-based compensation and other personnel-related costs for product development and engineering personnel. Additional expenses in this category include other related overhead. Due to the rapid development and changes in our business, we have expensed all technology and development expenses in the same period that the costs were incurred. The number of employees in technology and development functions increased from 17 employees at December 31, 2016 to 20 employees at December 31,2017.  We intend to continue to invest in our technology and development efforts, by strategically hiring additional personnel.  We believe continuing to invest in technology and development efforts is essential to maintaining our competitive position.
Sales and Marketing Expense.  Sales and marketing expense primarily consists of salaries, incentive compensation, stock-based compensation and other personnel-related costs for our marketing and sales and sales support employees.  Additional expenses in this category include marketing programs, travel and other related overhead. The number of employees in sales and marketing functions increased from 83 employees at December 31, 2016 compared to 89 employees at December 31, 2017.  We expect our sales and marketing expense to increase in the foreseeable future to support our continued revenue growth.
General and Administrative Expense. General and administrative expense primarily consists of salaries, incentive compensation, stock-based compensation and other personnel-related costs for business operations, administration, finance and accounting, legal, information systems and human resources employees.  Included in general and administrative expenses are consulting and professional fees, including legal, accounting and investor relations fees, insurance, and costs associated with becoming compliant with the Sarbanes-Oxley Act and other public company corporate expenses, costs associated with the recent transaction, travel and other related overhead. The number of employees in general and administrative functions declined from 29 employees at December 31, 2016 to 27 employees at December 31, 2017.  We expect our general and administrative expenses to increase in absolute dollars in future periods, including as a result of incurring additional expenses becoming compliant with the Sarbanes-Oxley Act.
Depreciation and Amortization Expense. Depreciation and amortization expense primarily consists of our depreciation expense related to investments in property, equipment and software as well as the amortization of certain intangible assets.
Mark-to-market.  Mark-to-market expense consists primarily of expense related to contingent consideration incurred in connection with our acquisition of The Video Network Pty Ltd, or TVN, in August 2015. (refer to notes 4 and 7 in notes to consolidated financial statements).
Interest and Other Income (Expense), Net
Interest and other income (expense), net consist primarily of interest income, interest expense, and foreign exchange transaction gains and losses.  Interest income is derived from interest received on our cash and cash equivalents.  Interest expense is primarily attributable to interest paid on capital leases and taxes and fees to local jurisdictions.  As of December 31, 2017, and 2016, we did not have any outstanding borrowings under our credit facility.

Provision for Income Taxes
Provision for income taxes consists of minimum U.S. federal, state and local taxes, income taxes in foreign jurisdictions in which we conduct business and deferred income taxes.


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Results of Operations
The following table is a summary of our consolidated statement of operations data for each of the periods indicated. The period-to-period comparisons of the results are not necessarily indicative of our results for future periods.
 
Years Ended
December 31, 
 
2017
 
2016
 
2015
 
Amount
 
Percentage
of Revenue
 
Amount
 
Percentage
of Revenue
 
Amount
 
Percentage 
of Revenue
 
 
 
 
 
(dollars in thousands)
 
 
 
 
Revenue
43,799

 
100.0
 %
 
29,121

 
100.0
 %
 
9,611

 
100.0
 %
Cost of revenue
3,448

 
7.9
 %
 
2,211

 
7.6
 %
 
945

 
9.8
 %
Gross profit
40,351

 
92.1
 %
 
26,910

 
92.4
 %
 
8,666

 
90.2
 %
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
Technology and development
8,586

 
19.6
 %
 
6,961

 
23.9
 %
 
4,762

 
49.5
 %
Sales and marketing
28,073

 
64.1
 %
 
22,297

 
76.6
 %
 
13,841

 
144.0
 %
General and administrative
20,197

 
46.1
 %
 
16,069

 
55.2
 %
 
16,883

 
175.7
 %
Depreciation and amortization
4,586

 
10.5
 %
 
3,754

 
12.9
 %
 
2,176

 
22.6
 %
Mark-to-market
148

 
0.3
 %
 
1,263

 
4.3
 %
 

 
 %
Total operating expenses
61,590

 
140.6
 %
 
50,344

 
172.9
 %
 
37,662

 
391.9
 %
 
 
 
 
 
 
 
 
 
 
 
 
Loss from continuing operations
(21,239
)
 
(48.5
)%
 
(23,434
)
 
(80.5
)%
 
(28,996
)
 
(301.7
)%
Total interest and other income (expense), net
1,192

 
2.7
 %
 
(252
)
 
(0.9
)%
 
20

 
0.2
 %
Loss from continuing operations before income taxes
(20,047
)
 
(45.8
)%
 
(23,686
)
 
(81.3
)%
 
(28,976
)
 
(301.5
)%
(Benefit) provision for income taxes
(347
)
 
(0.8
)%
 
164

 
0.6
 %
 
200

 
2.1
 %
 
 
 
 
 
 
 
 
 
 
 
 
Loss from continuing operations, net of income taxes
$
(19,700
)
 
(45.0
)%
 
$
(23,850
)
 
