Exhibit 99.1
SVOX AG AND SUBSIDIARIES
Interim Consolidated Financial Statements
March 31, 2011
SVOX AG
INDEX TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Page | ||||
Interim Consolidated Statements of Operations for the three months ended March 31, 2011 and 2010 | 3 | |||
Interim Consolidated Balance Sheets at March 31, 2011 and December 31, 2010 | 4 | |||
Interim Consolidated Statements of Stockholders’ Deficit and Comprehensive Loss for the three months ended March 31, 2011 | 5 | |||
Interim Consolidated Statements of Cash Flows for the three months ended March 31, 2011 and 2010 | 6 | |||
Notes to Unaudited Interim Consolidated Financial Statements | 7 - 10 |
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SVOX AG
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
(Unaudited) | ||||||||
Revenues | $ | 4,107,308 | $ | 2,696,134 | ||||
Cost of revenues | 344,060 | 149,273 | ||||||
Amortization of intangible assets | 82,731 | 83,853 | ||||||
Total cost of revenues | 426,791 | 233,126 | ||||||
Gross profit | 3,680,517 | 2,463,008 | ||||||
Operating expenses: | ||||||||
Research and development | 2,901,795 | 2,899,604 | ||||||
Sales and marketing | 1,154,400 | 509,338 | ||||||
General and administrative | 1,174,458 | 705,073 | ||||||
Amortization of intangible assets | 89,575 | 70,472 | ||||||
Total operating expenses | 5,320,228 | 4,184,487 | ||||||
Loss from operations | (1,639,711 | ) | (1,721,479 | ) | ||||
Other income (expense): | ||||||||
Interest income | 326 | 168 | ||||||
Interest expense | (15,182 | ) | — | |||||
Other income, net | 128,733 | 45,108 | ||||||
Loss before income taxes | (1,525,834 | ) | (1,676,203 | ) | ||||
Income tax benefit | 20,159 | 30,369 | ||||||
Net loss | $ | (1,505,675 | ) | $ | (1,645,834 | ) | ||
See accompanying notes to unaudited interim consolidated financial statements.
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SVOX AG
INTERIM CONSOLIDATED BALANCE SHEETS
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
ASSETS | (Unaudited) | |||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 730,853 | $ | 452,003 | ||||
Accounts receivable, net | 1,996,242 | 1,980,692 | ||||||
Other current assets | 450,842 | 666,865 | ||||||
Total current assets | 3,177,937 | 3,099,560 | ||||||
Intangible assets, net | 1,613,949 | 1,703,472 | ||||||
Property and equipment, net | 839,701 | 851,992 | ||||||
Other assets | 870,818 | 549,247 | ||||||
Total assets | $ | 6,502,405 | $ | 6,204,271 | ||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 922,822 | $ | 210,246 | ||||
Deferred revenue | 8,093,359 | 6,773,333 | ||||||
Accrued expenses | 3,217,933 | 2,823,472 | ||||||
Due to bank | 1,422,789 | 1,329,130 | ||||||
Other current liabilities | 212,502 | 317,509 | ||||||
Total current liabilities | 13,869,405 | 11,453,690 | ||||||
Deferred revenue, less current portion | 5,485,079 | 5,870,239 | ||||||
Pension liabilities | 1,733,760 | 1,628,271 | ||||||
Other noncurrent liabilities | 307,590 | 327,098 | ||||||
Total liabilities | 21,395,834 | 19,279,298 | ||||||
Commitments and contingencies | — | — | ||||||
Stockholders’ deficit: | ||||||||
Common stock, CHF 1 par value; 149,940 shares authorized; 129,540 shares issued and outstanding | 121,704 | 121,704 | ||||||
Preferred stock (B Series), CHF 1 par value; 74,025 shares authorized, issued and outstanding (liquidation preference $2,818,123 as of March 31, 2011) | 69,547 | 69,547 | ||||||
Preferred stock (C Series), CHF 1 par value; 143,457 shares authorized, issued and outstanding (liquidation preference $4,368,379 as of March 31, 2011) | 134,779 | 134,779 | ||||||
Additional paid-in capital | 4,810,639 | 4,810,639 | ||||||
Retained deficit | (17,807,681 | ) | (16,302,006 | ) | ||||
Accumulated other comprehensive loss | (2,222,417 | ) | (1,909,690 | ) | ||||
Total stockholders’ deficit | (14,893,429 | ) | (13,075,027 | ) | ||||
Total liabilities and stockholders’ deficit | $ | 6,502,405 | $ | 6,204,271 | ||||
See accompanying notes to unaudited interim consolidated financial statements.
