Attached files
file | filename |
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8-K/A - FORM 8-K/A - SYNCHRONOSS TECHNOLOGIES INC | c06390e8vkza.htm |
EX-99.3 - EXHIBIT 99.3 - SYNCHRONOSS TECHNOLOGIES INC | c06390exv99w3.htm |
EX-23.2 - EXHIBIT 23.2 - SYNCHRONOSS TECHNOLOGIES INC | c06390exv23w2.htm |
EX-99.1 - EXHIBIT 99.1 - SYNCHRONOSS TECHNOLOGIES INC | c06390exv99w1.htm |
EX-23.1 - EXHIBIT 23.1 - SYNCHRONOSS TECHNOLOGIES INC | c06390exv23w1.htm |
Exhibit 99.2
FUSIONONE, INC.
Condensed Consolidated Financial Statements
(Unaudited)
June 30, 2010
FUSIONONE, INC.
Index to Consolidated Financial Statements
(Unaudited)
Page | ||||
Consolidated Financial Statements |
||||
Condensed Consolidated Balance Sheets as of June 30, 2010 and December 31, 2009 |
3 | |||
Condensed Consolidated Statements of Operations for the 6 month periods ended June 30, 2010 and 2009 |
4 | |||
Condensed Consolidated Statements of Cash Flows for the 6 month periods ended June 30, 2010 and 2009 |
5 | |||
Notes to Unaudited Condensed Consolidated Financial Statements |
6-16 |
2
FUSIONONE, INC.
Condensed Consolidated Balance Sheets
June 30, 2010 and December 31, 2009
(Unaudited)
Condensed Consolidated Balance Sheets
June 30, 2010 and December 31, 2009
(Unaudited)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 2,664,000 | $ | 7,131,000 | ||||
Accounts receivable, net |
360,000 | 2,036,000 | ||||||
Other receivables |
14,000 | 359,000 | ||||||
Prepaid expenses and other current assets |
167,000 | 181,000 | ||||||
Total current assets |
3,205,000 | 9,707,000 | ||||||
Property and equipment, net |
631,000 | 1,008,000 | ||||||
Other assets |
48,000 | 50,000 | ||||||
Total assets |
$ | 3,884,000 | $ | 10,765,000 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 528,000 | $ | 847,000 | ||||
Accrued expenses |
1,847,000 | 1,256,000 | ||||||
Line of credit |
| 2,000,000 | ||||||
Current portion of capital lease obligations |
167,000 | 236,000 | ||||||
Customer advances |
1,280,000 | 1,280,000 | ||||||
Deferred revenue, current |
7,118,000 | 10,918,000 | ||||||
Total current liabilities |
10,940,000 | 16,537,000 | ||||||
Warrant liability |
6,000,000 | 6,000,000 | ||||||
Capital lease obligations, less current portion |
3,000 | 64,000 | ||||||
Deferred revenue, less current portion |
3,000,000 | 3,000,000 | ||||||
Total Liabilities |
19,943,000 | 25,601,000 | ||||||
Commitments
(See Note 10) |
||||||||
Stockholders deficit: |
||||||||
Convertible preferred stock, par value $0.001; 105,673,945 shares authorized: |
||||||||
Series A-1 - 66,500,000 shares authorized: 64,084,505 shares issued and outstanding at June 30, 2010
and December 31, 2009 (aggregate liquidation preference of approximately $18,200,000) |
64,000 | 64,000 | ||||||
Series A - 3,668,085 shares authorized: 3,638,298 shares issued and outstanding at June 30, 2010
and December 31, 2009 (aggregate liquidation preference of approximately $117,000) |
4,000 | 4,000 | ||||||
Series B - 5,493,617 shares authorized: 5,453,176 shares issued and outstanding at June 30, 2010
and December 31, 2009 (aggregate liquidation preference of approximately $507,000) |
5,000 | 5,000 | ||||||
Series C - 14,059,814 shares authorized: 14,044,495 shares issued and outstanding at June 30, 2010
and December 31, 2009 (aggregate liquidation preference of approximately $3,450,000) |
14,000 | 14,000 | ||||||
Series D - 15,952,429 shares authorized: 15,952,429 shares issued and outstanding at June 30, 2010
and December 31, 2009 (aggregate liquidation preference of approximately $5,926,000) |
16,000 | 16,000 | ||||||
Common stock, par value $0.001; 165,000,000 shares authorized: 20,078,780 and 19,181,928
shares issued and outstanding June 30, 2010 and December 31, 2009, respectively |
20,000 | 19,000 | ||||||
Additional paid-in capital |
161,476,000 | 161,329,000 | ||||||
Accumulated other comprehensive income |
(11,000 | ) | 85,000 | |||||
Accumulated deficit |
(177,647,000 | ) | (176,372,000 | ) | ||||
Total stockholders deficit |
(16,059,000 | ) | (14,836,000 | ) | ||||
Total liabilities and stockholders deficit |
$ | 3,884,000 | $ | 10,765,000 | ||||
See accompanying notes to consolidated financial statements.
3
FUSIONONE, INC.