(81.9
)%
 
$
(29,176
)
 
(303.6
)%
 
 
 
 
 
 
 
 
 
 
 
 
Total income (loss) from discontinued operations, net of income taxes
21,927

 
50.1
 %
 
2,903

 
10.0
 %
 
(14,054
)
 
(146.2
)%
Net income (loss)
$
2,227

 
5.5
 %
 
$
(20,947
)
 
(71.9
)%
 
$
(43,230
)
 
(449.8
)%
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
 
 
 
 
 
 
 
 
 
 
 
Comparison of Years Ended December 31, 2017 and 2016
 
Years Ended
December 31,
 
Change
Increase / (Decrease)
 
2017
 
2016
 
Amount
 
Percentage
 
(dollars in thousands)
Revenue
43,799

 
29,121

 
$
14,678

 
50.4
%
Revenue. Our revenue during the year ended December 31, 2017 increased to $43.8 million from $29.1 million in the prior year period, representing a 50.4% increase year-over-year. Our revenue is generally a function of the number of ads purchased and sold on our platform and the fee collected on each transaction. The year-over-year increase in our revenue was primarily attributable to a significant increase in the number of ads purchased and sold through our platform, including as a result of spend transacted by our former buyer platform following its sale to Taptica in August 2017.
 
Years Ended
December 31,
 
Change
Increase / (Decrease)
 
2017
 
2016
 
Amount
 
Percentage
 
(dollars in thousands)
Cost of revenue
3,448

 
2,211

 
$
1,237

 
55.9
%
Gross profit
40,351

 
26,910

 
13,441

 
49.9
%
Gross margin
92.1
%
 
92.4
%
 


 
 

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Cost of Revenue, Gross Profit and Gross Margin.  Our cost of revenue during the year ended December 31, 2017 increased to $3.4 million from $2.2 million in the prior year period. The increase in cost of revenue is attributable to an increase in hosting fees resulting from an increase in the total number of transactions being processed through our seller platform.
Our gross profit during the year ended December 31, 2017 increased to $40.4 million from $26.9 million in the prior year period, reflecting an increase in our revenue of $14.7 million year-over-year, which was partially offset by a $1.2 million increase in our cost of revenue year-over-year.
Our gross margin remained relatively flat at 92.1% for the year ended December 31, 2017 compared to 92.4% for the year ended December 31, 2016
 
Years Ended
December 31,
 
Change
Increase / (Decrease)
 
2017
 
2016
 
Amount
 
Percentage
 
(dollars in thousands)
Technology and development expense
8,586

 
6,961

 
$
1,625

 
23.3
%
% of total revenue
19.6
%
 
23.9
%
 
 
 
 
Technology and Development. The increase in technology and development expense in 2017 compared to 2016 was primarily attributable to a $2.2 million increase in salaries, incentive compensation, stock-based compensation and other personnel-related costs, which were partially offset by a $0.5 million decrease in other overhead costs.
 
Years Ended
December 31,
 
Change
Increase / (Decrease)
 
2017
 
2016
 
Amount
 
Percentage
 
(dollars in thousands)
Sales and marketing expense
28,073

 
22,297

 
$
5,776

 
25.9
%
% of total revenue
64.1
%
 
76.6
%
 
 
 
 
Sales and Marketing.   The increase in sales and marketing expense in 2017 compared to 2016 was primarily attributable to a $4.4 million increase in salaries, incentive compensation, stock-based compensation and other personnel-related costs, $1.6 million increase in marketing costs, professional development costs, software costs, and bad debt expense and a $0.2 million increase in other overhead related costs, which were partially offset by a $0.5 million decrease in consulting fees and travel and entertainment expenses.
 
Years Ended
December 31,
 
Change
Increase / (Decrease)
 
2017
 
2016
 
Amount
 
Percentage
 
(dollars in thousands)
General and administrative expense
20,197

 
16,069

 
$
4,128

 
25.7
%
% of total revenue
46.1
%
 
55.2
%
 
 
 
 
General and Administrative. The increase in general and administrative expense in 2017 compared to 2016 was primarily attributable to a $2.9 million increase in salaries, incentive compensation, stock-based compensation and other personnel-related costs, $1.0 million in costs related to the sale of our buyer platform in August of 2017, a $0.9 million increase in consulting fees and accounting fees and a $0.4 million increase in other taxes and overhead costs. These costs were partially offset by a $0.9 million decrease in professional development and recruitment costs and a $0.3 million decrease in legal fees.
 
Years Ended
December 31,
 
Change
Increase / (Decrease)
 
2017
 
2016
 
Amount
 
Percentage
 
(dollars in thousands)
Depreciation and amortization expense
$
4,586

 
$
3,754

 
$
832

 
22.2
%
% of total revenue
10.5
%
 
12.9
%
 
 
 
 
Depreciation and Amortization.    The increase in depreciation and amortization expense in 2017 compared to 2016 was primarily attributable to accelerated depreciation on our current corporate office leasehold improvements due to our anticipated relocation of our corporate office during 2018.