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SVOX AG
INTERIM CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT AND COMPREHENSIVE LOSS
(Unaudited)
Accumulated | ||||||||||||||||||||||||||||||||||||||||
Preferred Stock | Preferred Stock | Additional | Other | Total | ||||||||||||||||||||||||||||||||||||
Common Stock | (B Series) | (C Series) | Paid-in | Retained | Comprehensive | Stockholders’ | ||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Loss | Deficit | |||||||||||||||||||||||||||||||
Balance at January 1, 2011 | 129,540 | $ | 121,704 | 74,025 | $ | 69,547 | 143,457 | $ | 134,779 | $ | 4,810,639 | $ | (16,302,006 | ) | $ | (1,909,690 | ) | $ | (13,075,027 | ) | ||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | (1,505,675 | ) | — | (1,505,675 | ) | ||||||||||||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | — | — | — | — | (312,727 | ) | (312,727 | ) | ||||||||||||||||||||||||||||
Total comprehensive loss | — | — | — | — | — | — | — | — | — | (1,818,402 | ) | |||||||||||||||||||||||||||||
Balance at March 31, 2011 | 129,540 | $ | 121,704 | 74,025 | $ | 69,547 | 143,457 | $ | 134,779 | $ | 4,810,639 | $ | (17,807,681 | ) | $ | (2,222,417 | ) | $ | (14,893,429 | ) | ||||||||||||||||||||
The total comprehensive loss for the three month period ended March 31, 2010 was $1,633,219.
See accompanying notes to unaudited interim consolidated financial statements.
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SVOX AG
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
(Unaudited) | ||||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (1,505,675 | ) | $ | (1,645,834 | ) | ||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
Depreciation of property and equipment | 107,952 | 49,198 | ||||||
Amortization of intangible assets | 172,306 | 154,325 | ||||||
Deferred taxes and other | (341,542 | ) | (14,436 | ) | ||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 11,204 | 325,113 | ||||||
Other current assets | 170,203 | (54,354 | ) | |||||
Accounts payables | 714,052 | 28,356 | ||||||
Deferred revenue | 758,103 | 1,342,681 | ||||||
Accrued expenses | 370,063 | (792,510 | ) | |||||
Other current liabilities | (136,621 | ) | (217,172 | ) | ||||
Other non-current liabilities | (20,518 | ) | 189,672 | |||||
Net cash provided by (used in) operating activities | 299,527 | (634,961 | ) | |||||
Cash flows from investing activities: | ||||||||
Payments for purchase of property and equipment | (35,822 | ) | (26,208 | ) | ||||
Proceeds from the sale of property and equipment | 319 | — | ||||||
Payments for purchase of intangible assets | (2,039 | ) | — | |||||
Net cash used in investing activities | (37,542 | ) | (26,208 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from borrowings | — | — | ||||||
Net cash provided by financing activities | — | — | ||||||
Effect of exchange rate changes on cash and cash equivalents | 16,865 | (90,028 | ) | |||||
Net increase (decrease) in cash and cash equivalents | 278,850 | (751,197 | ) | |||||
Cash and cash equivalents at beginning of period | 452,003 | 2,305,853 | ||||||
Cash and cash equivalents at end of period | $ | 730,853 | $ | 1,554,656 | ||||
Supplemental Cash Flow Information: | ||||||||
Cash paid for interest | $ | 15,182 | $ | — | ||||
Cash paid for income taxes | $ | — | $ | 33,129 |
See accompanying notes to unaudited interim consolidated financial statements.