Condensed Consolidated Statements of Operations
6 month periods ended June 30, 2010 and 2009
(Unaudited)
Condensed Consolidated Statements of Operations
6 month periods ended June 30, 2010 and 2009
(Unaudited)
June 30, | June 30, | |||||||
2010 | 2009 | |||||||
Revenue |
$ | 9,989,000 | $ | 4,142,000 | ||||
Cost of revenue |
1,124,000 | 1,464,000 | ||||||
Gross profit |
8,865,000 | 2,678,000 | ||||||
Operating expenses: |
||||||||
Research and development |
5,487,000 | 5,039,000 | ||||||
Sales and marketing |
3,046,000 | 3,908,000 | ||||||
General and administrative |
1,595,000 | 1,378,000 | ||||||
Total operating expenses |
10,128,000 | 10,325,000 | ||||||
Loss from operations |
(1,263,000 | ) | (7,647,000 | ) | ||||
Interest and other income (expense), net |
(12,000 | ) | (19,000 | ) | ||||
Net loss |
$ | (1,275,000 | ) | $ | (7,666,000 | ) | ||
See accompanying notes to consolidated financial statements.
4
FUSIONONE, INC.
Condensed Consolidated Statements of Cash Flows
6 month periods ended June 30, 2010 and 2009
(Unaudited)
Condensed Consolidated Statements of Cash Flows
6 month periods ended June 30, 2010 and 2009
(Unaudited)
2010 | 2009 | |||||||
Cash flows from operating activities: |
||||||||
Net Loss |
||||||||
Adjustments to reconcile net loss to net cash used by operating activities: |
$ | (1,275,000 | ) | $ | (7,666,000 | ) | ||
Stock-based compensation |
112,000 | 132,000 | ||||||
Depreciation and amortization |
377,000 | 553,000 | ||||||
Changes in assets and liabilities: |
||||||||
Accounts receivable |
1,676,000 | (2,232,000 | ) | |||||
Other receivables |
345,000 | |||||||
Prepaid expenses and other current assets |
14,000 | (89,000 | ) | |||||
Other assets |
2,000 | (50,000 | ) | |||||
Accounts payable |
(319,000 | ) | (317,000 | ) | ||||
Accrued expenses |
591,000 | (410,000 | ) | |||||
Deferred revenue |
(3,800,000 | ) | 9,870,000 | |||||
Net cash used by operating activities |
(2,277,000 | ) | (209,000 | ) | ||||
Cash flows from investing activities: |
||||||||
Purchase of property and equipment |
| (162,000 | ) | |||||
Net cash used by investing activities |
| (162,000 | ) | |||||
Cash flows from financing activities: |
||||||||
Proceeds from issuance of common stock in connection with exercise of stock options |
36,000 | 2,000 | ||||||
Repayment of line of credit |
(2,000,000 | ) | | |||||
Payments on obligations under equipment financing |
| (207,000 | ) | |||||
Payments on capital leases |
(130,000 | ) | (48,000 | ) | ||||
Net cash used by financing activities |
(2,094,000 | ) | (253,000 | ) | ||||
Effect of exchange rates on cash and cash equivalents |
(96,000 | ) | (45,000 | ) | ||||
Net decrease in cash and cash equivalents |
(4,467,000 | ) | (669,000 | ) | ||||
Cash and cash equivalents at beginning of period |
7,131,000 | 7,210,000 | ||||||
Cash and cash equivalents at end of period |
$ | 2,664,000 | $ | 6,541,000 | ||||
Supplemental disclosures of cash flow information: |
||||||||
Cash paid for interest during the period |
$ | 71,000 | $ | 27,000 |
See accompanying notes to consolidated financial statements.
5
FUSIONONE, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 2010 and December 31, 2009, and for the 6 months ended June 30, 2010 and 2009
(Unaudited)
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 2010 and December 31, 2009, and for the 6 months ended June 30, 2010 and 2009
(Unaudited)
1. The Company and Its Significant Accounting Policies
fusionOne, Inc. was incorporated in Delaware on May 19, 1998 and began operations on November
4, 1998 (inception). fusionOne, Inc. and its subsidiaries, fusionOne Esti ou and other minor
subsidiaries (collectively, the Company), provide internet synchronization technology and marketing
services that make information access seamless and simple across multiple communications and
computing devices across both compatible and traditionally incompatible systems. In addition, the
Company has expanded its technology to provide personal content management applications for mobile
phone users which includes affordable backup of the users address book, calendar, pictures and
downloaded content (Note 11).
Principles of consolidation
The condensed consolidated financial statements include the accounts of the Company and its
wholly-owned foreign subsidiaries. All significant intercompany transactions and balances have
been eliminated.
Estimates
The preparation of condensed consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at the date of the
condensed consolidated financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash equivalents
The Company considers all highly liquid investments with an original maturity from the date of
purchase of three months or less to be cash equivalents. As of June 30, 2010 and December 31,
2009, cash and cash equivalents consist of cash deposited with banks and money market funds. The
recorded carrying amount of cash equivalents approximates their fair value. The Company places its
cash equivalents with high credit-quality financial institutions.