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Table of Contents

 
Years Ended
December 31,
 
Change
Increase / (Decrease)
 
2017
 
2016
 
Amount
 
Percentage
 
(dollars in thousands)
Mark-to-market expense
$
148

 
$
1,263

 
$
(1,115
)
 
(88.3
)%
% of total revenue
0.3
%
 
4.3
%
 
 
 
 
Mark-to-market expense.  The decrease in mark-to-market expense 2017 compared to 2016 was attributable to reduction in expense related to the Company’s re-measurement of the estimated fair value of contingent consideration that was due in connection with the acquisition of TVN (refer to notes 4 and 7 in the notes to consolidated financial statements).
 
Years Ended
December 31,
 
Change
Increase / (Decrease)
 
2017
 
2016
 
Amount
 
Percentage
 
(dollars in thousands)
Total interest and other income (expense), net
$
1,192

 
$
(252
)
 
$
1,444

 
NM
% of total revenue
2.7
%
 
(0.9
)%
 
 
 
 
Total Interest and Other Income (Expense), Net.   The increase in total interest and other income (expense), net in 2017 compared to 2016 was primarily attributable to $1.0 million in transitional services income related to services provided to the acquirer following the sale of our buyer platform, a $0.5 million increase in sublease income net of sublease loss in 2016 and trademark license income of $0.4 million , which were partially offset by a $0.4 million loss on the disposition of assets.
 
Years Ended
December 31,
 
Change
Increase / (Decrease)
 
2017
 
2016
 
Amount
 
Percentage
 
(dollars in thousands)
(Benefit) provision for income taxes
(347
)
 
164

 
$
(511
)
 
NM
% of total revenue
(0.8
)%
 
0.6
%
 
 
 
 
(Benefit) Provision for Income Taxes.  The decrease in provision for income taxes in 2017 compared to 2016 was primarily attributable to decreases in taxes incurred in foreign jurisdictions as well as U.S. tax benefit recorded for the federal AMT credit.
Income (Loss) from Discontinued Operations, Net of Income Taxes
 
In August 2017, we completed the sale of our buyer platform to Taptica. The consideration received was $50 million, subject to adjustment for working capital (refer to Note 3 in the consolidated financial statements).  The results of our buyer platform have been recast as discontinued operations.
 
For the year ended December 31, 2017, income from discontinued operations consisted of operating income, net of income taxes, attributable to our buyer platform of $7.3 million as well as a gain on sale of $14.6 million, net of income taxes, related to the sale of our buyer platform. For the year ended December 31, 2016, income from discontinued operations consisted of operating income net of income taxes, attributable to our buyer platform of $2.9 million (refer to Note 3 in the consolidated financial statements).

Comparison of Years Ended December 31, 2016 and 2015
 
Years Ended
December 31,
 
Change
Increase / (Decrease)
 
2016
 
2015
 
Amount
 
Percentage
 
(dollars in thousands)
Revenue
29,121

 
9,611

 
$
19,510

 
203.0
%
Revenue.  Our revenue during the year ended December 31, 2016, increased to $29.1 million from $9.6 million in the prior year period, representing a 203.0% increase year-over-year. 

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The year-over-year increase in our revenue, was primarily attributable to a significant increase in the number of ads purchased and sold through our platform.
 
Years Ended
December 31,
 
Change
Increase / (Decrease)
 
2016
 
2015
 
Amount
 
Percentage
 
(dollars in thousands)
Cost of revenue
2,211

 
945

 
$
1,266

 
134.0
%
Gross profit
26,910

 
8,666

 
18,244

 
210.5
%
Gross margin
92.4
%
 
90.2
%
 
 
 
 
Cost of Revenue, Gross Profit and Gross Margin.  Our cost of revenue during the year ended December 31, 2016 increased to $2.2 million from $0.9 million for the same period in 2015.  The increase in cost of revenue is attributable to an increase in hosting fees associated with an increase in the total number of transactions being processed through our seller platform.
Our gross profit during the year ended December 31, 2016 increased to $26.9 million from $8.7 million in the prior year period, reflecting an increase in our revenue of $19.5 million which was partially offset by a $1.3 million increase in our cost of revenue year-over-year.
Our gross margin increased to 92.4% for the year ended December 31, 2016 compared to 90.2% for the year ended December 31, 2015
 
Years Ended
December 31,
 
Change
Increase / (Decrease)
 
2016
 
2015
 
Amount
 
Percentage
 
(dollars in thousands)
Technology and development expense
6,961

 
4,762

 
$
2,199

 
46.2
%
% of total revenue
23.9
%
 
49.5
%
 
 
 
 
Technology and Development.  The increase in technology and development expense in 2016 compared to 2015 was primarily attributable to a $1.5 million increase in salaries, incentive compensation, stock-based compensation and other personnel-related costs, a $0.4 million increase in rent and utilities, and a $0.3 million increase in software and internet costs.
 