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SVOX AG
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Presentation
The consolidated interim financial statements include the accounts of SVOX AG (“SVOX”, “we”, or the “Company”) and our wholly-owned subsidiaries. We prepared these unaudited interim consolidated financial statements in accordance with U.S. generally accepted accounting principles (GAAP) for interim periods. In our opinion, these financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of our results for the periods disclosed. Intercompany transactions have been eliminated.
Although we believe the disclosures in these financial statements are adequate to make the information presented not misleading, certain information normally included in the footnotes prepared in accordance with GAAP has been omitted. Accordingly, these financial statements should be read in conjunction with our audited financial statements for the year ended December 31, 2010 and the notes thereto. Interim results are not necessarily indicative of the results that may be expected for a full year.
2. Summary of Significant Accounting Policies
We have made no material changes to the significant accounting policies disclosed in our audited financial statements for the year ended December 31, 2010.
Fair Value Measures
We have adopted the provisions of ASC 820Fair Value Measurement,relative to financial instruments. ASC 820 defines fair value, establishes a framework for measuring fair value, and enhances disclosures about fair value measurements. Fair value is defined as the price that would be received for an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. Valuation techniques must maximize the use of observable inputs and minimize the use of unobservable inputs.
ASC 820 establishes a value hierarchy based on three levels of inputs, of which the first two are considered observable and the third is considered unobservable:
• | Level 1.Quoted prices for identical assets or liabilities in active markets which we can access. | ||
• | Level 2.Observable inputs other than those described as Level 1. | ||
• | Level 3.Unobservable inputs. |
We believe that the carrying amounts of financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and revolving credit facility, are in the financial statements at amounts that approximate their fair value based on the short maturities of these financial instruments.
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SVOX AG
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
3. Intangible Assets, Net
Intangible assets, net consisted of the following as of March 31, 2011 and December 31, 2010, respectively:
March 31, 2011 | ||||||||||||||||
Weighted average | Gross carrying | Accumulated | ||||||||||||||
amortization period | amount | amortization | Net carrying amount | |||||||||||||
Customer relationships | 3-years | $ | 814,922 | $ | (596,121 | ) | $ | 218,801 | ||||||||
Technology | 5-years | 1,731,358 | (759,900 | ) | 971,458 | |||||||||||
Databases and other | 5-years | 512,164 | (88,475 | ) | 423,689 | |||||||||||
Total | $ | 3,058,444 | $ | (1,444,496 | ) | $ | 1,613,948 | |||||||||
December 31, 2010 | ||||||||||||||||
Weighted average | Gross carrying | Accumulated | ||||||||||||||
amortization period | amount | amortization | Net carrying amount | |||||||||||||
Customer relationships | 3-years | $ | 768,237 | $ | (498,828 | ) | $ | 269,409 | ||||||||
Technology | 5-years | 1,632,171 | (635,876 | ) | 996,295 | |||||||||||
Databases and other | 5-years | 499,750 | (61,982 | ) | 437,768 | |||||||||||
Total | $ | 2,900,158 | $ | (1,196,686 | ) | $ | 1,703,472 | |||||||||
Amortization expense for acquired technology is included in the cost of revenue from amortization of intangible assets in the accompanying statements of operations and amounted to $82,731 and $83,853 during the three months ended March 31, 2011 and 2010, respectively. Amortization expense for customer relationships and other intangible assets is included in operating expenses and was $89,575 and $70,472 during the three months ended March 31, 2011 and 2010.