Concentration of credit risk
Financial instruments that potentially subject the Company to concentrations of credit risk
consist primarily of cash and cash equivalents and accounts receivable.
Cash and cash equivalents, which at times exceed federally insured limits, are deposited in
money market accounts in high credit quality financial institutions. The Company performs ongoing
credit evaluations of its customers and recognizes an allowance for doubtful accounts to ensure
trade receivables are not overstated due to uncollectibility. The allowance for doubtful accounts
is determined based on a variety of factors, including the length of time receivables are past due,
macroeconomic conditions, significant one-time events and historical experience. Allowances are
recorded for individual accounts when the Company becomes aware of a customers inability to meet
its financial obligations, such as in the case of bankruptcy, deterioration in the customers
operating results or change in financial position. If circumstances related to customers change,
estimates of the recoverability of receivables would be further adjusted. As of June 30, 2010 and
December 31, 2009, the Company had an allowance for doubtful accounts of approximately $33,000 for
estimated credit losses. To date, the Company has not had a significant amount of bad debt
expense.
6
FUSIONONE, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 2010 and December 31, 2009, and for the 6 months ended June 30, 2010 and 2009
(Unaudited)
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 2010 and December 31, 2009, and for the 6 months ended June 30, 2010 and 2009
(Unaudited)
Sales and receivables from significant customers were as follows:
Revenue | Accounts receivable | |||||||||||||||
Six months ended June 30, | June 30, | December 31, | ||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Customer A |
96 | % | 78 | % | 49 | % | 56 | % | ||||||||
Customer B |
* | 19 | % | 43 | % | 40 | % |
* | Less than 10% |
Property and equipment
Property and equipment are stated at cost. Depreciation is computed on the straight-line
method based on the estimated useful lives of the respective assets, generally 36 months.
Leasehold improvements are amortized using the term of the related lease or the economic life of
the improvements, if shorter.
Long-lived assets
The Company reviews long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. No such
impairments have been identified to date.
Software development costs
Development costs incurred in the research and development of new software products are
expensed as incurred until technological feasibility of the product has been established. Software
development costs incurred after technological feasibility has been established are capitalized up
to the time the product is available for general release to customers. As of June 30, 2010 and
December 31, 2009, there were no amounts capitalized as the Companys current development process
is essentially completed concurrent with the establishment of technological feasibility.
Revenue recognition
The Company has revenue in several areas. The revenue recognition policy for each is as
follows:
Revenue from software license agreements is recognized when persuasive evidence of an
agreement exists, delivery of the product has occurred, the fee is fixed or determinable, and
collectibility is probable. Revenues from multiple element software arrangements are allocated to
each element of the arrangement based on the relative fair values of the elements, including
software licenses, maintenance, professional services and training. If evidence of the fair value
of one or more undelivered elements does not exist, revenue is deferred and recognized when
delivery of those elements occurs or when fair value can be established. Software maintenance
agreements provide technical support and the right to unspecified upgrades on an
if-and-when-available basis. Maintenance revenue is recognized ratably over the term of the
support period (generally one year), and training and other service revenues are recognized as the
related services are provided, unless there are customer acceptance provisions, in which case
revenue is deferred until acceptance. The unrecognized portion of amounts paid in advance for
licenses and services is recorded as deferred revenue.
Professional services revenues consist primarily of consulting, training, and integration and
customization fees charged for engineering services provided to customers and business partners for
customer-specific customization and enhancements to the Companys base products. These revenues
are either recognized upon attainment of specific milestones or when work is completed.
The Company recognizes revenue of subscription services for users of the synchronization
software on a monthly basis, based on the amount of individual subscribers within each month.
Stock-based compensation
The Company uses the estimated grant date calculated value method of accounting. The Company
recognizes these compensation costs on a straight-line basis over the requisite service period of
the award, which is generally the option vesting term of four years.
7
FUSIONONE, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 2010 and December 31, 2009, and for the 6 months ended June 30, 2010 and 2009
(Unaudited)
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 2010 and December 31, 2009, and for the 6 months ended June 30, 2010 and 2009
(Unaudited)
Research and development
Research and development costs are charged to operations as incurred.
Advertising
The Company expenses the costs of advertising, including promotional expenses, as incurred.
Advertising expenses for the six months ended June 30, 2010 and 2009 were approximately $97,000 and
$155,000, respectively.
Income taxes
Deferred tax liabilities and assets are recognized for the expected future tax consequences of
temporary differences between financial statement carrying amounts and the tax basis of assets and
liabilities and net operating loss (NOL) and tax credit carryforwards. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected to be realized.
Foreign currency translation
The functional currency of the Companys foreign subsidiaries is the local currency.
Accordingly, all assets and liabilities of the foreign operations are translated to U.S. dollars at
current period end exchange rates, and revenues and expenses are translated to U.S. dollars using
average exchange rates in effect during the period. The gains and losses from foreign currency
translation of the subsidiaries financial statements are recorded directly into a separate
component of consolidated stockholders equity (deficit) under the caption Accumulated other
comprehensive income (loss).