Years Ended
December 31,
 
Change
Increase / (Decrease)
 
2016
 
2015
 
Amount
 
Percentage
 
(dollars in thousands)
Sales and marketing expense
22,297

 
13,841

 
$
8,456

 
61.1
%
% of total revenue
76.6
%
 
144.0
%
 
 
 
 
Sales and Marketing.  The increase in sales and marketing expense in 2016 compared to 2015 was primarily attributable to a $6.6 million increase in salaries, severance costs, incentive compensation, stock-based compensation, and other personnel-related costs, a $0.5 million increase in software and internet access fees, a $0.4 million increase in travel and entertainment, a $0.4 million increase in consulting and professional development fees, a $0.3 million increase in trade shows and public relation events and $0.3 million increase in rent and utilities.
 
Years Ended
December 31,
 
Change
Increase / (Decrease)
 
2016
 
2015
 
Amount
 
Percentage
 
(dollars in thousands)
General and administrative expense
16,069

 
16,883

 
$
(814
)
 
(4.8
)%
% of total revenue
55.2
%
 
175.7
%
 
 
 
 
General and Administrative. The decrease in general and administrative expense in 2016 compared to 2015 was primarily attributable to a $1.0 million decrease in salaries, incentive compensation, stock-based compensation and other personnel-related costs a decrease of $0.5 million in legal and consulting costs and a decrease of $0.1 million in overhead related costs, which were partially offset by a $0.4 million increase in accounting fees and $0.3 million increase in recruitment and professional development costs.

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Years Ended
December 31,
 
Change
Increase / (Decrease)
 
2016
 
2015
 
Amount
 
Percentage
 
(dollars in thousands)
Depreciation and amortization expense
3,754

 
2,176

 
$
1,578

 
72.5
%
% of total revenue
12.9
%
 
22.6
%
 
 
 
 
Depreciation and Amortization.    The increase in depreciation and amortization expense in 2016 compared to 2015 was primarily attributable to increases in depreciation related to additional leasehold improvements related to new office spaces.
 
Years Ended
December 31,
 
Change
Increase / (Decrease)
 
2016
 
2015
 
Amount
 
Percentage
 
(dollars in thousands)
Total interest and other income (expense), net
(252
)
 
20

 
$
(272
)
 
NM
% of total revenue
(0.9
)%
 
0.2
%
 
 
 
 
Total Interest and Other Income (Expense), Net. The decrease in total interest and other income (expense), net in 2016 compared to 2015 was primarily attributable to a $0.3 loss on the sublease of office space, partially offset by an increase in other expense related to subletting of our former headquarters.
 
Years Ended
December 31,
 
Change
Increase / (Decrease)
 
2016
 
2015
 
Amount
 
Percentage
 
(dollars in thousands)
Provision for income taxes
164

 
200

 
$
(36
)
 
(18.0
)%
% of total revenue
0.6
%
 
2.1
%
 
 
 
 
Provision for Income Taxes.  The decrease in provision for income taxes in 2016 compared to 2015 was primarily attributable to decreases in taxes incurred in our foreign jurisdictions as well as US local taxes.
 
Years Ended
December 31,
 
Change
Increase / (Decrease)
 
2016
 
2015
 
Amount
 
Percentage
 
(dollars in thousands)
Mark-to-market expense
1,263

 

 
$
1,263

 
100.0
%
% of total revenue
4.3
%
 
%
 
 
 
 
Mark-to-Market Expense.
The increase in mark-to-market expense in 2016 compared to 2015 was attributable to reduction in consists of the change in market value of our contingent consideration in connection with the acquisition of TVN (refer to notes 4 and 7 in the notes to consolidated financial statements).

Total Income (Loss) from Discontinued Operations, Net of Income Taxes
 
In August 2017, we completed the sale of our buyer platform to Taptica. The consideration received was $50 million, subject to adjustment for working capital (refer to Note 3 in the consolidated financial statements).  As a result, the results of our buyer platform have been recast as discontinued operations.
 
For the year ended December 31, 2016, income from discontinued operations consisted of operating income, net of income taxes, attributable to our buyer platform of $2.9 million and for the year ended December 31, 2015, discontinued operations consisted of operating loss, net of income taxes, attributable to our buyer platform of $14.1 million, respectively (refer to Note 3 in the consolidated financial statements).
Seasonality

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Our revenue tends to be seasonal in nature and varies from quarter to quarter.  During the first quarter, advertisers generally devote less of their budgets to ad spending and as a result we tend to generate less revenue during the first quarter of each calendar year. The fourth quarter of each calendar year tends to be our strongest revenue quarter, as advertising spend generally increases during the holiday season.
Liquidity and Capital Resources
Working Capital
The following table summarizes our cash, cash equivalents and short-term investments, accounts receivable and working capital for the periods indicated:
 