4. Property and Equipment, Net
Property and equipment, net consisted of the following as of March 31, 2011 and December 31, 2010, respectively:
Useful | March 31, | December 31, | ||||||||||
Lives | 2011 | 2010 | ||||||||||
Machinery and equipment | 5 years | $ | 233,241 | $ | 225,531 | |||||||
Computers, software and equipment | 3-5 years | 1,322,828 | 1,242,508 | |||||||||
Leasehold improvements | 5 years | 67,795 | 65,315 | |||||||||
Furniture and fixtures | 5 years | 228,774 | 217,538 | |||||||||
1,852,638 | 1,750,892 | |||||||||||
Less accumulated depreciation | (1,012,937 | ) | (898,900 | ) | ||||||||
Property and equipment, net | $ | 839,701 | $ | 851,992 | ||||||||
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SVOX AG
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Depreciation expense was $107,952 and $49,198 for the three months ended March 31, 2011 and 2010, respectively.
5. Credit Facilities and Debt
In October 2009, we entered into a new credit facility with the Neue Aargauer Bank (the “Bank”) for €2,500,000 million revolving credit line (the “Credit Facility”). As of March 31, 2011, we had $2,138,986 outstanding under the revolving credit line, of which $716,197 was bank overdraft and $1,422,789 short-term term loan. The remaining availability under the Credit Facility was approximately $1,417,000. The interest rate as of March 31, 2011 was 6.0% per annum for the bank overdraft and 2.4% per annum for the short-term term loan.
The Credit Facility contains restriction on the minimum level of tangible net worth of CHF 2,500,000, as determined under local Swiss accounting rules, which has to be maintained at all times. Tangible net worth is defined as the sum of share capital, share premium, retained earnings, and subordinated loans, less capitalized software development costs and other intangible assets as determined under Swiss accounting rules. As of March 31, 2011, we were not in compliance with this requirement. See Note 9 for further information.
6. Pension and Post-Retirement Benefits
We sponsor defined benefit pension plans in Switzerland and Germany for substantially all employees. The net periodic benefit cost of the pension plans, which includes service cost, interest cost, and expected return on plan assets, were $151,043 and $116,241 for the three months ended March 31, 2011 and 2010, respectively.
We contributed $91,427 and $90,794 to our pension plans during the three months ended March 31, 2011 and 2010, respectively. Based on current actuarial estimates and market conditions as of March 31, 2011, we do not expect to be required to make a minimum contribution to our pension plans until 2012. The actual level of contribution required in future years can change significantly depending on discount rates and actual returns on plan assets.
7. Commitments and Contingencies
From time to time, we may be involved in various legal proceedings arising from the normal course of business activities, including claims of alleged infringement of third-party patents and other intellectual property rights, commercial employment and other matters. We make a provision for a liability related to legal proceedings when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated.
8. Income Taxes
The effective income tax rate was a tax benefit of 1.3% and 1.8% for the three months ended March 31, 2011 and 2010, respectively. The income tax benefit for the three months ended March 31, 2011 and 2010 relate principally to taxes in foreign jurisdictions. No tax benefit was recognized on the Swiss losses for the three months ended March 31, 2011 and 2010 as the realization of such benefit was not more likely than not.
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SVOX AG
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
9. Subsequent events
On June 16, 2011, we were acquired by Nuance Communications, Inc. (“Nuance”), and Ruetli Holding Corporation, a wholly-owned subsidiary of Nuance (“Purchaser”). Pursuant to the terms of the Purchase Agreement, the Purchaser acquired all of our outstanding capital stock payable to the former stockholders of the Company for an aggregated consideration of €87 million ($124.3 million), of which €57 million ($81.3 million) was paid in cash at the closing, (ii) €8.3 million ($11.9 million) is payable in cash or shares of Nuance common stock on the first anniversary of the closing and (iii) €21.7 million ($31.1 million) is payable in cash or shares of Nuance common stock on or before December 31, 2012.
As of March 31, 2011, we were not in compliance with the tangible net worth restriction of CHF 2,500,000, as determined under local Swiss accounting rules, included under the 2009 Credit Facility with Neue Aargauer Bank. In June 2011, subsequent to the Nuance acquisition, Neue Aargauer Bank waived the covenant violation and the amounts outstanding under the 2009 Credit Facility were repaid in full.
We have evaluated subsequent events from the balance sheet date through July 27, 2011, the date at which the financial statements were available to be issued, and determined there were no other items to disclose.
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