2. Significant Balance Sheet Components
Property and equipment
Property and equipment consisted of approximately the following at:
Property and equipment consisted of approximately the following at:
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Furniture and fixtures |
$ | 197,000 | $ | 230,000 | ||||
Computers and equipment |
7,238,000 | 7,335,000 | ||||||
Software |
2,463,000 | 2,464,000 | ||||||
Leasehold improvements |
| | ||||||
9,898,000 | 10,029,000 | |||||||
Less: accumulated depreciation and amortization |
(9,267,000 | ) | (9,021,000 | ) | ||||
$ | 631,000 | $ | 1,008,000 | |||||
Depreciation and amortization expense for the six months ended June 30, 2010 and 2009 was
approximately $377,000 and $553,000, respectively.
Included in property and equipment are leased assets aggregating approximately $728,000 at
June 30, 2010 and December 31, 2009, and the related accumulated amortization of approximately
$488,000 and $386,000 at June 30, 2010 and December 31, 2009, respectively.
In prior years, the Company received advances from a customer totaling approximately
$1,280,000 to purchase computer equipment to host software for the customer. The Company
capitalized the purchase of these assets and has recorded them in computers and equipment.
8
FUSIONONE, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 2010 and December 31, 2009, and for the 6 months ended June 30, 2010 and 2009
(Unaudited)
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 2010 and December 31, 2009, and for the 6 months ended June 30, 2010 and 2009
(Unaudited)
The advances have been included in customer advances in the condensed consolidated balance
sheets. The initial agreement with the customer required the transfer of the equipment to the
customer if the customer chose to purchase a perpetual license and transfer the hosting. The
customer purchased the perpetual license in 2007, but did not request transfer of the equipment or
a refund of the advances. The customer has not requested and has not released claims for the
equipment. Therefore, the Company continues to record the liability and related asset. The
Company has capitalized and is depreciating the equipment acquired and has recorded the advances
received as a liability at June 30, 2010 and December 31, 2009.
Accrued expenses
Accrued expenses consisted of approximately the following as of:
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Employee-related liabilities |
$ | 719,000 | $ | 907,000 | ||||
Professional fees |
538,000 | 325,000 | ||||||
Legal fees |
243,000 | | ||||||
Accrued sales tax |
347,000 | | ||||||
Other |
| 24,000 | ||||||
$ | 1,847,000 | $ | 1,256,000 | |||||
3. Deferred Revenue
In May 2008, the Company entered into an agreement for $3,000,000, whereby the Company is to
deliver multiple elements including a software license and maintenance support to a customer for a
term of five years. As of June 30, 2010, delivery of all elements has not occurred. As of June
30, 2010 and December 31, 2009, the Company has recorded the entire amount as long-term deferred
revenue.
In February 2009, the Company entered into an agreement for $12,000,000 whereby the Company
was to deliver licenses and a warrant valued at $6,000,000. As of December 31, 2009, the entire
$6,000,000 net of the license and warrant was recorded as short-term deferred revenue as delivery
had not occurred. As of June 30, 2010, the license was delivered and the net $6,000,000 was
recorded as revenue. The $6,000,000 was also classified as a warrant liability at June 30, 2010
and December 31, 2009 (Note 6).
In June 2009, the Company entered into an agreement for $3,435,000 whereby the Company was to
deliver multiple elements including licenses, professional services and maintenance for a term of
one year. As of June 30, 2010 and December 31, 2009, delivery of all elements had not occurred.
As of June 30, 2010 and December 31, 2009, the Company had billed a total of $2,535,000, and this
amount is recorded as short-term deferred revenue.
Also included in short-term deferred revenue as of June 30, 2010 and December 31, 2009 is
approximately $4,583,000 and $2,383,000, respectively, related to maintenance and service
agreements.
9
FUSIONONE, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 2010 and December 31, 2009, and for the 6 months ended June 30, 2010 and 2009
(Unaudited)
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 2010 and December 31, 2009, and for the 6 months ended June 30, 2010 and 2009
(Unaudited)
4. Financing Arrangements
Accounts receivable line of credit
In April 2009, the Company entered into a line of credit agreement with a bank which provided
for borrowings of up to $2,000,000 on a non-formula basis and 80% of eligible accounts receivable
up to a total of $5,000,000. Draw downs on the line of credit were only available until April
2010. The line of credit bore interest at prime plus 1.75% (5.75% at December 31, 2009) and was
secured by all of the Companys assets, excluding intellectual property. In December 2009, the
Company drew down $2,000,000 against the line of credit. The Company was making monthly interest
payments of approximately $10,000 and the outstanding borrowings were originally due in full in
December 2010. The Company repaid the entire outstanding amount during June 2010.
Capital lease obligations
During 2008, the Company entered into capital lease agreements to finance the acquisition of
property and equipment (primarily computers and software) valued at approximately $728,000. These
agreements require monthly payments of approximately $22,000, including interest that ranges from
5.1% to 7.1%, and expire at various dates from August 2010 through October 2011. The related
assets secure these leases.
Future payments required under these leases are approximately as follows:
Years ending June 30: |
||||
2010 |
$ | 170,000 | ||
2011 |
3,000 | |||
173,000 | ||||
Less: interest portion |
(3,000 | ) | ||
170,000 | ||||
Less: current portion |
(167,000 | ) | ||
$ | 3,000 | |||
5. Related Party Transactions
As of June 30, 2010 and December 31, 2009, the Company has two non-recourse secured promissory
notes (the Notes) outstanding from advances to a former employee. The Notes, with a face value of
approximately $132,000 and $553,000, accrue interest at 5% and 8%, respectively. Under the Notes,
the principal and accrued interest are payable upon the earlier of: (i) 30 days following the date
at which the shares of common stock of the Company owned by the employee are eligible for sale by
the employee either under Rule 144 of the Securities Act of 1933, as amended, or upon a
registration statement on Form S-1, (ii) 60 days following the employees sale of shares of common
stock of the Company in connection with a change in control event as defined in the Notes or (iii)
June 6, 2011. As of June 30, 2010, $796,000 is outstanding on these Notes, including accrued
interest, and the amounts are fully reserved. The Notes are secured by the employees shares of
Company common stock and all dividends on such shares. As a result of the acquisition of the
Company as described in Note 11, the Company received approximately $45,000 in partial repayment of
these Notes. A portion of the remaining $751,000 may be collected by the Company if the remainder
of the purchase price of the Company is realized as a result of meeting certain financial targets
for the period from July 1, 2010 through December 31, 2011.
10
FUSIONONE, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 2010 and December 31, 2009, and for the 6 months ended June 30, 2010 and 2009
(Unaudited)
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 2010 and December 31, 2009, and for the 6 months ended June 30, 2010 and 2009
(Unaudited)
6. Stockholders Equity
Under the amended and restated Certificate of Incorporation dated March 30, 2006, and the
second certificate of amendment to the seventh amended and restated Certificate of Incorporation
dated May 5, 2009, the Company is authorized to issue 165,000,000 shares of common stock and
105,673,945 shares of convertible preferred stock. The convertible preferred stock has been
designated as 3,668,085 shares of Series A convertible preferred stock (Series A), 5,493,617
shares of Series B convertible preferred stock (Series B), 14,059,814 shares of Series C
convertible preferred stock (Series C), 15,952,429 shares of Series D convertible preferred stock
(Series D) and 66,500,000 shares of Series A-1 convertible preferred stock (Series A-1). Common
stock and convertible preferred stock have a par value of $0.001.
As of June 30, 2010, convertible preferred stock consisted of the following:
Shares | ||||||||||||
Shares | issued and | Liquidation | ||||||||||
authorized | outstanding | amount | ||||||||||
Series A |
3,668,085 | 3,638,298 | $ | 117,000 | ||||||||
Series B |
5,493,617 | 5,453,176 | 507,000 | |||||||||
Series C |
14,059,814 | 14,044,495 | 3,450,000 | |||||||||
Series D |
15,952,429 | 15,952,429 | 5,926,000 | |||||||||
Series A-1 |
66,500,000 | 64,084,505 | 18,200,000 | |||||||||
105,673,945 | 103,172,903 | $ | 28,200,000 | |||||||||
The significant features of the Companys convertible preferred stock are as follows:
Dividend provisions
The holders of Series A, Series B, Series C, Series D and Series A-1 are entitled to receive
noncumulative dividends prior and in preference to any declaration or payment of any dividend for
the common shares at the rates of $0.0025, $0.0074, $0.0197, $0.0297 and $0.0114 per share,
respectively, when and if declared by the Board of Directors. No dividends have been declared by
the Board of Directors from November 4, 1998 (inception) through June 30, 2010.
Liquidation preference
In the event of any liquidation, dissolution or winding-up of the Company, the holders of
Series A-1 are entitled to receive an amount equal to $0.284 per share plus any declared but unpaid
dividends prior to and in preference to any distribution to the holders of other preferred stock
and the holders of common stock. After payment has been made to the holders of Series A-1, the
holders of Series A, Series B, Series C and Series D are entitled to receive an amount equal to
$0.0322, $0.0930, $0.2456 and $0.3715 per share, respectively, plus any declared but unpaid
dividends prior to and in preference to any distribution to the holders of common stock.
After payment has been made to the holders of Series A-1, Series A, Series B, Series C and
Series D, any remaining assets and funds are to be distributed ratably among the holders of common
stock, Series A-1, Series C and Series D, provided, however, that the holders of Series C and
Series D shall in no event receive an amount (including all amounts received as summarized in the
preceding paragraph) greater than $0.4912 and $0.7430, respectively, per share.
A merger, consolidation, or the sale, conveyance or other disposition of all or substantially
all of the assets of the Company in which the stockholders of the Company immediately prior to the
transaction do not possess more than 50% of the voting power of the surviving entity immediately
after the transaction shall be deemed to be a liquidation or winding-up of the Company.
Conversion rights
Each share of Series A, Series B, Series C, Series D and Series A-1, at the option of the
holder, and at any time after the date of issuance, is convertible into one fully paid and
non-assessable share of common stock. The conversion rate results from dividing the conversion
value plus any declared but unpaid dividends on one preferred share by the conversion price at the
time of conversion. The per share conversion rate for Series A and Series B is two-for-one and for
Series C, Series D and Series A-1 is one-for-one as of June 30, 2010.