As of December 31,
 
2017
 
2016
 
2015
 
(dollars in thousands)
Cash, cash equivalents and short-term investments
76,320

 
43,160

 
$
59,887

Accounts receivable, net of allowance for doubtful accounts
59,288

 
29,429

 
14,715

Working capital
77,153

 
56,168

 
74,148

Our cash and cash equivalents at December 31, 2017 were held for working capital purposes. We do not enter into investments for trading or speculative purposes. Our policy is to invest any cash in excess of our immediate requirements in investments designed to preserve the principal balance and provide liquidity. Accordingly, our cash and cash equivalents are invested primarily in demand deposit accounts and money market funds that are currently providing only a minimal return.
Sources of Liquidity
Our principal sources of liquidity are our cash and cash equivalents.  Cash and cash equivalents consist primarily of cash on deposit with banks and investments in money market funds.  Cash and cash equivalents were $76.3 million, $43.2 million and $59.9 million as of December 31, 2017, 2016 and 2015, respectively.
We are party to a loan and security agreement, which we refer to as our credit facility, with Silicon Valley Bank, which we refer to as our lender.  Pursuant to the credit facility we can incur revolver borrowings up to the lesser of $25.0 million and a borrowing base equal to 80.0% of eligible accounts receivable.  Any outstanding principal amounts borrowed under the credit facility must be paid at maturity. Interest accrues at a floating rate equal to the lender’s prime rate and is payable monthly.  We are charged a fee of 0.35% of any unused borrowing capacity, which is payable quarterly.  The credit facility also includes a letter of credit, foreign exchange and cash management facility up to the full amount of available credit.  The credit facility matures in January 2020.  While we had no outstanding borrowings under the credit facility as of December 31, 2017 and 2016, our lender has issued standby letters of credit in favor of the landlord of our headquarters totaling $2.3 million, which can be drawn down from amounts available under the credit facility.
The credit facility contains customary conditions to borrowings, events of default and negative covenants, including covenants that restrict our ability to dispose of assets, merge with or acquire other entities, incur indebtedness, incur encumbrances, make distributions to holders of our capital stock, make investments or engage in transactions with our affiliates.  We are also subject to a financial covenant with respect to a minimum quick ratio, tested monthly, and Adjusted EBITDA for trailing periods which vary from three to twelve months, tested quarterly.  Our obligations under the credit facility are secured by substantially all of our assets other than our intellectual property, although we have agreed not to encumber any of our intellectual property without the lender’s prior written consent.  Subject to certain exceptions, we are also required to maintain all of our cash and cash equivalents at accounts with the lender. We were in compliance with all covenants as of December 31, 2017 and through the date of this filing.
Operating and Capital Expenditure Requirements
We believe our existing cash balances will be sufficient to meet our anticipated cash requirements from issuance date of this Annual Report through at least the next 12 months. If our available cash balances and available borrowings under our credit facility are insufficient to satisfy our liquidity requirements, we will need to raise additional funds to support our operations, and such funding may not be available to us on acceptable terms, or at all.  If we are unable to raise additional funds when needed, our operations and ability to execute our business strategy could be adversely affected.  We may seek to raise additional funds through equity, equity-linked or debt financings.  If we raise additional funds through the incurrence of indebtedness, such indebtedness would have rights that are senior to holders of our equity securities and could contain covenants that restrict our operations.  Any additional equity financing may be dilutive to our stockholders.

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Share repurchase program
On March 29, 2016, we announced that our board of directors had approved a share repurchase program, under which we were authorized to purchase up to $15.0 million of our common stock over the eighteen-month period commencing March 25, 2016.  During the year ended December 31, 2017, we made open-market purchases totaling 983,864 shares of our common stock for an aggregate purchase price of $2.4 million, and for the year ended December 31, 2016 we made open-market purchases totaling 2,861,632 of our common stock for an aggregate purchase price of $6.0 million. All share repurchases were funded from cash on hand.

The share repurchase program expired on September 30, 2017.

Historical Cash Flows
The following table summarizes our historical cash flows for the periods indicated:
 
December 31,
 
2017
 
2016
 
2015
 
(dollars in thousands)
Net cash (used in) provided by:
 
 
 
 
 
Operating activities
$
(9,861
)
 
$
(7,070
)
 
$
(7,959
)
Investing activities
45,933

 
(2,933
)
 
(9,404
)
Financing activities
$
(3,317
)
 
$
(6,332
)
 
$
(386
)
Operating Activities
Net cash used in operating activities is primarily influenced by the revenue our business generates, our costs of revenue, and amounts of cash we invest in personnel and infrastructure to support our business.  Net cash used in operating activities has been used to fund operations through changes in working capital, particularly in the areas of accounts receivable, accounts payable and accrued expenses, adjusted for non-cash expense items such as depreciation, amortization and stock-based compensation expenses.

