Acquisition | 2. Acquisition On August 18, 2015 the Company and Sync Holdings, LLC, its wholly-owned subsidiary, entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Zimbra, Inc. (now known as TZ Holdings) to acquire certain assets related to its email collaboration products and services business, including certain of its wholly-owned foreign subsidiaries. The business acquired by the Company pursuant to the Asset Purchase Agreement is referred to herein as “Zimbra” or the Purchased Business. Zimbra connects hundreds of millions of people and information with unified collaboration software that includes email, calendaring, file sharing, activity streams, social networks and more. Zimbra’s software is used globally by service providers, governments and companies. The Company completed the acquisition (the “Acquisition”) on September 14, 2015 (the “Closing”). Purchase Price – Contingent Consideration – In addition to the Earn Out Consideration, the Company has held back an additional 0.6 million shares of common stock (the “Holdback Stock” and together with the Closing Stock Consideration, the “Stock Consideration”) and warrants to purchase an additional 120,000 shares of common stock (the “Holdback Warrants” and together with the Closing Warrants, the “Warrants”) to secure TZ Holdings’ indemnification obligations under the Asset Purchase Agreement. Any Holdback Shares and Holdback Warrants not used to satisfy indemnification claims (including pending claims) will be released to TZ Holdings eighteen months following the Closing. The Company accrued contingent consideration relating to the Holdback Stock and the Holdback Warrants based on its estimated fair value at the Closing. Additionally, the Company has assumed certain obligations of TZ Holdings, including the performance of TZ Holdings’ post-closing obligations under contracts assigned to the Company. Consideration: Cash consideration $ 17,310 Fair value of 2,400,000 shares of common stock issued at $1.45 per share on September 14, 2015 3,480 Fair value of Closing and Holdback Warrants (warrants to purchase an aggregate of 600,000 shares of common stock) 45 Fair value of the Holdback Stock (i.e additional 600,000 shares of common stock) on September 14, 2015 870 Fair value of contingent consideration 1,600 Total purchase price $ 23,305 In connection with the Acquisition, TZ Holdings has agreed not to sell, transfer or otherwise dispose of any portion of the Stock Consideration until the first anniversary of the Closing. Upon the first anniversary of the Closing, the restrictions will lapse with respect to 1/6th of the Stock Consideration, and upon the completion of each of the five months thereafter, the restrictions will lapse with respect to an additional 1/6th of the Stock Consideration. Following the lapse of such restrictions, TZ Holdings may transfer the Stock Consideration solely to its stockholders. Allocation of Purchase Price – The allocation of purchase price to the assets acquired and liabilities assumed as the date of the acquisition is presented in the table below. Management is responsible for determining the fair value of the tangible and identifiable intangible assets acquired and liabilities assumed as of the Acquisition Date. Management considered a number of factors, including reference to an analysis under Financial Accounting Standards Board Accounting Standard Codification 805 solely for the purpose of allocating the purchase price to the assets acquired and liabilities assumed. The Company’s estimates are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable. These valuations require the use of management’s assumptions, which would not reflect unanticipated events and circumstances that occur. Assets acquired Cash and cash equivalents $ 50 Accounts receivable, net 3,500 Prepaid expenses and other current assets 547 Property and equipment, net 1,194 Other long-term assets 219 Goodwill 13,178 Intangible assets 16,200 Total assets acquired 34,888 Liabilities assumed Accounts payable 134 Accrued expenses and other current liabilities 409 Current portion of deferred revenue 7,468 Current portion of capital lease obligations 246 Long-term portion of capital lease obligations 71 Deferred revenue 3,200 Other long-term liabilities 55 Total liabilities assumed 11,583 Net assets acquired $ 23,305 While the Company uses its best estimates and assumptions as part of the purchase price allocation process to value the assets acquired and liabilities assumed, the purchase price allocation is preliminary and could change during the measurement period (not to exceed one year) if new information is obtained about the facts and circumstances that existed as of the date of Closing that, if known, would have resulted in the recognition of additional or changes in the value of the assets and liabilities presented in the purchase price allocation. During the third quarter of fiscal year 2015, acquisition costs of $0.5 million were recorded as incurred as administrative expenses in the Condensed Consolidated Statement of Operations. Technology – Trademark – Customer Relationships – Deferred Revenue – Goodwill – Pro Forma Results – Three Months Ended Nine Months Ended 2014 2015 2014 2015 Revenue $ 34,086 $ 32,434 $ 96,117 $ 97,066 Operating (loss) income (4,460 ) 8 (11,318 ) (3,911 ) Net loss (3,266 ) (276) (9,486 ) (3,698 ) Loss per share Basic $ (0.11 ) $ 0.01 $ (0.32 ) $ (0.12 ) Diluted $ (0.11 ) $ 0.01 $ (0.32 ) $ (0.12 ) Since the closing of the Acquisition, through September 30, 2015, the Purchased Business generated revenue of approximately $0.9 million. |