11
FUSIONONE, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 2010 and December 31, 2009, and for the 6 months ended June 30, 2010 and 2009
(Unaudited)
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 2010 and December 31, 2009, and for the 6 months ended June 30, 2010 and 2009
(Unaudited)
Conversion is automatic at its then-effective conversion rate upon the earlier to occur of:
(i) the closing of a firm commitment underwritten public offering of the Companys common stock at
an aggregate sale price of such securities of not less than $20,000,000 or (ii) the consent of the
holders of the majority of Series A, Series B, Series C or Series D or the holders of at least
two-thirds of Series A-1.
Voting rights
Each share of Series A, Series B, Series C, Series D and Series A-1 has voting rights equal to
an equivalent number of shares of common stock into which it is convertible at the record date and
votes together as one class with common stock.
The holders of Series A, Series B, Series A-1 and common stock are each entitled, voting as a
single class, to elect one member of the Board of Directors (a total of four). The holders of a
majority of the convertible preferred stock and the holders of a majority of the common stock, each
voting as a separate class, are entitled to elect all remaining members of the Board of Directors.
Warrants
As of June 30, 2010, the Company had the following outstanding warrants:
Warrant | ||||||||||||
Issuance | Type of | Number of | Price | Expiration | ||||||||
date | stock | warrant shares | per share | date | ||||||||
October 2002 |
Common stock | 150,000 | $ | 1.50 | October 2012 | |||||||
August 2006 |
Series A-1 | 450,000 | $ | 0.14 | August 2016 | |||||||
January 2008 |
Series A-1 | 1,599,000 | $ | 0.01 | January 2013 | |||||||
December 2008 |
To be determined | To be determined | $ | 0.01 | January 2019 | |||||||
July 2009 |
Series A-1 | 352,112 | $ | 0.14 | July 2019 |
In December 2008, the Company issued a performance based warrant in connection with a customer
agreement that was finalized in February 2009. The number of shares that may be acquired under
this warrant will be determined by dividing $6,000,000 by the lowest price per share paid by any
third party in the first qualified issuance, as defined, aggregating not less than $7,000,000, to
take place after the warrant was issued. In order for the warrant to vest, the warrant holder had
to fulfill defined performance objectives. These performance objectives were met in early 2009.
If no qualified issuance has occurred by May 2011, the warrant holder has the right to either
immediately terminate the warrant or allow the warrant to remain in effect. If the warrant holder
elects to terminate the warrant, the Company is obligated to provide a credit equal to $6,000,000
against any and all future fees and expenses to be paid by the warrant holder over a period of two
years.
As a result of the acquisition of the Company, as described in Note 11, approximately
$3,500,000 in cash was paid to the warrant holder in exchange for cancellation of the warrant. In
addition, the warrant holder will participate in the possible additional payment to be made by the
buyer, if any, and has the right to receive 11.4% of such amounts, not to exceed an additional
$4,000,000 (Note 11).
In connection with a line of credit agreement in April 2009, the Company issued warrants to
purchase 352,112 shares of Series A-1 at a purchase price of $0.0142 per share. The fair value of
the warrants, determined using Black-Scholes option pricing model, of approximately $37,000 was
capitalized as prepaid loan costs and was expensed as additional interest over the one year term of
the line of credit agreement. Amortization of this amount recorded as interest expense was
approximately $11,000 and $8,000 for the six months ended June 30, 2010 and 2009, respectively.
7. Stock Option Plan
Stock-based compensation expense for all share-based payment awards granted after January 1,
2006, and for previous awards modified, repurchased or cancelled after January 1, 2006, is based on
the grant-date calculated value. The Company recognizes these compensation costs, net of an
estimated forfeiture rate, and recognizes the compensation costs for only those shares expected to
vest on a straight-line basis over the requisite service period of the award, which is generally
the option vesting term of four years. The Company estimated the forfeiture rate for the six
months period ended June 30, 2010 and 2009 based on its historical experience for annual grant
years where the majority of the vesting terms have been satisfied.
12
FUSIONONE, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 2010 and December 31, 2009, and for the 6 months ended June 30, 2010 and 2009
(Unaudited)
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 2010 and December 31, 2009, and for the 6 months ended June 30, 2010 and 2009
(Unaudited)
For the six months ended June 30, 2010 and 2009, the Company recorded stock-based compensation
of approximately $112,000 and $132,000, respectively.
In December 2008, the Company adopted the 2008 Equity Incentive Plan (the 2008 Plan). The
Company initially reserved 4,886,710 shares of common stock for issuance under the 2008 Plan. As a
result of the acquisition of the Company as described in Note 11, the 2008 Plan was terminated.
Previously, the Company had adopted the 1998 Equity Incentive Plan (the 1998 Plan). In 2008, the
1998 Plan expired. Prior to the 1998 Plan expiration, there were 39,701,150 shares of common stock
reserved for issuance. In March 2010, the 2008 Plan was amended to increase the number of shares
available for issuance to 5,663,087 shares plus any shares of common stock underlying any grants
under the Companys 1998 Plan which are cancelled or terminated (other than exercised), forfeited
back to or repurchased by the Company from and after March 1, 2010. The plans provide for the
granting of stock options to employees, directors and consultants of the Company. Options granted
under the plans were either incentive stock options (ISO) or nonqualified stock options (NSO).
ISOs were granted only to Company employees (including officers and directors who were also
employees). NSOs were granted to Company employees and consultants.
Options issued under the plans are exercisable for periods up to ten years after the issuance
date and at prices determined by the Board of Directors, provided, however, that: (i) the exercise
price of an ISO and NSO cannot be less than 100% and 85%, respectively, of the estimated fair value
of the shares on the date of the grant and (ii) the exercise price of an ISO and NSO granted to a
10% stockholder cannot be less than 110% of the estimated fair value of the shares on the date of
grant. Options granted under the plans generally vest 1/4 on the first anniversary of the vesting
commencement date, and an additional 1/48 of the total number of shares subject to the option on
the anniversary date of each calendar month thereafter, until all shares have vested.
All options issued under the plans are immediately exercisable. If exercised prior to
vesting, the shares are subject to buy back provisions by the Company. These buy back rights lapse
over the same vesting period as the original option. As of June 30, 2010, there are no shares
subject to buy back.
13
FUSIONONE, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 2010 and December 31, 2009, and for the 6 months ended June 30, 2010 and 2009
(Unaudited)
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 2010 and December 31, 2009, and for the 6 months ended June 30, 2010 and 2009
(Unaudited)
A summary of stock option activity for the 2008 Plan and the 1998 Plan is as follows:
Weighted | Weighted average | |||||||||||
average | remaining | |||||||||||
exercise price | contractual life | |||||||||||
Shares | per share | (in years) | ||||||||||
Outstanding at December 31, 2008 |
27,938,657 | $ | 0.05 | 9.07 | ||||||||
Options granted |
3,006,000 | $ | 0.05 | |||||||||
Options exercised |
(132,620 | ) | $ | 0.05 | ||||||||
Options cancelled/forfeited/expired |
(2,317,177 | ) | $ | 0.09 | ||||||||
Outstanding at December 31, 2009 |
28,494,860 | $ | 0.05 | 8.27 | ||||||||
Options granted |
2,457,491 | $ | 0.04 | |||||||||
Options exercised |
(896,852 | ) | $ | 0.04 | ||||||||
Options cancelled/forfeited/expired |
(1,344,424 | ) | $ | 0.05 | ||||||||
Outstanding at June 30, 2010 |
28,711,075 | $ | 0.04 | 7.94 | ||||||||
Vested and expected to vest at
June 30, 2010 (1) |
27,573,130 | $ | 0.05 | 7.91 | ||||||||
Vested at June 30, 2010 |
17,210,874 | $ | 0.05 | 7.63 |
(1) | The expected to vest options are the result of applying the pre-vesting forfeiture
rate assumptions to total outstanding options. |
The total pretax intrinsic value of options exercised during the six month ended June 30, 2010
and 2009 was $8,900 and zero, respectively. The intrinsic value is the difference between the
estimated fair value of the Companys common stock at the date of exercise and the exercise price
for in-the-money options. The weighted average grant date calculated value of options granted
during the six months ended June 30, 2010 and 2009 was $0.03 for both periods.
As of June 30, 2010, there was approximately $275,000 of unamortized stock-based compensation
cost related to unvested stock options which is expected to be recognized over a weighted average
period of two years.
14
FUSIONONE, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 2010 and December 31, 2009, and for the 6 months ended June 30, 2010 and 2009
(Unaudited)
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 2010 and December 31, 2009, and for the 6 months ended June 30, 2010 and 2009
(Unaudited)
The calculated value of option grants was estimated using the Black-Scholes option pricing
model with the following weighted average assumptions for the six months ended June 30:
2010 | 2009 | |||||||
Expected dividend yield (1) |
0 | % | 0 | % | ||||
Risk-free interest rate (2) |
2 | % | 2.16% - 3.64 | % | ||||
Expected volatility (3) |
75 | % | 75 | % | ||||
Expected life (in years) (4) |
6.25 | 6.25 |
(1) | The Company has no history or expectation of paying cash dividends on its common stock. |
|
(2) | The risk-free interest rate is based on the U.S. Treasury yield for a term consistent with
the expected life of the awards in effect at the time of grant |
|
(3) | The volatility of the Company stock is based on three similar publicly traded companies. The
Company used the average volatility rate of the three companies. |
|
(4) | The expected life represents the period of time that options granted are expected to be
outstanding. |
8. Benefit Plans
The Company has established a 401(k) tax-deferred savings plan (the 401(k) Plan) which permits
participants to make contributions by salary deduction pursuant to Section 401(k) of the Internal
Revenue Code (the Code). The Company may, at its discretion, make matching contributions to the
plan. Furthermore, the Company is responsible for administrative costs of the 401(k) Plan. For
the six months ended June 30, 2010 and 2009, the Company made no employer contributions to the
401(k) Plan.
9. Income Taxes
The Company has no estimated U.S. tax liability for the six months ended June 30, 2010 or 2009
as a result of the net losses of the Company during these periods and the availability of tax NOL
carryforwards.
There is no tax liability in Estonia as companies do not pay income tax on profits in that
country.
In 2009, the Company adopted a new accounting standard relevant to uncertain tax positions.
The guidance prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be taken in a tax
return. A tax position is recognized when it is more-likely-than-not that the tax position will be
sustained upon examination, including resolution of any related appeals or litigation processes. A
tax position that meets the more-likely-than-not recognition threshold is measured at the largest
amount of benefit that is greater than 50% likely of being realized upon ultimate settlement with a
taxing authority. The standard also provides guidance on derecognition of tax benefits,
classification on the balance sheet, interest and penalties, accounting in interim periods,
disclosure, and transition.
Realization of deferred tax assets is dependent upon future earnings, the timing and amount of
which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a
valuation allowance. As of December 31, 2009, the Company had NOL carryforwards for federal and
state tax purposes of approximately $162,000,000 and $116,000,000, respectively. The NOL
carryforwards will expire at various dates beginning in the years 2020 (federal) and 2010 (state),
unless previously utilized. The Company also has federal and state research and development tax
credit carryforwards of approximately $2,000,000. The federal tax credits will expire at various
dates beginning in the year 2018, unless previously utilized. The state tax credits do not expire
and will carry forward indefinitely until utilized.
15
FUSIONONE, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 2010 and December 31, 2009, and for the 6 months ended June 30, 2010 and 2009
(Unaudited)
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 2010 and December 31, 2009, and for the 6 months ended June 30, 2010 and 2009
(Unaudited)
Utilization of the NOL and tax credit carryforwards may be subject to a substantial annual
limitation due to ownership change limitations that may have occurred or that could occur in the
future, as required by the Code, as well as similar state provisions. In general, an ownership
change as defined by the Code results from a transaction or series of transactions over a
three-year period resulting in an ownership change of more than 50 percentage points of the
outstanding stock of a company by certain stockholders or public groups. Since the Companys
formation, the Company has raised capital through the issuance of capital stock on several
occasions which, combined with the purchasing stockholders subsequent disposition of those shares,
may have resulted in such an ownership change, or could result in an ownership change in the future
upon subsequent disposition. The annual limitation may result in the expiration of net operating
loss and tax credit carryforwards before utilization.
The Company has not completed a study to assess whether an ownership change has occurred or
whether there have been multiple ownership changes since the Companys formation due to the
complexity and cost associated with such a study, and the fact that there may be additional such
ownership changes in the future. If the Company has experienced an ownership change at any time
since its formation, utilization of the NOL or tax credit carryforwards to offset future taxable
income and taxes, respectively, would be subject to an annual limitation under the Code, which is
determined by first multiplying the value of the Companys stock at the time of the ownership
change by the applicable long-term, tax-exempt rate, and then could be subject to additional
adjustments, as required. Any limitation may result in expiration of all or a portion of the NOL
or tax credit carryforwards before utilization. Until a study is completed and any limitation
known, no amounts of NOLs and tax credit carryforwards are being considered as an uncertain tax
position or disclosed as unrecognized tax benefits since no benefits have been realized to date.
The deferred tax assets related to these loss and tax credit carryforwards and the offsetting
valuation allowances are not included in the deferred tax assets in the condensed consolidated
financial statements. These amounts are no longer recognized until they can be measured after an
ownership change analysis is completed. The Company maintains a full valuation allowance for other
deferred tax assets due to its historical losses and uncertainties surrounding its ability to
generate future taxable income to realize these assets. Due to the existence of the valuation
allowance, future changes in the Companys unrecognized tax benefits and recognizable deferred tax
benefits after the completion of an ownership change analysis is not expected to impact its
effective tax rate.
A number of the Companys tax returns remain subject to examination by taxing authorities.
These include U.S. federal returns for 2006 and later years, tax returns for certain states for
2005 and later years and tax returns in certain jurisdictions outside of the U.S. for 2006 and
later years.
10. Commitments
Operating leases The Company leases its United States and Estonian facilities under
operating leases expiring in August 2012 and December 2014, respectively. Rent expense related to
the Companys operating leases was approximately $312,000 and $327,000 for six months ended June
30, 2010 and 2009, respectively. Future minimum payments under noncancelable leases are
approximately as follows:
Years ending June 30: |
||||
2011 |
$ | 583,000 | ||
2012 |
470,000 | |||
2013 |
244,000 | |||
2014 |
244,000 | |||
$ | 1,541,000 | |||
11. Acquisition
On July 19, 2010 the Company was acquired by Synchronoss Technologies, Inc. (Synchronoss). The
purchase price for the Company was approximately $32,000,000 in cash and approximately $8,000,000
in common stock of Synchronoss. In addition, the purchase price may increase by up to $35,000,000
in cash and common stock of Synchronoss based on the Company achieving certain financial targets
for the period from July 1, 2010 through December 31, 2011. In connection with the acquisition,
Synchronoss has also decided to exit from Estonia activities as they explore cost synergies with
the merger.
16