In 2017, our net cash used in operating activities was $9.9 million and consisted of a loss from continuing operations of $19.7 million, partially offset by net income from discontinued operations of $21.9 million, gain on sale of discontinued operations of $15.0 million and cash used in working capital of $12.7 million, which was offset by adjustments for non-cash items of $15.5 million.  Adjustments for non-cash items primarily consisted of depreciation and amortization expense of $7.8 million, non-cash stock-based compensation expense of $5.4 million, compensation expense related to acquisition contingent consideration of $1.8 million and loss from disposal, mark to market expense and bad debt recovery of $0.9 million. The cash used in working capital of $12.7 million primarily consisted of an increase in accounts receivable of $19.9 million, a decrease in contingent consideration of acquisition of $4.8 million, an increase in prepaid expenses of $3.2 million and an increase in other current liabilities of $0.1 million, which was partially offset by an increase in accounts payable and accrued expenses of $13.8 million and an increase in deferred income of $1.4 million.
In 2016, our net cash used in operating activities was $7.1 million and consisted of a loss from continuing operations of $23.9 million, partially offset by net income from discontinued operations of $2.9 million, cash used in working capital of $3.8 million, which was partially offset by adjustments for non-cash items of $17.7 million. Adjustments for non-cash items primarily consisted of depreciation and amortization expense of $9.2 million, non-cash stock-based compensation expense of $3.9 million, compensation expense related to acquisition contingent consideration of $3.6 million and mark to market expense of $1.3 million. The cash used in working capital of $3.8 million, primarily consisted of an increase in accounts receivable of $8.3 million and a decrease in contingent consideration of $3.4 million, which was partially offset by an increase in accounts payable of $6.7 million and an increase in prepaid expenses and other current assets and an increase in deferred rent and security deposits payable of $1.2 million.
In 2015, our net cash used in operating activities was $8.0 million and consisted of a loss from continuing operations of $29.2 million, a loss from discontinued operations of $14.1 million and cash used in working capital of $0.1 million, partially offset by adjustments for non-cash items of $35.4 million. The use of cash in working capital adjustments of $0.1 million primarily consisted of an increase in accounts receivable of $22.7 million, partially offset by an increase in accounts payable and accrued expenses of $20.2 million and an increase in deferred rent and security deposits payable of $5.6 million.

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Adjustments for non-cash items primarily consisted of impairment charge related to the sale of our buyer platform of $22.7 million, depreciation and amortization expense of $8.3 million, non-cash stock-based compensation expense of $4.0 million and non-cash stock-based long-term incentive compensation expense of $0.4 million.
Investing Activities
In 2017, our net cash provided by investing activities was $45.9 million, and consisted of the sale of our buyer platform for cash proceeds of $49.0 million, offset by $2.0 million of expenses paid with respect to the sale of the buyer platform, and $1.1 million used to purchase property and equipment.
In 2016, our net cash used in investing activities was $2.9 million and consisted of $2.9 million used to purchase property and equipment.
In 2015, our net cash used in investing activities was $9.4 million and consisted of $7.7 million used primarily to purchase computer hardware and software related to our third-party data hosting facilities and $1.7 million used for the acquisition of TVN, net of cash received.
Financing Activities
In 2017, our net cash used in financing activities was $3.3 million and consisted of $2.4 million of purchases of common stock pursuant to our share repurchase program, $1.8 million used to pay tax withholdings on behalf of employees related to net share settlements of restricted stock unit awards and $0.2 million of principal payments related to capital leases, partially offset by $1.1 million in proceeds received from the issuance of common stock in connection with shares purchased under our ESPP and the exercise of stock option awards.
In 2016, our net cash used in financing activities was $6.3 million and consisted of $6.0 million of purchases of common stock pursuant to our share repurchase program, $0.5 million used to pay tax withholdings on behalf of employees related to net share settlements of restricted stock unit awards and $0.4 million used to pay contingent consideration related to the purchase of TVN, partially offset by $0.7 million in proceeds received from the issuance of common stock in connection with shares purchased under out ESPP and the exercise of stock option awards.
In 2015, our net cash used by financing activities was $0.4 million and consisted of $0.5 million used to pay tax withholdings on behalf of employees related to net share settlements of restricted stock unit awards, partially offset by $0.1 million in proceeds received from the exercise of stock option awards.
Off-Balance Sheet Arrangements
As of December 31, 2017, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K, such as the use of unconsolidated subsidiaries, structured finance, special purpose entities or variable interest entities.
Contractual Obligations
The following table discloses aggregate information about material contractual obligations and periods in which payments were due as of December 31, 2017. Future events could cause actual payments to differ from these estimates.
 
Payments Due by Period
 
Total
 
Less Than
1 Year
 
1 - 3
Years
 
3 - 5
Years
 
More Than
5 Years
 
(dollars in thousands)
Operating lease obligations(1)
$
47,088

 
$
5,743

 
$
12,896

 
$
10,322

 
$
18,127

Third-party licenses and services
91

 
51

 
40

 

 

Total contractual obligations
$
47,179

 
$
5,794

 
$
12,936

 
$
10,322

 
$
18,127

 
 
 
 
 
 
 
 
 
 
(1)         Operating lease obligations includes those contractual obligations related to our non-cancellable office space lease agreements and co-location agreements.
The amounts in the table above are associated with agreements that are enforceable and legally binding, which specify significant terms including payment terms related to services and the approximate timing of the transaction. Obligations under the contract that we can cancel without a significant penalty are not included in the table.

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Critical Accounting Policies and Estimates
We prepare our audited consolidated financial statements in accordance with U.S. GAAP.  The preparation of audited consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures.  We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances.  Actual results could differ significantly from the estimates made by our management.  To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.  We believe the estimates, assumptions and judgments involved in revenue recognition and deferred revenue, stock-based compensation expense, and accounting for income taxes have the greatest potential impact on our consolidated financial statements, and consider these to be our critical accounting policies and estimates.
Critical accounting policies and estimates are those we consider to be the most important to the portrayal of our financial condition and results of operations because they require the most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies and estimates include those related to the following:
Revenue Recognition
We generate revenue each time a transaction occurs on our seller platform based on a simple and transparent fee structure established with our publisher partners. We do not purchase and re-sell inventory from publishers and do not collect any fees directly from buyers. We act as an agent on behalf of publishers and revenue is recognized net of any inventory costs that we remit to publishers, when a buyer purchases inventory from a publisher on our platform. The determination of whether revenue should be reported on a gross or net basis is based on an assessment of whether we are acting as the principal or an agent in the transaction. In determining whether we are acting as the principal or an agent, we followed the accounting guidance for principal-agent considerations. The determination of whether we are acting as a principal or an agent in a transaction involves judgment and is based on an evaluation of the terms of each arrangement, none of which are considered presumptive or determinative. Revenue generated, and costs incurred, related to our seller platform are reported on a net basis as we are not the primary obligor in our seller platform transactions as: (1) the determination of whether to purchase inventory, and the price for such inventory, is generally determined by third party buyers; and (2) we do not generally take on inventory risk.

Accounts Receivable, Net of Allowances for Doubtful Accounts
We carry our accounts receivable at net realizable value. On a periodic basis, our management evaluates our accounts receivable and determines whether to provide an allowance or if any accounts should be written down and charged to expense as a bad debt. The evaluation is based on a past history of collections, current credit conditions, the length of time the account is past due and a past history of write-downs. A receivable is considered past due if we have not received payments based on agreed-upon terms. We generally do not require any security or collateral to support our receivables.
We extend credit to customers and generally do not require any security or collateral.  Accounts receivable are recorded at the invoiced amount.  We carry our accounts receivable balances at net realizable value. We evaluate the collectability of our accounts receivable balances on a periodic basis and determine whether to provide an allowance or if any accounts should be written down and charged to expense as a bad debt. The evaluation is based on a past history of collections, current credit conditions, the length of time the account is past due and a past history of write-downs. A receivable balance is considered past due if we have not received payments based on agreed-upon terms.
Goodwill and Intangible Assets
Goodwill represents the excess of the aggregate purchase price paid over the fair value of the net tangible and intangible assets acquired.  Intangible assets that are not considered to have an indefinite useful life are amortized over their useful lives.  We evaluate the estimated remaining useful lives of purchased intangible assets and whether events or changes in circumstances warrant a revision to the remaining period of amortization.  Goodwill is not amortized, but rather is subject to an impairment test.
We evaluate goodwill and other intangible assets with indefinite lives for impairment annually, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. We adopted FASB Accounting Standards Update (“ASU”) 2011-08, “Testing Goodwill for Impairment,” which gives companies the option to qualitatively assess whether it is more likely than not that the fair value of a reporting unit is less than its carrying value.

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We operate as one operating and reporting segment and, therefore, we assess goodwill for impairment annually as one singular reporting unit, using a two-step approach. The first step is to compare the fair value of the reporting unit to the carrying value of the net assets assigned to the reporting unit.  If the fair value of the reporting unit is greater than the carrying value of the net assets assigned to the reporting unit, the assigned goodwill is not considered impaired. If the fair value is less than the reporting unit’s carrying value, step two is performed to measure the amount of the impairment, if any.
We also review identifiable intangible assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of intangible assets are measured by a comparison of the carrying amount of the asset or asset group, using an income approach, to future undiscounted net cash flows expected to be generated by the asset or asset group. If such assets are not recoverable, the impairment to be recognized, if any, is measured by the amount which the carrying amount of the assets exceeds the estimated fair value of the assets or asset group.  As we operate as one business unit and our long-lived assets do not have identifiable cash flows that are independent of the other assets and liabilities of this business unit, the impairment testing on intangible assets is performed at the entity-level.
During the year ended December 31, 2015, we determined that an impairment indicator was present that required us to perform an interim goodwill impairment analysis prior to October 1st for the reporting unit.  This impairment indicator was a decrease in market capitalization below the carrying value of our net assets.  During the three months ended September 30, 2015, we conducted an interim impairment test on its goodwill, based on which the Company determined that the implied fair value of goodwill was less than the reporting unit’s carrying value.  As a result, we recorded a goodwill impairment loss of $20,890 to reduce the carrying value of goodwill to its implied fair value. Due to the sale of the Company's buyer platform, the impairment loss of $20,890 related to the buyer's platform decline in fair value is included in our discontinued operations for the year ended December 31, 2015.
We did not identify any impairment of our goodwill at December 31, 2017 and 2016 and therefore, for the years ended December 31, 2017 and 2016, no impairment losses related to goodwill were recorded.
Stock-Based Compensation
We include stock-based compensation expense as part of operating expenses in connection with the grant or modification of stock option awards, restricted stock unit awards, employee stock purchase plan awards, and other equity awards to our directors, employees and consultants. We account for stock-based compensation in accordance with the authoritative accounting guidance on stock-based payment awards. Pursuant to the fair value recognition provisions of such guidance, stock-based payment awards are measured at the grant date based on the fair value of the award and is recognized as compensation expense, net of estimated forfeitures, over the requisite service period, which is generally the vesting period of the respective award. During the years ended December 31, 2017, 2016 and 2015, we recorded stock-based compensation expense of $4.7 million, $2.5 million and $2.5 million, respectively. Information about the assumptions used in the calculation of stock-based compensation expense is set forth in “Note 15 — Stock-Based Compensation” in the notes to the consolidated financial statements included in Part II, Item 8 of this Annual Report.
Income Taxes
Our income tax expense represents amounts paid or payable (or received or receivable) for the current year and includes any changes in deferred taxes during the year.  Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, as well as for operating loss and tax credit carry-forwards. We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which we expect to recover or settle those temporary differences.  We recognize the effect of a change in tax rates on deferred tax assets and liabilities in the results of operations in the period that includes the enactment date.
Our deferred income tax expense represents the change during the period in deferred tax assets and deferred tax liabilities.  The components of the deferred tax assets and liabilities are non-current under ASU 2015-17.  We reduce the measurement of a deferred tax asset, if necessary, by a valuation allowance if it is more likely than not that we will not realize some or all of the deferred tax asset. As a result of our historical operating performance and the cumulative net losses incurred to date, we do not have sufficient objective evidence to support the recovery of the deferred tax assets. Accordingly, we have established a valuation allowance against substantially all deferred tax assets for financial reporting purposes because we believe it is more likely than not that these deferred tax assets will not be realized.

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We account for uncertain tax positions by recognizing the financial statement effects of a tax position only when, based upon technical merits, it is “more-likely-than-not” that the position will be sustained upon examination. Potential interest and penalties associated with unrecognized tax positions are recognized in our provision for income taxes.
At December 31, 2017, we had U.S. federal and state net operating loss carryforwards, or NOLs, of $100.8 million and $56.9 million, respectively, and foreign net operating loss carryforwards of $7.6 million, $6.8 million and $0.2 million related to our international subsidiaries in United Kingdom, Germany and Brazil, respectively.  The U.S. federal net operating losses will expire in various years beginning in 2028. Our foreign net operating loss carry-forwards can be carried forward without limitation in each respective country.  A lack of future taxable income would adversely affect our ability to utilize these NOLs. In addition, under Section 382 of the Internal Revenue Code, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its NOLs to offset future taxable income. We believe that we experienced an ownership change under Section 382 of the Internal Revenue Code in prior years that may limit our ability to utilize a portion of the NOLs in the future.
Recent Issued and Adopted Accounting Pronouncements
For information with respect to recent accounting pronouncements and the impact of these pronouncements on our consolidated financial statements, refer to “Note 2 — Summary of Significant Accounting Policies” in the notes to the consolidated financial statements included in Part II, Item 8 of this Annual Report.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We are exposed to market risk primarily related to changes in interest rates and foreign currency exchange rates.  We do not use derivative financial instruments for speculative, hedging or trading purposes, although in the future we may enter into hedging arrangements to manage the risks described below.
Interest Rate Risk
We maintain cash and a short-term investment portfolio consisting mainly of highly liquid, short-term money market funds, which we consider to be cash and cash equivalents, respectively.  The primary objective of our investment activities is to preserve principal while maximizing income without significantly increasing risk. Because our cash and cash equivalents have a relatively short maturity, our portfolio’s fair value is relatively insensitive to interest rate changes.  These investments earn interest at variable rates and, as a result, decreases in market interest rates would generally result in decreased interest income.  A 10% increase or decrease in interest rates occurring January 1, 2017 and sustained through the period ended December 31, 2017, would not have been material.  We do not enter into investments for trading or speculative purposes. In future periods, we will continue to evaluate our investment policy relative to our overall objectives.
We were exposed to market risks related to fluctuations in interest rates related to our $25.0 million credit facility where an increase in interest rates may result in higher borrowing costs.  Since we currently do not have any outstanding borrowings under our credit facility, the effect of a hypothetical 10% change in interest rates would not have any impact on our interest expense.
Foreign Currency Exchange Risk
Due to our international operations, we are exposed to foreign exchange risk related to foreign denominated revenues and costs, which must be translated into U.S. dollars.  Our primary exposures are related to non-U.S. dollar denominated sales and operating expenses primarily in Australia, Brazil, Europe and the United Kingdom. The effect of a 10% increase or decrease in exchange rates on foreign denominated cash, receivables and payables would not have been material for the periods presented.  Substantially all of our advertiser contracts are currently denominated in U.S. dollars.  Therefore, we have minimal foreign currency exchange risk with respect to our revenue.  These exposures may change over time as our business practices evolve and if our exposure increases, adverse movements in foreign currency exchanges rates could have a material adverse impact on our financial results.
Inflation Risk
We do not believe that inflation has had a material effect on our business, financial condition or results of operations. We continue to monitor the impact of inflation in order to minimize its effects through pricing strategies, productivity improvements and cost reductions. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.

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ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TELARIA, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
Page
Number
 
 
CONSOLIDATED FINANCIAL STATEMENTS: