e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2007
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number
000-52049
SYNCHRONOSS TECHNOLOGIES,
INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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06-1594540
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(State of
incorporation)
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(IRS Employer Identification
No.)
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750 Route 202 South, Suite 600, Bridgewater, New Jersey
08807
(Address of principal executive
offices, including ZIP code)
(866) 620-3940
(Registrants telephone
number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class
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Name of each exchange on which registered
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Common Stock, par value $.0001 par value
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The NASDAQ Stock Market, LLC
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark whether the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act of
1933. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 (the Exchange
Act). Yes o No þ
Indicate by check mark whether 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 þ 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 Registrants 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, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the Exchange Act. (Check one):
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Large accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
(Do not check if a smaller reporting company)
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Smaller reporting
company o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of the voting and non-voting common
stock held by non-affiliates of the Registrant as of
June 30, 2007, based upon the closing price of the common
stock as reported by The NASDAQ Stock Market on such date was
approximately $680 million.
As of February 15, 2008, a total of 32,706,972 shares
of the Registrants common stock were outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Information required by Part III (Items 10, 11, 12, 13
and 14) is incorporated by reference to portions of the
registrants definitive Proxy Statement for its 2008 Annual
Meeting of Stockholders (the Proxy Statement), which
is expected to be filed not later than 120 days after the
registrants fiscal year ended December 31, 2007.
Except as expressly incorporated by reference, the Proxy
Statement shall not be deemed to be a part of this report on
Form 10-K.
SYNCHRONOSS
TECHNOLOGIES, INC.
FORM 10-K
DECEMBER
31, 2007
TABLE OF
CONTENTS
2
PART I
The words Synchronoss, we,
our, ours, us and the
Company refer to Synchronoss Technologies, Inc. All
statements in this discussion that are not historical are
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as
amended, including statements regarding Synchronoss
expectations, beliefs,
hopes, intentions,
strategies or the like. Such statements are based on
managements current expectations and are subject to a
number of factors and uncertainties that could cause actual
results to differ materially from those described in the
forward-looking statements. Synchronoss cautions investors that
there can be no assurance that actual results or business
conditions will not differ materially from those projected or
suggested in such forward-looking statements as a result of
various factors, including, but not limited to, the risk factors
discussed in this Annual Report on
Form 10-K.
Synchronoss expressly disclaims any obligation or undertaking to
release publicly any updates or revisions to any forward-looking
statements contained herein to reflect any change in
Synchronoss expectations with regard thereto or any change
in events, conditions, or circumstances on which any such
statements are based.
General
We are a leading provider of on-demand multi-channel transaction
software management platforms that enable communications service
providers (CSPs) to automate new subscriber activation, order
management and service provisioning. Our
ConvergenceNow®
platforms provide seamless integration between customer-facing
applications and back-office or
ActivationNow®
and infrastructure-related systems and processes. Our CSP
customers rely on our internet based solutions and technology to
automate the process of activating customers and delivering
additional communications services including new service
offerings and ongoing customer care. We have designed our
platforms to be flexible to enable multiple communication
services including wireless, Voice Over Internet Protocol
(VoIP), wireline and cable to be managed through multiple
distribution channels including
e-commerce,
CSP stores and other retail outlets, etc., allowing us to meet
the rapidly changing and converging services offered by CSPs. By
simplifying the processes associated with managing the customer
experience for ordering and activating services through the
automation and integration of disparate systems, we enable CSPs
to acquire, retain and service customers quickly, reliably and
cost-effectively. We enable service providers to drive growth in
new and existing markets while delivering an improved customer
experience at lower costs.
Our industry-leading customers include wireline, wireless, VoIP
and cable MSO companies including AT&T Inc., Sprint Nextel,
Embarq, Vonage Holdings, Cablevision Systems Corporation,
Level 3 Communications, Covad, Verizon Business Solutions,
Charter Communications, Clearwire, Time Warner Cable and
Comcast. These customers use our platforms and technology to
service both consumer and business customers, including over 300
of the Fortune 500 companies.
We were incorporated in Delaware in 2000. Our internet address
is www.synchronoss.com. On this website, we post the following
filings as soon as reasonably practicable after they are
electronically filed with or furnished to the
U.S. Securities and Exchange Commission (SEC): our annual
reports on
Form 10-K,
quarterly reports on
Form 10-Q,
our current reports on
Form 8-K,
our proxy statement on Form 14A related to our annual
stockholders meeting and any amendment to those reports or
statements filed or furnished pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended. All
such filings are available on the Investor Relations portion of
our web site free of charge. The contents of our web site are
not intended to be incorporated by reference into this
Form 10-K
or in any other report or document we file.
The
Synchronoss Solutions
Our
ActivationNow®
and
ConvergenceNow®
platforms provide comprehensive on-demand
e-commerce
order processing, transaction management and service
provisioning through multiple channels including
e-commerce,
telesales, CSP stores and other retail outlets. We have designed
ActivationNow®
to be a flexible, scalable, open and on-demand platform,
offering a unique solution for managing transactions for a wide
range of existing communications and digital content services as
well as rapidly deploying new services. Our
ConvergenceNow®
platform,
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launched in February 2007, expands the capabilities of
ActivationNow®
to enable an environment with a single point of access (i.e.,
handheld devices or desktops) to numerous communication and
entertainment services.
In addition to handling large volumes of customer transactions
quickly and efficiently, our solutions are designed to
recognize, isolate and address transactions when there is
insufficient information or other erroneous process elements.
This knowledge enables us to adapt our software solutions to
automate a higher percentage of transactions over time, further
improving the value of our solutions to our customers. Our
solutions also offer a centralized reporting platform that
provides intelligent, real-time analytics around the entire
workflow related to any transaction. This reporting allows CSPs
to appropriately identify buying trends, their customers
segments, areas where their business has increased, and empowers
the CSPs with the tools to maximize their marketing trade
and promotion dollars and merchandising. The automation and ease
of integration of our platforms enable CSPs and handset device
manufacturers to lower the cost of new customer acquisitions,
enhance the accuracy and reliability of customer transactions
and respond rapidly to competitive market conditions. Our
platforms offer flexible, scalable solutions backed by service
level agreements (SLAs) and exception handling.
Our solutions are also designed to recognize, isolate and
address transactions when there is insufficient information or
other erroneous process elements, through a suite of
capabilities we refer to as exception handling. Our
exception handling service is designed to consistently meet SLAs
for transactions that are not fully automated or have erroneous
process elements. Our exception handling service utilizes two
tiers of our platforms, the Workflow Manager and the Visibility
Manager, to identify, correct and process non-automated
transactions and exceptions in real-time. Critical functions
provided by our exception handling service center include
streamlining operations by reducing the number of transactions
processed with human intervention.
Our flexible solutions can manage transactions relating to a
wide range of existing communications and digital content
services across the many segments of CSPs. For example, we
enable wireless providers to conduct
business-to-consumer,
or B2C, and
business-to-business,
or B2B, transactions. We also furnish VoIP providers with
customer-branded portals, as well as the gateway to service
their retail customers and subscribers. The capabilities of our
platforms allow CSPs to improve operational performance and
efficiencies and rapidly deploy new services.
Our solutions are designed to be:
Highly Automated: We designed our platforms to
eliminate manual processes and to automate otherwise
labor-intensive tasks, thus improving operating efficiencies and
reducing costs. By tracking every order and identifying those
that are not provisioned properly, we substantially reduce the
need for manual intervention. Our technology automatically
guides a customers request for service through the entire
series of required steps.
Predictable and Reliable Customer
Experience: We are committed to providing
high-quality, dependable services to our customers. To ensure
reliability, system uptime and other service offerings are
guaranteed through our SLAs. Our products are complete customer
management solutions, including exception handling, which we
believe is one of the main factors that differentiates us from
our competitors. In performing exception handling, our platforms
recognize and isolate transaction orders that are not configured
to specifications, processes them in a timely manner and
communicates these orders back to our customers, thereby
improving efficiency and reducing backlog. If manual
intervention is required, our exception handling is outsourced
to centers located in India, Canada and the United States. In
addition, our database design preserves data integrity while
ensuring fast, efficient, transaction-oriented data retrieval
methods. As a demonstration of resilience, the database design
has remained stable during the life and evolution of other
components of our platforms. This stability provides reusability
of the business functionality as new, updated graphical user
interfaces, or other technical process components are developed.
Seamless: Our platforms integrate information
across the service providers entire operation, including
customer information, order information, product and service
information, network inventory and workflow information. We have
built our platforms using an open design with fully-documented
software interfaces, commonly referred to as application
programming interfaces, or APIs. Our APIs make it easier for our
customers, partners and other third parties to integrate the
platforms with other software applications and to build
Web-based applications incorporating third-party or CSP-designed
capabilities. Through our open
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design and alliance program, we provide our customers with
superior solutions that combine
best-of-breed
applications with the efficiency and cost-effectiveness of
commercial, packaged interfaces.
Scalable: Our platforms are designed to
process expanding transaction volumes reliably and cost
effectively. Transaction volume has increased rapidly since our
inception. We anticipate substantial future growth in
transaction volumes and believe our platforms are capable of
scaling its output commensurately, requiring principally routine
computer hardware and software updates. In addition, we believe
our platforms enable service and digital convergence providers
to offer a variety of services more quickly and to package and
price their services cost effectively by integrating them with
available network capacity and resources.
Value-added Reporting: Our platforms
attributes are tightly integrated into the critical workflows of
our customers. The platforms have analytical reporting
capabilities that provide real-time information for every step
of the relevant transaction processes. In addition to improving
end-user customer satisfaction, these capabilities provide our
customers with value-added insights into historical and current
transaction trends. We also offer mobile reporting capabilities
for key users to receive critical data about their transactions
on their mobile devices. Our platforms capabilities
provide what we believe to be a more cost-effective, efficient
and productive approach to
e-commerce.
Our solutions allow our customers to reduce overhead costs
associated with building and operating their own
e-commerce
and customer transaction management infrastructure. We also
provide our customers with the information and tools to more
efficiently manage marketing and operational aspects of their
business. In addition, the automation and ease of integration of
our on-demand software allows CSPs to accelerate the deployment
of their services and new service offerings by shortening the
time between a customers order and the provisioning of
service.
Demand
Drivers for Our Multi-Channel Transaction Management
Solutions
Our services are capable of managing a wide variety of
transactions across multiple CSP delivery models, allowing us to
benefit from increased growth, complexity and technological
change in the communications industry. As communications
technology has evolved, new access networks, end-devices and
applications with multiple features have emerged. This
proliferation of services and advancement of technologies,
combined with their bundling (i.e., double, triple and quadruple
plays) are accelerating subscriber growth and increasing the
number of transactions between CSPs, and their customers.
Currently, growth in wireless services, the adoption of VoIP and
the increasing importance of
e-commerce
are strongly driving demand for our transaction management
solutions. In addition, we see an opportunity to provide our
services to the high-growth market of bundled services
(including voice, video, data and wireless) resulting from
converging technology markets. We support and target
transactions ranging from initial service activations to ongoing
customer lifecycle transactions, such as additions, subtractions
and changes to services. The need for CSPs to deliver these
transactions efficiently increases demand for our on-demand
software delivery model. The rapid emergence of all digital,
IP-based
networks is causing the creation of telecommunications services
to be less dependent on particular elements of network
infrastructure. In this environment, CSPs are increasingly
relying on intelligent platform solutions such as ours in order
to quickly develop new packages of service offerings. The
critical driver of adoption of our services is shifting from
cost reduction at CSPs to generating new revenues via on-demand
service creation and bundling. In this environment, we believe
that our on-demand capabilities will be a major value-added
difference to our CSPs and their largest customers. Our
transaction management solutions are available through multiple
channels:
e-commerce,
CSP stores and other retail outlets. Our customers value our
multi-channel transaction management solutions, which we believe
will be a key differentiator.
Growth in Handset Devices, Network Technology, and
Applications and Content. The communications
market is moving towards a next generation mobility marketplace,
defined as allowing both business and consumer customers to
choose a wide range of smart mobile devices supported on
multiple network technologies. By developing such seamless
mobility environment, it will fuel a whole set of new
transactions designed around providing many forms of enhanced
content and applications to increase the monthly average revenue
per user (ARPU) of each individual subscriber.
Adoption of VoIP. Internet Protocol-based
network technologies are transforming the communications
marketplace and VoIP applications are just starting to be
deployed. Our strong market capture across new entrants,
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cable companies and traditional communications providers
positions us well to leverage our existing base and maximize
capture of new transaction types.
Continued growth of
e-commerce. Internet-based
commerce provides CSPs with the opportunity to cost-effectively
gain new customers, provide service and interact more
effectively. Specifically Cost per Gross Add (CPGA) for a
customer obtained via
e-commerce
can be up to 50% less than those obtained via traditional bricks
and mortar. With the dramatic increase in Internet usage and
desire to directly connect with end users over the course of the
customer lifecycle, CSPs are increasingly focusing on
e-commerce
as a channel for customer acquisition and delivery of ongoing
services.
Growth in on-demand delivery model. Our
on-demand business model enables delivery of proprietary
solutions over the Internet as a service. Customers do not have
to make large and risky upfront investments in software,
additional hardware, extensive implementation services and
additional IT staff. Because we implement all upgrades to
software on our servers, they automatically become part of our
service and available to benefit all customers immediately.
Pressure on CSPs to improve
efficiency. Increased competition and excess
network capacity have placed significant pressure on CSPs to
reduce costs and increase revenues. At the same time, due to
deregulation, the emergence of new network technologies and the
proliferation of services, the complexity of back office
operations has increased significantly. CSPs with multiple
back-end systems are looking for ways to help their systems
interoperate for a better customer experience. In addition, CSP
customers are moving to automated provisioning systems to enable
them to more easily purchase, upgrade or add new features. As a
result, CSPs are looking for ways to offer new communications
services more rapidly and efficiently to existing and new
customers. Increased competition and demand for superior
end-user experience have placed significant pressure on CSPs to
improve customer focused processes. CSPs are increasingly
turning to transaction based, cost effective, scalable and
automated third-party solutions that can offer guaranteed levels
of service delivery.
Our
Growth Strategy
Our growth strategy is to establish our
ActivationNow®
and
ConvergenceNow®
platforms as the premium platforms for leading providers of
communications services and digital convergence services, while
investing in extensions of the services portfolio. We believe
the final and key differentiators in next generation mobility
will be to provide a more automated and robust customer
experience. We will continue to focus our technology and efforts
around improving functionality, helping CSPs drive higher ARPU,
and allowing more capabilities for ordering bundled applications
and content offerings across these same complex and advanced
networks.
Key elements of this strategy are:
Broaden Customer Base and Expand Offering to Existing
Customers. Our
ActivationNow®
and
ConvergenceNow®
platforms are designed to address CSPs and business models
across the range of the communications services and digital
content markets, a capability we have begun to exploit by
targeting new tier-one customers and industry segments such as
wireless broadband, smartphone handheld devices, online content
providers and hardware OEMs. We also derive significant growth
from our existing customers as they continue to expand into new
distribution channels, such as the rapidly growing
e-commerce
channel, require new service offerings and increase transaction
volumes. As CSPs expand consumer, business and indirect
distribution, they require new transaction management solutions
which drive increasing amounts of transactions over our
platforms. Many customers purchase multiple services from us,
and we believe we are well positioned to cross-sell additional
services to customers who do not currently purchase our full
services portfolio. In addition, the increasing importance and
expansion of internet-based
e-commerce
has led to increased focus by CSPs on their
e-channel
distribution, thus providing another opportunity for us to
further penetrate into existing customers. The expansion in 2007
of our AT&T relationship through the combination of
AT&T and Cingular Wireless and AT&Ts acquisition
of BellSouth as well as through a multi-year agreement related
to the
Apple®
iPhonetm,
highlights further penetration of an existing customer as well
as the development of a major growth initiative in consumer
digital convergence. We also process wireless transactions to
both our Time Warner and Comcast cable customers.
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Continue to Exploit VoIP Industry
Opportunities. We believe continued rapid VoIP
industry growth will increase the demand for our services. We
have seen strong growth in residential VoIP customers and we
believe we will see similar growth for commercial VoIP
customers. Being the trusted partner to VoIP industry leaders,
including Vonage Holdings, Comcast, Charter, Time Warner Cable
and Cablevision, positions us well to benefit from the evolving
needs, requirements and opportunities of the VoIP industry.
Enhance Current Wireless Industry
Leadership. Spending in the global wireless
industry has grown significantly in recent years. The up-tick in
spending is happening because myriad advanced applications are
being offered, including wireless Internet access, multimedia
messaging, games and Wi-Fi. These applications translate into
new transaction types that we can meld into our workflow
management system. We currently process hundreds of thousands of
wireless transactions every month, which are driven by
increasing numbers of wireless subscribers and by wireless
subscriber churn resulting from local number portability or LNP,
service provider competition and other factors.
Expand Into New Geographic Markets. Although
the majority of our revenue has traditionally been generated in
North America, in 2007 we began our entry into the European
Union by signing agreements with system integrators Siemens AG
and Alma Technologies SA. We currently intend to continue our
global expansion by focusing initially in Europe and believe
there are opportunities to penetrate other new geographic
markets within the coming years, particularly Asia/Pacific and
Latin America, as these markets experience similar trends to
those that have driven growth in North America.
Expand into the Smart Handset Markets. Our
proprietary technology allows CSPs to bring together disparate
systems and manage the ordering, activation and provisioning of
communications services, allowing them to lower the cost of new
customer acquisition and product lifecycle management. We
believe the smart handset makers will face the same hurdles and
we plan to extend our technology from the network to the
interface and software that sits on the actual smart handset. As
new smartphones are deployed, we will strive to ensure our
technology can support a plug and play approach to
end users wishing to purchase new advanced services, by
automating and re-using our current platforms embedded
roots with many of the leading service providers today across
all wireless, wireline, VoiP, and high speed data networks.
Maintain Technology Leadership. Our
proprietary technology allows CSPs to bring together disparate
systems and manage the ordering, activation and provisioning of
communications services, allowing them to lower the cost of new
customer acquisition and product lifecycle management. We intend
to build upon our technology leadership by continuing to invest
in research and development to increase the automation of
processes and workflows and develop complementary product
modules that leverage our platforms and competitive strengths,
thus driving increased interest in our solutions by making it
more economical for CSPs to use us as a third-party solutions
provider. In addition, we believe our close relationships with
our tier-one CSPs will continue to provide us with valuable
insights into the challenges that are creating demand for
next-generation solutions.
Expand through Partnerships or
Acquisitions. As we explore new opportunities, we
continue to look for companies which are complementary to us for
partnership or acquisition candidates that will enable us to
either enter new markets or enhance our offerings.
Products
and Services
We are a leading provider of multi-channel transaction
management solutions to the communications services and digital
content marketplaces based on our penetration and relationships
with key CSPs. Our offerings are designed to allow our customers
to respond to market demand quickly and efficiently, to optimize
service offerings and to build stronger relationships with their
customers. In addition, we offer process and workflow consulting
services, development services and enterprise portal management
services. From time to time, we will provide these services for
a fee as part of the process of transitioning new customers onto
our platforms and integrating our platforms with the
customers back office systems. These services enable our
customers to realize the benefits of our transaction management
solutions.
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ActivationNow®
and
ConvergenceNow®
Platforms
Our
ActivationNow®
and
ConvergenceNow®
platforms address a service providers needs and
requirements with a flexible design which can scale with their
expanding business operations. Our
ActivationNow®
and
ConvergenceNow®
platforms are engineered to meet volume, speed to market and
service guarantees which are important differentiators of our
transaction management solutions. Each platform is a fully
hosted service delivered over the Internet or a dedicated
communication channel. Each new customer addition comes with a
specific transaction fee and with guaranteed service levels. In
addition,
ActivationNow®
and
ConvergenceNow®
platforms provide complete work flow management, including
exception handling. Our
ActivationNow®
and
ConvergenceNow®
platforms:
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Provide what we believe to be one of the lowest costs per gross
add in the wireless
e-commerce
market;
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Handle extraordinary transaction volumes with our scalable
platform solutions;
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Deliver speed to market on new and existing offerings;
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Enable multi-channel transaction management solutions to be
deployed; and
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Guarantee performance backed by solid business metrics and SLAs.
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Our
ActivationNow®
and
ConvergenceNow®
platforms are designed to integrate with back-office systems,
allowing work to flow electronically across the service
providers and digital convergence providers
organization while providing ready access to performance and
resource usage information. Our integrated approach provides
comprehensive support for current and emerging services, network
technologies, smart handset devices and evolving business
processes across all forms of bundled services.
Our
ActivationNow®
and
ConvergenceNow®
platforms are comprised of four distinct tiers, each providing
solutions to the most common and critical needs of our customers.
PerformancePartner®
Portal
Our
PerformancePartner®
portal, the first tier of our
ActivationNow®
and
ConvergenceNow®
platforms, is a graphical user interface that allows entry of
transaction data into the gateway. Through the
PerformancePartner®
portal, the CSPs can set up accounts, renew contracts and update
and submit new transactions for transaction management
processing.
Gateway
Manager
Our gateways, the service provisioning subsystems and second
tier of our
ActivationNow®
and
ConvergenceNow®
platforms, provide the capability to fulfill multiple
transactions. These gateways are the engines that support our
clients front-end portals, handling hundreds of thousands
of transactions on a monthly basis. Our gateways deliver
flexible architecture, supporting seamless entry and rapid time
to market for our CSP customers. In addition, these gateways
contain business rules to interact with the CSPs
back-office and third-party trading partners.
WorkFlow
Manager
Our WorkFlow Manager, the third tier of our
ActivationNow®
and
ConvergenceNow®
platforms, provides a seamless interaction with all third-party
relationships and enables CSPs to have a single transaction
view, including all relevant data from third-party systems. The
Workflow Manager is designed to ensure that each customer
transaction is fulfilled accurately and offers:
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Flexible configuration to meet individual CSP requirements;
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Centralized queue management for maximum productivity;
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Real-time visibility for transaction revenues management;
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Exception handling management;
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Order view available during each stage of the transactional
process; and
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Uniform look and integrated experience.
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By streamlining all procurement processes from pre-order through
service activation and billing, our WorkFlow Manager reduces
many costs and time impediments that often delay the process of
delivering products and services to end-users.
Visibility
Manager
The fourth tier of our
ActivationNow®
and
ConvergenceNow®
platforms, our Visibility Manager, provides historical trending
and mobile reporting to our CSP customers, supports best
business practices and processes and allows CSPs to assess
whether daily metrics are met or exceeded. The Visibility
Manager offers:
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A centralized reporting platform that provides intelligent
analytics around the entire workflow;
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Transaction management information;
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Historical trending; and
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Mobile reporting for key users to receive critical transaction
data on mobile devices.
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The Gateway Manager, WorkFlow Manager and Visibility Manager
tiers are typically deployed by all of our customers. The
PerformancePartner®
portal is deployed only if our customer does not have a
front-end portal to interact with end-user customers. All of our
four tiers are designed to be open and flexible to enable rapid
deployments. One critical function provided by our
ActivationNow®
and
ConvergenceNow®
platforms design is information management. By making
information more accessible and useful, our
ActivationNow®
and
ConvergenceNow®
platforms enable a service provider to manage its business more
efficiently, to provide more services with the highest possible
quality and to deliver superior customer care. Our
ActivationNow®
and
ConvergenceNow®
platforms are designed to recognize, isolate and address
transactions when there is insufficient information or other
erroneous process elements through a suite of capabilities we
refer to as exception handling. Our solutions offer
a centralized reporting platform that provides intelligent,
real-time analytics around the entire workflow related to a
transaction. The Workflow Manager and the Visibility Manager
identify, correct and process non-automated transactions and
exceptions in real-time, which we believe are key
differentiators for our solutions.
Customers
Our typical customers are providers of communications services,
from traditional local and long-distance services to
Internet-based services. We serve wireless service providers,
such as AT&T and Sprint Nextel, providers of VoIP services,
such as Vonage Holdings, Comcast and Cablevision Systems, VoIP
enablers, such as Level 3 Communications, and long distance
carriers, such as Verizon Business. We also serve emerging CSPs,
such as Clearwire. We maintain strong and collaborative
relationships with our customers, which we believe to be one of
our core competencies and critical to our success. We are
generally the only provider of the services we offer to our
customers. Our contracts typically extend up to 48 months
in length from execution and include minimum transaction or
revenues commitments from our customers. All of our significant
customers may terminate their contracts for convenience upon
written notice and payment of contractual penalties. We have a
long-standing relationship with Cingular Wireless, which is now
known as AT&T Mobility, dating back to January 2001 when we
began providing service to AT&T Wireless, which was
subsequently acquired by Cingular Wireless, and in December 2006
became a division of AT&T Inc. We are the primary provider
of
e-commerce
transaction management solutions to AT&T Mobility, our
largest customer, under an agreement which runs through January
of 2009 that automatically will be renewed for an additional
twelve months unless either party terminates prior to
November 1, 2008. Under the terms of this agreement,
AT&T Mobility may terminate its relationship with us for
convenience, although we believe AT&T Mobility would
encounter substantial costs in replacing our transaction
management solution. For 2007, we received 76% of our revenues
from AT&T Inc., compared to 66% of our revenues in 2006. No
other customer accounted for more than 10% of our revenues in
2007.
9
Sales and
Marketing
Sales
We market and sell our services primarily through a direct sales
force. To date, we have concentrated our sales efforts on a
range of CSPs that offer wireless, broadband, VoIP and wireline
services that offer digital convergence services. Following each
sale, we assign account managers to provide ongoing support and
to identify additional sales opportunities. We generate leads
from contacts made through trade shows, seminars, conferences,
market research, our Web site, customers, partners and our
ongoing public relations program. Due to ongoing privatization
and the increasing competition among CSPs in international
markets we expanded our sales and marketing efforts in 2007
outside of North America into the European Union.
Marketing
We focus our marketing efforts on product initiatives, creating
awareness of our services and generating new sales
opportunities. We base our product management strategy on an
analysis of market requirements, competitive offerings and
projected cost savings. Our product managers are active in
numerous technology and industry forums such as CTIA, GSMA, NCTA
ATIS and VON at which we demonstrate our transaction management
solutions.
In addition, through our product marketing and marketing
communications functions, we manage and maintain our Web site,
publish product related communications and educational white
papers and conduct seminars and user group meetings. We also
have an active public relations program and maintain
relationships with recognized industry analysts such as IDC,
Gartner, Stratecast and Yankee Group. We also actively sponsor
technology-related conferences and demonstrate our solutions at
trade shows targeted at providers of communications services.
Operations
and Technology
We leverage common, proprietary
e-commerce
information technology platforms to deliver carrier grade
services to our customers across communication and digital
convergence market segments. Constructed using a combination of
internally developed and licensed technologies, our
e-commerce
platforms integrate our order management, gateway, workflow and
reporting into a unified system. The platforms are secure
foundations on which to build and offer additional services and
maximize performance, scalability and reliability.
Exception
Handling Services
We differentiate our services from both the internal and
competitive offerings by handling exceptions through both our
technology and human touch solutions, a substantial portion of
which is provided by third-party vendors. Our business process
engineers optimize each workflow; however, there are exceptions
and we handle these to ensure the highest quality customer
experience at the lowest cost. Our exception handling services
handle the customer communication touchpoints including
provisioning orders, inbound calls, automated IVR responses
(e.g., order status, address changes), web forums, inbound and
outbound email, proactive outbound calls (e.g., out of stock,
backorders, exceptions) and self-correct order tools. These
services are continuously reviewed for improved workflow and
automation. We use third-party vendors in providing exception
handling services, each of whom provide services under
automatically renewable contracts. We believe our unique
exception handling services help reduce the cost of each
transaction by driving more automation, over time, into a better
and more cost effective way to manage our customers
subscriber experiences.
Data
Center Facilities
For over five years, we have operated and maintained a data
center in Bethlehem, PA, and have consistently focused on the
security, technology, maintenance, staffing and reliability of
the data center facility. This secure facility houses all
customer-facing, production, test and development systems that
are the backbone of the services delivered to our customers. The
facility and all systems are monitored 7 days a week,
24 hours a day, and are protected via multiple layers of
physical and electronic security measures. In addition, a
redundant power supply ensures constant, regulated power into
the Managed Data Facility and a
back-up
generator system provides power
10
indefinitely to the facility in the event of a utility power
failure. All systems in the Managed Data Facility are monitored
for availability and performance using industry standard tools
such as HP
OpenView®,
Big
Brother®,
Oracle Enterprise
Manager®,
CiscoWorks®
and Empirix
OneSight®.
Network
We use AT&T, a tier-one service provider, to provide a
managed, fully-redundant network solution to deliver enterprise
scale services to its customers. Specifically, we have two OC-3
fiber optic rings, delivering 115MB/sec of highly redundant
bandwidth to the Bethlehem and Bridgewater facilities. WAN
connectivity between our locations is achieved via a DS-3 MPLS
circuit and Internet access to each location via a dedicated
DS-3. A dedicated fiber-optic connection, provided by
Level 3 Communications, is utilized to provide a data
center backbone connection between our Bethlehem and Bridgewater
facilities that is used for disaster recovery.
Disaster
Recovery Facility
We operate a second data center facility at our corporate
headquarters in Bridgewater, New Jersey that is used to provide
a hot site for disaster recovery purposes. In the event of a
major service disruption at our primary facility, production
application services will be activated at the secondary facility
and services will be restored in a period of time required to
meet all customer-facing service level agreements (SLAs) for
availability and service delivery.
Customer
Support
Our Customer Service Center (CSC) acts as an initial point of
contact for all customer related issues and requests. The CSC
staff is available 7 days a week via phone, email or pager
to facilitate the diagnosis and resolution of application and
service related issues with which they are presented. Issues
that require further investigation are immediately escalated to
our product and infrastructure support teams on behalf of the
customer to provide the greatest speed of problem resolution and
highest levels of customer service.
Competition
Competition in our markets is intense and includes
rapidly-changing technologies and customer requirements, as well
as evolving industry standards and frequent product
introductions. We compete primarily on the basis of the breadth
of our domain expertise and our proprietary exception handling,
as well as on the basis of price,
time-to-market,
functionality, quality and breadth of product and service
offerings. We believe the most important factors making us a
strong competitor include:
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the breadth and depth of our transaction management solutions,
including our exception handling technology;
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the quality and performance of our products;
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our high-quality customer service;
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our ability to implement and integrate solutions;
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the overall value of our platforms; and
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the references of our customers.
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We are aware of other software developers and smaller
entrepreneurial companies that are focusing significant
resources on developing and marketing products and services that
will compete with our
ActivationNow®
and
ConvergenceNow®
platforms. We anticipate continued growth in the communications
industry and the entrance of new competitors in the order
processing and transaction management solutions market and
expect that the market for our products and services will remain
intensely competitive.
Government
Regulation
We are not currently subject to direct federal, state or local
government regulation, other than regulations that apply to
businesses generally. Many of our customers are subject to
regulation by the Federal Communications
11
Commission, or FCC. Changes in FCC regulations that affect our
existing or potential customers could lead them to spend less on
transaction management solutions, which would reduce our
revenues and could have a material adverse effect on our
business, financial condition or results of operations.
Intellectual
Property
To establish and protect our intellectual property, we rely on a
combination of copyright, trade secret and trademark laws, as
well as confidentiality procedures and contractual restrictions.
Synchronoss®,
the Synchronoss logo,
PerformancePartner®,
ConvergenceNow®
and
ActivationNow®
are registered trademarks of Synchronoss Technologies, Inc. In
addition to legal protections, we rely on the technical and
creative skills of our employees, frequent product enhancements
and improved product quality to maintain a technology-leadership
position. We cannot be certain that others will not develop
technologies that are similar or superior to our technology.
We enter into confidentiality and invention assignment
agreements with our employees and confidentiality agreements
with our alliance partners and customers, and we control access
to and distribution of our software, documentation and other
proprietary information.
Employees
We believe that our growth and success is attributable in large
part to our employees and an experienced management team, many
members of which have years of industry experience in building,
implementing, marketing and selling transaction management
solutions critical to business operations. We intend to continue
training our employees as well as developing and promoting our
culture and believe such efforts provide us with a sustainable
competitive advantage. We offer a work environment that enables
employees to make meaningful contributions, as well as incentive
programs to continue to motivate and reward our employees.
As of December 31, 2007, we had 232 full-time
employees. None of our employees are covered by any collective
bargaining agreements.
12
Executive
Officers of the Registrant
The following sets forth certain information regarding our
Executive Officers as of February 28, 2008:
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Name
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Age
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Position
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Stephen G. Waldis
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Chairman of the Board of Directors, President and Chief
Executive Officer
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Lawrence R. Irving
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Chief Financial Officer and Treasurer
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Robert Garcia
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Chief Operating Officer
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Omar Tellez
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Chief Marketing Officer
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Christopher S. Putnam
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Executive Vice President of Sales
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Ronald J. Prague
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Vice President, General Counsel and Secretary
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S. Andrew Cox
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Chief Information Officer
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Robert Sean Parkinson
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President, International
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Patrick J. Doran
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Vice President, Research and Development and Chief Technology
Officer
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Stephen G. Waldis has served as President and Chief
Executive Officer of Synchronoss since founding the company in
2000 and has served as Chairman of the Board of Directors since
February of 2001. Before founding Synchronoss, from 1994 to
2000, Mr. Waldis served as Chief Operating Officer at
Vertek Corporation, a privately held professional services
company serving the telecommunications industry. From 1992 to
1994, Mr. Waldis served as Vice President of Sales and
Marketing of Logical Design Solutions, a provider of telecom and
interactive solutions. From 1989 to 1992, Mr. Waldis worked
in various technical and product management roles at AT&T.
Mr. Waldis received a degree in corporate communications
from Seton Hall University.
Lawrence R. Irving has served as Chief Financial Officer
and Treasurer of Synchronoss since July 2001. Before joining
Synchronoss, from 1998 to 2001, Mr. Irving served as Chief
Financial Officer and Treasurer at CommTech Corporation, a
telecommunications software provider that was acquired by ADC
Telecommunications. From 1995 to 1998, Mr. Irving served as
Chief Financial Officer of Holmes Protection Group, a publicly
traded company which was acquired by Tyco International.
Mr. Irving is a certified public accountant and a member of
the New York State Society of Certified Public Accountants.
Mr. Irving received a degree in accounting from Pace
University.
Robert Garcia has served as Chief Operating Officer of
Synchronoss since April 2007. Prior to that position,
Mr. Garcia served in various positions at Synchronoss,
including Executive Vice President of Operations and Service
Delivery and General Manager of Synchronoss western office
since joining Synchronoss in August 2000. Before joining
Synchronoss, Mr. Garcia was a Senior Business Consultant
with Vertek Corporation from January 1999 to August 2000.
Mr. Garcia has also held senior management positions with
Philips Lighting Company and Johnson & Johnson
Company. Mr. Garcia received a degree in logistics and
economics from St. Johns University in New York.
Christopher S. Putnam has been with Synchronoss
since January 2004 and has served as Executive Vice President of
Sales of Synchronoss since April 2005. Mr. Putnam leads the
Companys new business initiatives and sales teams, and he
is responsible for strategic account acquisitions such as Time
Warner Cable, Comcast and Vonage. Prior to joining Synchronoss,
from 1999 to 2004, Mr. Putnam served as Director of Sales
for Perot Systems Telecommunications business unit.
Mr. Putnam received a degree in communications from Texas
Christian University.
Omar Tellez joined in June 2006 as Executive Vice
President of Marketing. Before joining Synchronoss,
Mr. Téllez was the Vice President of the Product
Solutions Group at Openwave Systems from 2001 to 2006 and was
with Booz Allen & Hamiltons Communication Media
and Technology Practice from 1996 to 2001. Mr. Tellez
received a master of business administration degree from the
Haas School of Business at the University of California,
Berkeley, and a degree in industrial engineering from the
Universidad de los Andes in Bogota, Colombia.
Ronald J. Prague joined Synchronoss in July 2006 as Vice
President and General Counsel of Synchronoss and has served as
Secretary since October 2006. Before joining Synchronoss,
Mr. Prague held various positions with Intel Corporation
from February 1998 to June 2006, most recently as Group Counsel
for Intels Communications
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Infrastructure Group. Prior to joining Intel, Mr. Prague
practiced law with the law firm of Haythe & Curley
(now Torys LLP) from 1992 to 1998 and with Richards &
ONeil (now Bingham McCutchen) from 1988 to 1992.
Mr. Prague is a graduate of Northwestern University School
of Law and earned a degree in business administration and
marketing from Cornell University.
S. Andrew Cox joined Synchronoss in December 2003 as
Chief Information Officer. Prior to joining Synchronoss, from
March 1997 to December 2003, Mr. Cox was the Managing
Director for Infrastructure Solutions with CoreTech Consulting
Group, and was an analyst with Rohm and Haas Company from
December 1992 to March 1997. Mr. Cox received a degree in
electrical engineering from Bucknell University and a Masters of
Business Administration from Loyola College.
Robert Sean Parkinson joined Synchronoss in December 2007
as President, International Operations. Prior to joining
Synchronoss, from 2004 to 2007, Mr. Parkinson was the Chief
Executive Officer for Non-Western Operations of
T-Systems
Gmbh. From 2002 to 2004, Mr. Parkinson was Senior Vice
President of Global Business Development of AIG Technologies,
Inc. Mr. Parkinson received a business diploma degree in
1979 from Manchester University, Manchester, England.
Patrick J. Doran has served as Vice President, Research
and Development and Chief Technology Officer since April 2007.
Prior to that position, Mr. Doran served in various
positions at Synchronoss, including Chief Architect and Senior
Software Engineer since joining Synchronoss in 2002. Before
joining Synchronoss, Mr. Doran was a Senior Development
Engineer at Agility Communications from 2000 to 2002 and a
Member of Technical staff at AT&T/Lucent from 1996 to 2000.
Mr. Doran received a degree in Computer and Systems
engineering from Rensselaer Polytechnic Institute and a masters
degree in Industrial engineering from Purdue University.
14
The following are certain risk factors that could affect our
business, financial results and results of operations. You
should carefully consider the following risk factors in
connection with evaluating the forward-looking statements
contained in this Annual Report on
Form 10-K
because these factors could cause the actual results and
conditions to differ materially from those projected in
forward-looking statements. The risks that we have highlighted
here are not the only ones that we face. If any of the risks
actually occur, our business, financial conditions or results of
operations could be negatively affected. In that case, the
trading price of our stock could decline, and our stockholders
may lose part or all of their investment.
Risks
Related to Our Business and Industry
We
have Substantial Customer Concentration, with One Customer
Accounting for a Substantial Portion of our 2007
Revenues.
We currently derive a significant portion of our revenues from
one customer, AT&T. Our relationship with AT&T dates
back to January 2001 when we began providing service to
AT&T Wireless, which was subsequently acquired by Cingular
Wireless (now known as AT&T Mobility) and is now a division
of AT&T Corp. For the year ended December 31, 2007,
AT&T accounted for approximately 76% of our revenues,
compared to 66% for the fiscal year ended December 31,
2006. Our five largest customers, AT&T, Vonage,
Level 3 Communications, Time Warner Cable and Cablevision,
accounted for approximately 95% of our revenues for the year
ended December 31, 2007, compared to 95% of our revenues
for the year ended December 31, 2006.
If We
Do Not Adapt to Rapid Technological Change in the Communications
Industry, We Could Lose Customers or Market Share.
Our industry is characterized by rapid technological change and
frequent new service offerings. Significant technological
changes could make our technology and services obsolete, less
marketable or less competitive. We must adapt to our rapidly
changing market by continually improving the features,
functionality, reliability and responsiveness of our transaction
management services, and by developing new features, services
and applications to meet changing customer needs. We may not be
able to adapt to these challenges or respond successfully or in
a cost-effective way. Our failure to do so would adversely
affect our ability to compete and retain customers
and/or
market share.
The
Success of Our Business Depends on the Continued Growth of
Consumer and Business Transactions Related to Communications
Services on the Internet.
The future success of our business depends upon the continued
growth of consumer and business transactions on the Internet,
including attracting consumers who have historically purchased
wireless services and devices through traditional retail stores.
Specific factors that could deter consumers from purchasing
wireless services and devices on the Internet include concerns
about buying wireless devices without face-to-face interaction
with sales personnel and the ability to physically handle and
examine the devices.
Our business growth would be impeded if the performance or
perception of the Internet was harmed by security problems such
as viruses, worms and other malicious
programs, reliability issues arising from outages and damage to
Internet infrastructure, delays in development or adoption of
new standards and protocols to handle increased demands of
Internet activity, increased costs, decreased accessibility and
quality of service, or increased government regulation and
taxation of Internet activity. The Internet has experienced, and
is expected to continue to experience, significant user and
traffic growth, which has, at times, caused user frustration
with slow access and download times. If Internet activity grows
faster than Internet infrastructure or if the Internet
infrastructure is otherwise unable to support the demands placed
on it, or if hosting capacity becomes scarce, our business
growth may be adversely affected.
15
Compromises
to Our Privacy Safeguards Could Impact Our
Reputation.
Names, addresses, telephone numbers, credit card data and other
personal identification information, or PII, is collected,
processed and stored in our systems. The steps we have taken to
protect PII may not be sufficient to prevent the
misappropriation or improper disclosure of such PII. If such
misappropriation or disclosure were to occur, our business could
be harmed through reputational injury, litigation and possible
damages claimed by the affected end customers. Our insurance may
not cover potential claims of this type or may not be adequate
to cover all costs incurred in defense of potential claims or to
indemnify us for all liability that may be imposed. Concerns
about the security of online transactions and the privacy of
personal information could deter consumers from transacting
business with us on the Internet.
Fraudulent
Internet Transactions Could Negatively Impact Our
Business.
Our business may be exposed to risks associated with Internet
credit card fraud and identity theft that could cause us to
incur unexpected expenditures and loss of revenues. Under
current credit card practices, a merchant is liable for
fraudulent credit card transactions when, as is the case with
the transactions we process, that merchant does not obtain a
cardholders signature. Although our CSP customers
currently bear the risk for a fraudulent credit card
transaction, in the future we may be forced to share some of
that risk and the associated costs with our CSP customers. To
the extent that technology upgrades or other expenditures are
required to prevent credit card fraud and identity theft, we may
be required to bear the costs associated with such expenditures.
In addition, to the extent that credit card fraud
and/or
identity theft cause a decline in business transactions over the
Internet generally, both the business of the CSP and our
business could be adversely affected.
If the
Wireless Services Industry Experiences a Decline in Subscribers,
Our Business May Suffer.
The wireless services industry has faced an increasing number of
challenges, including a slowdown in new subscriber growth.
Revenues from services performed for customers in the wireless
services industry accounted for 76% of our revenues in 2007 and
65% in 2006. A continued slowdown in subscriber growth in the
wireless services industry could adversely affect our business
growth.
The
Consolidation in the Communications Industry Can Reduce the
Number of Customers and Adversely Affect Our
Business.
The communications industry continues to experience
consolidation and an increased formation of alliances among
communications service providers and between communications
service providers and other entities. Should one of our
significant customers consolidate or enter into an alliance with
an entity and decide to either use a different service provider
or to manage its transactions internally, this could have a
negative material impact on our business. These consolidations
and alliances may cause us to lose customers or require us to
reduce prices as a result of enhanced customer leverage, which
would have a material adverse effect on our business. We may not
be able to offset the effects of any price reductions. We may
not be able to expand our customer base to make up any revenue
declines if we lose customers or if our transaction volumes
decline.
If We
Fail to Compete Successfully With Existing or New Competitors,
Our Business Could Be Harmed.
If we fail to compete successfully with established or new
competitors, it could have a material adverse effect on our
results of operations and financial condition. The
communications industry is highly competitive and fragmented,
and we expect competition to increase. We compete with
independent providers of information systems and services and
with the in-house departments of communications services
companies. Rapid technological changes, such as advancements in
software integration across multiple and incompatible systems,
and economies of scale may make it more economical for CSPs to
develop their own in-house processes and systems, which may
render some of our products and services less valuable or
eventually obsolete. Our competitors include firms that provide
comprehensive information systems and managed services
solutions, systems integrators, clearinghouses and service
bureaus. Many of our competitors have long operating histories,
large customer bases, substantial financial, technical, sales,
marketing and other resources, and strong name recognition.
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Current and potential competitors have established, and may
establish in the future, cooperative relationships among
themselves or with third parties to increase their ability to
address the needs of our prospective customers. In addition, our
competitors have acquired, and may continue to acquire in the
future, companies that may enhance their market offerings.
Accordingly, new competitors or alliances among competitors may
emerge and rapidly acquire significant market share. As a
result, our competitors may be able to adapt more quickly than
us to new or emerging technologies and changes in customer
requirements, and may be able to devote greater resources to the
promotion and sale of their products. These relationships and
alliances may also result in transaction pricing pressure which
could result in large reductions in the selling price of our
services. Our competitors or our customers in-house
solutions may also provide services at a lower cost,
significantly increasing pricing pressure on us. We may not be
able to offset the effects of this potential pricing pressure.
Our failure to adapt to changing market conditions and to
compete successfully with established or new competitors may
have a material adverse effect on our results of operations and
financial condition. In particular, a failure to offset
competitive pressures brought about by competitors or in-house
solutions developed by AT&T could result in a substantial
reduction in or the outright termination of our contract with
AT&T, which would have a significant negative material
impact on our business.
Failures
or Interruptions of Our Systems and Services Could Materially
Harm Our Revenues, Impair Our Ability to Conduct Our Operations
and Damage Relationships with Our Customers.
Our success depends on our ability to provide reliable services
to our customers and process a high volume of transactions in a
timely and effective manner. Although we have a disaster
recovery facility in our Bridgewater, New Jersey corporate
headquarters, our network operations are currently located in a
single facility in Bethlehem, Pennsylvania that is susceptible
to damage or interruption from human error, fire, flood, power
loss, telecommunications failure, terrorist attacks and similar
events. We could also experience failures or interruptions of
our systems and services, or other problems in connection with
our operations, as a result of:
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damage to or failure of our computer software or hardware or our
connections and outsourced service arrangements with third
parties;
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errors in the processing of data by our system;
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computer viruses or software defects;
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physical or electronic break-ins, sabotage, intentional acts of
vandalism and similar events;
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fire, cyberattack, terrorist attack or other catastrophic event;
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increased capacity demands or changes in systems requirements of
our customers; or
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errors by our employees or third-party service providers.
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In addition, our business interruption insurance may be
insufficient to compensate us for losses that may occur. Any
interruptions in our systems or services could damage our
reputation and substantially harm our business and results of
operations.
If We
Fail to Meet Our Service Level Obligations Under Our
Service Level Agreements, We Would Be Subject to Penalties and
Could Lose Customers.
We have service level agreements with many of our customers
under which we guarantee specified levels of service
availability. These arrangements involve the risk that we may
not have adequately estimated the level of service we will in
fact be able to provide. If we fail to meet our service level
obligations under these agreements, we would be subject to
penalties, which could result in higher than expected costs,
decreased revenues and decreased operating margins. We could
also lose customers.
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The
Financial and Operating Difficulties in the Telecommunications
Sector May Negatively Affect Our Customers and Our
Company.
Recently, the telecommunications sector has been facing
significant challenges resulting from excess capacity, poor
operating results and financing difficulties. The sectors
financial status has at times been uncertain and access to debt
and equity capital has been seriously limited. The impact of
these events on us could include slower collection on accounts
receivable, higher bad debt expense, uncertainties due to
possible customer bankruptcies, lower pricing on new customer
contracts, lower revenues due to lower usage by the end customer
and possible consolidation among our customers, which will put
our customers and operating performance at risk. In addition,
because we operate in the communications sector, we may also be
negatively impacted by limited access to debt and equity capital.
Our
Reliance on Third-Party Providers for Communications Software,
Services, Hardware and Infrastructure Exposes Us to a Variety of
Risks We Cannot Control.
Our success depends on software, equipment, network connectivity
and infrastructure hosting services supplied by our vendors and
customers. In addition, we rely on third-party vendors to
perform a substantial portion of our exception handling
services. We may not be able to continue to purchase the
necessary software, equipment and services from vendors on
acceptable terms or at all. If we are unable to maintain current
purchasing terms or ensure service availability with these
vendors and customers, we may lose customers and experience an
increase in costs in seeking alternative supplier services.
Our business also depends upon the capacity, reliability and
security of the infrastructure owned and managed by third
parties, including our vendors and customers, that is used by
our technology interoperability services, network services,
number portability services, call processed services and
enterprise solutions. We have no control over the operation,
quality or maintenance of a significant portion of that
infrastructure and whether those third parties will upgrade or
improve their software, equipment and services to meet our and
our customers evolving requirements. We depend on these
companies to maintain the operational integrity of our services.
If one or more of these companies is unable or unwilling to
supply or expand its levels of services to us in the future, our
operations could be severely interrupted. In addition, rapid
changes in the communications industry have led to industry
consolidation. This consolidation may cause the availability,
pricing and quality of the services we use to vary and could
lengthen the amount of time it takes to deliver the services
that we use.
Our
Failure to Protect Confidential Information and Our Network
Against Security Breaches Could Damage Our Reputation and
Substantially Harm Our Business and Results of
Operations.
A significant barrier to online commerce is concern about the
secure transmission of confidential information over public
networks. The encryption and authentication technology licensed
from third parties on which we rely to securely transmit
confidential information, including credit card numbers, may not
adequately protect customer transaction data. Any compromise of
our security could damage our reputation and expose us to risk
of loss or litigation and possible liability which could
substantially harm our business and results of operation.
Although we carry general liability insurance, our insurance may
not cover potential claims of this type or may not be adequate
to cover all costs incurred in defense of potential claims or to
indemnify us for all liability that may be imposed. In addition,
anyone who is able to circumvent our security measures could
misappropriate proprietary information or cause interruptions in
our operations. We may need to expend significant resources to
protect against security breaches or to address problems caused
by breaches.
If We
Are Unable to Protect Our Intellectual Property Rights, Our
Competitive Position Could Be Harmed or We Could Be Required to
Incur Significant Expenses to Enforce Our Rights.
Our success depends to a significant degree upon the protection
of our software and other proprietary technology rights,
particularly our
ActivationNow®
and
ConvergenceNow®
platforms. We rely on trade secret, copyright and trademark laws
and confidentiality agreements with employees and third parties,
all of which offer only limited protection. The steps we have
taken to protect our intellectual property may not prevent
misappropriation of our proprietary rights or the reverse
engineering of our solutions. Legal standards relating to the
validity,
18
enforceability and scope of protection of intellectual property
rights in other countries are uncertain and may afford little or
no effective protection of our proprietary technology.
Consequently, we may be unable to prevent our proprietary
technology from being exploited abroad, which could require
costly efforts to protect our technology. Policing the
unauthorized use of our products, trademarks and other
proprietary rights is expensive, difficult and, in some cases,
impossible. Litigation may be necessary in the future to enforce
or defend our intellectual property rights, to protect our trade
secrets or to determine the validity and scope of the
proprietary rights of others. Such litigation could result in
substantial costs and diversion of management resources, either
of which could materially harm our business. Accordingly,
despite our efforts, we may not be able to prevent third parties
from infringing upon or misappropriating our intellectual
property.
Claims
By Others That We Infringe Their Proprietary Technology Could
Harm Our Business.
Third parties could claim that our current or future products or
technology infringe their proprietary rights. We expect that
software developers will increasingly be subject to infringement
claims as the number of products and competitors providing
software and services to the communications industry increases
and overlaps occur. Any claim of infringement by a third party,
even those without merit, could cause us to incur substantial
costs defending against the claim, and could distract our
management from our business. Furthermore, a party making such a
claim, if successful, could secure a judgment that requires us
to pay substantial damages. A judgment could also include an
injunction or other court order that could prevent us from
offering our services. Any of these events could seriously harm
our business. Third parties may also assert infringement claims
against our customers. These claims may require us to initiate
or defend protracted and costly litigation on behalf of our
customers, regardless of the merits of these claims. If any of
these claims succeed, we may be forced to pay damages on behalf
of our customers. We also generally indemnify our customers if
our services infringe the proprietary rights of third parties.
If anyone asserts a claim against us relating to proprietary
technology or information, while we might seek to license their
intellectual property, we might not be able to obtain a license
on commercially reasonable terms or on any terms. In addition,
any efforts to develop non-infringing technology could be
unsuccessful. Our failure to obtain the necessary licenses or
other rights or to develop non-infringing technology could
prevent us from offering our services and could therefore
seriously harm our business.
We May
Seek to Acquire Companies or Technologies, Which Could Disrupt
Our Ongoing Business, Disrupt Our Management and Employees and
Adversely Affect Our Results of Operations.
We may acquire companies where we believe we can acquire new
products or services or otherwise enhance our market position or
strategic strengths. We have not made any acquisitions to date,
and therefore our ability as an organization to make
acquisitions is unproven. We may not be able to find suitable
acquisition candidates and we may not be able to complete
acquisitions on favorable terms, if at all. If we do complete
acquisitions, we cannot be sure that they will ultimately
enhance our products or strengthen our competitive position. In
addition, any acquisitions that we make could lead to
difficulties in integrating personnel and operations from the
acquired businesses and in retaining and motivating key
personnel from these businesses. Acquisitions may disrupt our
ongoing operations, divert management from day-to-day
responsibilities, increase our expenses and harm our results of
operations or financial condition. Future acquisitions could
result in potentially dilutive issuances of equity securities,
the incurrence of debt, which may reduce our cash available for
operations and other uses, an increase in contingent liabilities
or an increase in amortization expense related to identifiable
assets acquired, each of which could materially harm our
business, financial condition and results of operations.
Our
Expansion into International Markets May Be Subject to
Uncertainties That Could Increase Our Costs to Comply with
Regulatory Requirements in Foreign Jurisdictions, Disrupt Our
Operations and Require Increased Focus from Our
Management.
Our growth strategy includes the growth of our operations in
foreign jurisdictions. International operations and business
expansion plans are subject to numerous additional risks,
including economic and political risks in foreign jurisdictions
in which we operate or seek to operate, the difficulty of
enforcing contracts and collecting receivables through some
foreign legal systems, unexpected changes in regulatory
requirements, fluctuations in currency exchange rates, potential
difficulties in enforcing intellectual property rights in
foreign countries and the difficulties
19
associated with managing a large organization spread throughout
various countries. As we continue to expand our business
globally, our success will depend, in large part, on our ability
to anticipate and effectively manage these and other risks
associated with our international operations. However, any of
these factors could adversely affect our international
operations and, consequently, our operating results.
Our
Senior Management is Important to Our Customer Relationships,
and the Loss of One or More of Our Senior Managers Could Have a
Negative Impact on Our Business.
We believe that our success depends in part on the continued
contributions of our senior management. We rely on our executive
officers and senior management to generate business and execute
programs successfully. In addition, the relationships and
reputation that members of our management team have established
and maintain with our customers and our regulators contribute to
our ability to maintain good customer relations. The loss of any
members of our senior management could materially impair our
ability to identify and secure new contracts and otherwise
manage our business.
We
Continue to Incur Significant Costs as a Result of Operating as
a Public Company, and Our Management Is Required to Devote
Substantial Time to New Compliance Initiatives.
We have only operated as a public company since June 2006 and we
will continue to incur significant legal, accounting and other
expenses as we comply with the Sarbanes-Oxley Act of 2002, as
well as new rules subsequently implemented by the Securities and
Exchange Commission and the Nasdaq Stock Markets National
Market. These rules impose various new requirements on public
companies, including requiring changes in corporate governance
practices. Our management and other personnel will continue to
devote a substantial amount of time to these new compliance
initiatives. Moreover, these rules and regulations will increase
our legal and financial compliance costs and will make some
activities more time-consuming and costly. For example, we
expect these new rules and regulations to make it more difficult
and more expensive for us to obtain director and officer
liability insurance, and we may be required to accept reduced
policy limits and coverage or incur substantial costs to
maintain the same or similar coverage. 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,
our board committees or as executive officers.
Section 404 of the Sarbanes-Oxley Act of 2002 requires that
we include in our annual report our assessment of the
effectiveness of our internal control over financial reporting
and our audited financial statements as of the end of each
fiscal year. Furthermore, our independent registered public
accounting firm, Ernst & Young LLP,
(E&Y), is required to report on whether it
believes we maintained, in all material respects, effective
internal control over financial reporting as of the end of the
year. We successfully completed our assessment and obtained
E&Ys attestation as to the effectiveness of our
internal control over financial reporting as of
December 31, 2007. Our continued compliance with
Section 404 will require that we incur substantial expense
and expend significant management time on compliance related
issues. We currently do not have an internal audit group and we
will evaluate the need to hire additional accounting and
financial staff with appropriate public company experience and
technical accounting knowledge. In future years, if we fail to
timely complete this assessment, or if E&Y cannot timely
attest, there may be a loss of public confidence in our internal
control, the market price of our stock could decline and we
could be subject to regulatory sanctions or investigations by
the Nasdaq Stock Markets National Market, the Securities
and Exchange Commission or other regulatory authorities, which
would require additional financial and management resources. In
addition, any failure to implement required new or improved
controls, or difficulties encountered in their implementation,
could harm our operating results or cause us to fail to timely
meet our regulatory reporting obligations.
Changes
in, or Interpretations of, Accounting Principles Could Result in
Unfavorable Accounting Charges.
We prepare our financial statements in conformity with
U.S. generally accepted accounting principles. These
principles are subject to interpretation by the SEC and various
bodies formed to interpret and create appropriate accounting
principles. A change in these principles could have a
significant effect on our reported results and may even
retroactively affect previously reported transactions. Our
accounting principles that recently have been or may
20
be affected by changes in accounting principles are:
(i) accounting for stock-based compensation;
(ii) accounting for income taxes; (iii) accounting for
business combinations and goodwill; and (iv) accounting for
foreign currency translation.
Changes
in, or Interpretations of, Tax Rules and Regulations, Could
Adversely Affect our Effective Tax Rates.
Unanticipated changes in our tax rates could affect our future
results of operations. Our future effective tax rates could be
unfavorably affected by changes in tax laws or the
interpretation of tax laws or by changes in the valuation of our
deferred tax assets and liabilities. In addition, we are subject
to the continued examination of our income tax returns by the
IRS and other domestic tax authorities. We regularly assess the
likelihood of outcomes resulting from these examinations, if
any, to determine the adequacy of our provision for income
taxes. We believe such estimates to be reasonable, but there can
be no assurance that the final determination of any of these
examinations will not have an adverse effect on our operating
results and financial position.
If
Securities or Industry Analysts Do Not Publish Research or
Publish Inaccurate or Unfavorable Research About Our Business,
Our Stock Price and Trading Volumes Could Decline.
The trading market for our common stock will continue to depend
in part on the research and reports that securities or industry
analysts publish about us or our business. If we do not continue
to maintain adequate research coverage or if one of more of the
analysts who covers us downgrades our stock or publishes
inaccurate or unfavorable research about our business, our stock
price may decline. If one or more of these analysts ceases
coverage of our company or fails to publish reports on us
regularly, demand for our stock could decrease, which could
cause our stock price and trading volumes to decline.
Our
Stock Price May Continue to Experience Significant
Fluctuations.
Our stock price, like that of other technology companies,
continues to fluctuate greatly. Our stock price can be affected
by many factors such as quarterly increases or decreases in our
earnings, speculation in the investment community about our
financial condition or results of operations and changes in
revenue or earnings estimates, announcement of new services,
technological developments, alliances, or acquisitions by us.
Additionally, the price of our common stock may continue to
fluctuate greatly in the future due to factors that are
non-company specific, such as the decline in the United States
and/or
international economies, acts of terror against the United
States, war or due to a variety of company specific factors,
including quarter to quarter variations in our operating
results, shortfalls in revenue, gross margin or earnings from
levels by securities analysts and the other factors discussed in
these risk factors.
Delaware
Law and Provisions in Our Amended and Restated Certificate of
Incorporation and Bylaws Could Make a Merger, Tender Offer or
Proxy Contest Difficult, Therefore Depressing the Trading Price
of Our Common Stock.
We are a Delaware corporation and the anti-takeover provisions
of the Delaware General Corporation Law may discourage, delay or
prevent a change in control by prohibiting us from engaging in a
business combination with an interested stockholder for a period
of three years after the person becomes an interested
stockholder, even if a change of control would be beneficial to
our existing stockholders. In addition, our amended and restated
certificate of incorporation and bylaws may discourage, delay or
prevent a change in our management or control over us that
stockholders may consider favorable. Our amended and restated
certificate of incorporation and bylaws:
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authorize the issuance of blank check preferred
stock that could be issued by our board of directors to thwart a
takeover attempt;
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prohibit cumulative voting in the election of directors, which
would otherwise allow holders of less than a majority of the
stock to elect some directors;
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21
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establish a classified board of directors, as a result of which
the successors to the directors whose terms have expired will be
elected to serve from the time of election and qualification
until the third annual meeting following election;
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require that directors only be removed from office for cause;
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provide that vacancies on the board of directors, including
newly-created directorships, may be filled only by a majority
vote of directors then in office;
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limit who may call special meetings of stockholders;
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prohibit stockholder action by written consent, requiring all
actions to be taken at a meeting of the stockholders; and
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establish advance notice requirements for nominating candidates
for election to the board of directors or for proposing matters
that can be acted upon by stockholders at stockholder meetings.
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ITEM 1B.
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UNRESOLVED
STAFF COMMENTS
|
None.
We lease approximately 26,150 square feet of office space
in Bridgewater, New Jersey. In addition to our principal office
space in Bridgewater, New Jersey, we lease facilities and
offices in Bethlehem, Pennsylvania, Herndon, Virginia and
Bellevue, Washington. Lease terms for these locations expire
between 2009 and 2012. We believe that the facilities we now
lease are sufficient to meet our needs through at least the next
12 months. However, we may require additional office space
after that time, and we are currently evaluating expansion
possibilities.
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ITEM 3.
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LEGAL
PROCEEDINGS
|
We are not currently subject to any legal proceedings that could
have a material adverse effect on our operations; however, we
may from time to time become a party to various legal
proceedings arising in the ordinary course of our business.
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ITEM 4.
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SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
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No matters were submitted to a vote of security holders during
the quarter ended December 31, 2007.
22
PART II
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ITEM 5.
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Market
Information
|
Our common stock is traded over-the-counter and is listed on the
NASDAQ National Market under the symbol SNCR. We
began trading on the NASDAQ National Market on June 19,
2006. The following table sets forth, for each period during the
past two years, the high and low sale prices as reported by
NASDAQ.
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2007
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High
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Low
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First Quarter
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$
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19.85
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$
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13.47
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Second Quarter
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$
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30.83
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$
|
17.10
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Third Quarter
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$
|
45.55
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$
|
26.43
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Fourth Quarter
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$
|
48.03
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$
|
28.24
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2006
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High
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Low
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First Quarter
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NM
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*
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NM
|
*
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Second Quarter
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$
|
9.17
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$
|
8.24
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Third Quarter
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$
|
11.10
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$
|
6.25
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Fourth Quarter
|
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$
|
15.85
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$
|
8.16
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As of February 15, 2008, there were approximately 98
holders of record of our common stock. On February 15,
2008, the last reported sale price of our common stock as
reported on the NASDAQ National Market was $18.66 per share.
Dividend
Policy
We have never declared or paid cash dividends on our common or
preferred equity. We currently intend to retain all available
funds and any future earnings for use in the operation of our
business and do not anticipate paying any cash dividends in the
foreseeable future. Any future determination to declare cash
dividends will be made at the discretion of our board of
directors and will depend on our financial condition, results of
operations, capital requirements, general business conditions
and other factors that our board of directors may deem relevant.
Use of
Proceeds From Public Offering of Common Stock
On June 14, 2006, our Registration Statement on
Form S-1
(File
No. 333-132080)
relating to the IPO was declared effective by the SEC. The
managing underwriters of the IPO were Goldman, Sachs &
Co., Deutsche Bank Securities Inc. and Thomas Weisel Partners
LLC. On June 20, 2006, we closed the sale of
6,532,107 shares of common stock in the IPO for net
proceeds to us of $45.7 million. In July 2006, we sold an
additional 959,908 shares of common stock upon the exercise
of an over-allotment option granted to the underwriters for net
proceeds to us of $7.1 million. No offering expenses were
paid directly or indirectly to any of our directors or officers
or persons owning ten percent or more of any class of our equity
securities or to any other affiliates. We have invested our net
proceeds of the offering in money market funds pending their use
to fund our expansion. Part of our current growth strategy is to
further penetrate the North American markets and expand our
customer base internationally. We anticipate that a portion of
the proceeds of the offering will enable us to finance this
expansion. In addition, we could use a portion of the proceeds
of this offering to make strategic investments in, or pursue
acquisitions of, other businesses, products or technologies.
23
Equity
Compensation Plan Information
The following table provides information as of December 31,
2007 with respect to the shares of our common stock that may be
issuable under our existing equity compensation plans.
The following information is as of December 31, 2007:
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(a)
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(b)
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(c)
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Number of Securities
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Remaining Available
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Number of Securities
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for Future Issuance
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to be Issued Upon
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Weighted-Average
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Under Equity
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Exercise of
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Exercise Price of
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Compensation Plans
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Outstanding Options
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Outstanding
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(Excluding Securities
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Plan Category
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and Rights
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Options and Rights
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Reflected in Column (a))
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Equity compensation plans approved by security holders
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2,830,848
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$
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15.51
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753,592
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Equity compensation plans not approved by security holders
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Totals
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2,830,848
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$
|
15.51
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753,592
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24
Stock
Performance Graph
The graph set forth below compares the cumulative total
stockholder return on our common stock between June 19,
2006 (the date our common stock began trading on NASDAQ) and
December 31, 2007, with the cumulative total return of
(i) the Nasdaq Computer Index and (ii) the Nasdaq
Composite Index, over the same period. This graph assumes the
investment of $100 on June 19, 2006 in our common stock,
the Nasdaq Computer Index and the Nasdaq Composite Index, and
assumes the reinvestment of dividends, if any. The graph assumes
the initial value of our common stock on June 19, 2006 was
the closing sales price of $8.50 per share.
The comparisons shown in the graph below are based upon
historical data. We caution that the stock price performance
shown in the graph below is not necessarily indicative of, nor
is it intended to forecast, the potential future performance of
our common stock. Information used in the graph was obtained
from NASDAQ, a source believed to be reliable, but we are not
responsible for any errors or omissions in such information.
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Company/Index
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6/19/06
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9/29/06
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12/29/06
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3/30/07
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6/29/07
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9/28/07
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12/31/07
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Synchronoss Technologies, Inc.
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$
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100
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$
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111.53
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$
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161.41
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$
|
204.71
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$
|
345.18
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$
|
494.82
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$
|
416.94
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Nasdaq Composite Index
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$
|
100
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$
|
107.01
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$
|
114.45
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|
|
|
$
|
114.75
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|
|
|
$
|
123.35
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|
|
$
|
128.01
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|
|
|
$
|
125.68
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Nasdaq Computer Index
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$
|
100
|
|
|
|
$
|
111.18
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|
|
|
$
|
118.18
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|
|
|
$
|
117.46
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|
|
|
$
|
129.37
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|
|
|
$
|
136.26
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|
|
|
$
|
144.00
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25
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ITEM 6.
|
SELECTED
FINANCIAL DATA
|
The following selected financial data should be read in
conjunction with our financial statements and related notes and
the Managements Discussion and Analysis of Financial
Condition and Results of Operations and other financial
data included elsewhere in this
Form 10-K.
The selected statements of operations and the selected balance
sheet data are derived from our audited financial statements.
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Year Ended December 31,
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2007
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|
2006
|
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2005
|
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2004
|
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2003
|
|
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|
(In thousands, except per share data)
|
|
|
Statements of Operations Data:
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|
|
|
|
|
|
|
|
|
|
|
|
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Net revenues
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|
$
|
123,538
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|
|
$
|
72,406
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|
|
$
|
54,218
|
|
|
$
|
27,191
|
|
|
$
|
16,550
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Costs and expenses:
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|
|
|
|
|
|
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|
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Cost of services ($0, $3,714, $8,089, $2,610, and $9 were
purchased from related parties during 2007, 2006, 2005, 2004 and
2003 respectively)*
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55,305
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|
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35,643
|
|
|
|
30,205
|
|
|
|
17,688
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|
|
|
7,655
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Research and development
|
|
|
10,629
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|
|
|
7,726
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|
|
|
5,689
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|
|
|
3,324
|
|
|
|
3,160
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Selling, general and administrative
|
|
|
18,531
|
|
|
|
10,474
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|
|
|
7,544
|
|
|
|
4,340
|
|
|
|
4,053
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Depreciation
|
|
|
5,237
|
|
|
|
3,267
|
|
|
|
2,305
|
|
|
|
2,127
|
|
|
|
2,919
|
|
|
|
|
|
|
|
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|
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|
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Total costs and expenses
|
|
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89,702
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|
|
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57,110
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|
|
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45,743
|
|
|
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27,479
|
|
|
|
17,787
|
|
|
|
|
|
|
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|
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|
|
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Income (loss) from operations
|
|
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33,836
|
|
|
|
15,296
|
|
|
|
8,475
|
|
|
|
(288
|
)
|
|
|
(1,237
|
)
|
Interest and other income
|
|
|
3,974
|
|
|
|
2,256
|
|
|
|
258
|
|
|
|
320
|
|
|
|
321
|
|
Interest expense
|
|
|
(66
|
)
|
|
|
(100
|
)
|
|
|
(133
|
)
|
|
|
(39
|
)
|
|
|
(128
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense
|
|
|
37,744
|
|
|
|
17,452
|
|
|
|
8,600
|
|
|
|
(7
|
)
|
|
|
(1,044
|
)
|
Income tax (expense) benefit
|
|
|
(13,988
|
)
|
|
|
(7,310
|
)
|
|
|
3,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
23,756
|
|
|
|
10,142
|
|
|
|
12,429
|
|
|
|
(7
|
)
|
|
|
(1,044
|
)
|
Preferred stock accretion
|
|
|
|
|
|
|
|
|
|
|
(34
|
)
|
|
|
(35
|
)
|
|
|
(35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders
|
|
$
|
23,756
|
|
|
$
|
10,142
|
|
|
$
|
12,395
|
|
|
$
|
(42
|
)
|
|
$
|
(1,079
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders per common
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.74
|
|
|
$
|
0.37
|
|
|
$
|
0.57
|
|
|
$
|
0.00
|
|
|
$
|
(0.11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.71
|
|
|
$
|
0.35
|
|
|
$
|
0.50
|
|
|
$
|
0.00
|
|
|
$
|
(0.11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
32,215
|
|
|
|
27,248
|
|
|
|
21,916
|
|
|
|
10,244
|
|
|
|
9,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
33,375
|
|
|
|
29,196
|
|
|
|
24,921
|
|
|
|
10,244
|
|
|
|
9,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Cost of services excludes depreciation which is shown separately. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(In thousands)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and marketable securities
|
|
$
|
95,857
|
|
|
$
|
78,952
|
|
|
$
|
16,002
|
|
|
$
|
10,521
|
|
|
$
|
13,556
|
|
Working capital
|
|
|
113,004
|
|
|
|
86,915
|
|
|
|
21,774
|
|
|
|
8,077
|
|
|
|
7,944
|
|
Total assets
|
|
|
139,018
|
|
|
|
104,925
|
|
|
|
40,208
|
|
|
|
22,784
|
|
|
|
22,402
|
|
Total stockholders equity (deficiency)
|
|
$
|
126,791
|
|
|
$
|
95,273
|
|
|
$
|
(4,864
|
)
|
|
$
|
(17,916
|
)
|
|
$
|
(17,783
|
)
|
26
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
This annual report on
Form 10-K,
particularly Managements Discussion and Analysis of
Financial Condition and Results of Operations set forth below,
contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995.
These statements are subject to risks and uncertainties and are
based on the beliefs and assumptions of our management as of the
date hereof based on information currently available to our
management. Use of words such as believes,
expects, anticipates,
intends, plans, should,
continues, likely or similar
expressions, indicate a forward-looking statement.
Forward-looking statements are not guarantees of future
performance and involve risks, uncertainties and assumptions.
Actual results may differ materially from the forward-looking
statements we make. We caution investors not to place
substantial reliance on the forward-looking statements included
in this report on
Form 10-K.
These statements speak only as of the date of this report
(unless another date is indicated), and we undertake no
obligation to update or revise the statements in light of future
developments.
Overview
We are a leading provider of on-demand multi-channel transaction
management platforms that enable CSPs to automate new subscriber
activation, order management and service provisioning. Our
ActivationNow®
and
ConvergenceNow®
platforms provide seamless integration between customer-facing
applications and back-office or
infrastructure-related systems and processes. Our CSP customers
rely on our internet based technology to automate the process of
activating customers and to deliver additional communications
services including new service offerings and ongoing customer
care. We have designed our platforms to be flexible to enable
multiple communication services including wireless VoIP,
wireline and cable to be managed through multiple distribution
channels including
e-commerce,
CSP stores and other retail outlets, etc., allowing us to meet
the rapidly changing and converging services offered by CSPs. By
simplifying the processes associated with managing the customer
experience for ordering and activating services through the
automation and integration of disparate systems, we enable CSPs
to acquire, retain and service customers quickly, reliably and
cost-effectively. We enable service providers to drive growth in
new and existing markets while delivering an improved customer
experience at lower costs.
Our industry-leading customers include wireline, wireless, VoIP
and cable MSO companies including AT&T Mobility Inc.,
Sprint Nextel, Embarq, Vonage Holdings, Cablevision Systems
Corporation, Level 3 Communications, Covad, Charter
Communications, Verizon Business Solutions, Clearwire, Time
Warner Cable and Comcast. These customers use our platforms and
technology and services to manage both consumer and business
customers, including over 300 of the Fortune 500 companies.
Revenues
We generate a substantial portion of our revenues on a
per-transaction basis, most of which is derived from contracts
that extend up to 48 months from execution. We have
increased our revenues rapidly, growing at a compound annual
growth rate of 67% from 2001 to 2007. For the year ended
December 31, 2007, we derived approximately 85% of our
revenues from transactions processed. The remainder of our
revenues were generated by professional services and
subscription revenues.
Costs
and Expenses
Our costs and expenses consist of cost of services, research and
development, selling, general and administrative and
depreciation.
Cost of services includes all direct materials, direct labor and
those indirect costs related to revenues such as indirect labor,
materials and supplies. Our primary cost of services is related
to our information technology and systems department, including
network costs, data center maintenance, database management and
data processing costs, as well as personnel costs associated
with service implementation, customer deployment and customer
care. Also included in cost of services are costs associated
with our exception handling centers and the maintenance of those
centers. Currently, we utilize a combination of employees and
third-party providers to process transactions through these
centers.
27
Research and development costs are expensed as incurred, unless
they meet GAAP criteria for deferral and amortization. Software
development costs incurred prior to the establishment of
technological feasibility do not meet these criteria, and are
expensed as incurred. No costs were deferred during the years
ended December 31, 2007, 2006 and 2005. Research and
development expense consists primarily of costs related to
personnel, including salaries and other personnel-related
expenses, consulting fees and the cost of facilities, computer
and support services used in service technology development. We
also expense costs relating to developing modifications and
minor enhancements of its existing technology and services.
Selling expense consists of personnel costs including salaries,
sales commissions, sales operations and other personnel-related
expense, travel and related expense, trade shows, costs of
communications equipment and support services, facilities costs,
consulting fees and costs of marketing programs, such as
Internet and print. General and administrative expense consists
primarily of salaries and other personnel-related expense for
our executive, administrative, legal, finance and human
resources functions, facilities, professional services fees,
certain audit, tax and bad debt expense.
Depreciation relates to our property and equipment and includes
our network infrastructure and facilities.
Current
Trends Affecting Our Results of Operations
We have experienced increased demand for our services, which has
been driven by market trends such as various forms of order
provisioning, local number portability, the implementation of
new technologies, subscriber growth, competitive churn, network
changes and consolidations in the industry. In particular, the
emergence of wireless order provisioning of
e-commerce
transactions as well as VoIP, local number portability and the
convergence of bundled services has increased the need for our
services and will continue to be a factor contributing to
competitive churn. In addition, the increasing demand for
converged services has led to the growth and mainstream adoption
of smart phones.
To support the growth driven by the favorable industry trends
mentioned above, we continue to look for opportunities to
improve our operating efficiencies, such as the utilization of
offshore technical and non-technical resources for our exception
handling center management. We believe that these opportunities
will continue to provide future benefits and position us to
support revenue growth. In addition, we anticipate further
automation of the transactions generated by our more mature
customers and additional transaction types. These development
efforts are expected to reduce exception handling costs.
Critical
Accounting Policies and Estimates
The discussion and analysis of our financial condition and
results of operations are based on our financial statements,
which have been prepared in accordance with U.S. generally
accepted accounting principles (GAAP). The
preparation of these financial statements in accordance with
GAAP requires us to utilize accounting policies and make certain
estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingencies as of
the date of the financial statements and the reported amounts of
revenues and expenses during a fiscal period. The Securities and
Exchange Commission (SEC) considers an accounting
policy to be critical if it is important to a companys
financial condition and results of operations, and if it
requires significant judgment and estimates on the part of
management in its application. We have discussed the selection
and development of the critical accounting policies with the
audit committee of our board of directors, and the audit
committee has reviewed our related disclosures in this
Form 10-K.
Although we believe that our judgments and estimates are
appropriate, correct and reasonable under the circumstances,
actual results may differ from those estimates.
We believe the following to be our critical accounting policies
because they are important to the portrayal of our financial
condition and results of operations and they require critical
management judgments and estimates about matters that are
uncertain. If actual results or events differ materially from
those contemplated by us in making these estimates, our reported
financial condition and results of operations for future periods
could be materially affected. See Risk Factors for
certain matters bearing risks on our future results of
operations.
28
Revenue
Recognition and Deferred Revenue
We provide services principally on a transactional basis or, at
times, on a fixed fee basis and recognize the revenues as the
services are performed or delivered as discussed below:
Transactional Service
Arrangements: Transaction revenues consist of
revenues derived from the processing of transactions through our
service platforms and represented approximately 85% of our
revenues for the years ended December 31, 2007 and 2006.
Transaction service arrangements include services such as
equipment orders, new account
set-up,
number port requests, credit checks and inventory management.
Transaction revenues are principally based on a set price per
transaction and are recognized based on the number of
transactions processed during each reporting period. Revenues
are recorded based on the total number of transactions processed
at the applicable price established in the relevant contract.
The total amount of revenues recognized is based primarily on
the volume of transactions. As automation rates increase,
transaction costs for the CSP decrease.
Many of our contracts guarantee minimum volume transactions from
the customer. In these instances, if the customers total
transaction volume for the period is less than the contractual
amount, we record revenues at the minimum guaranteed amount. At
times, transaction revenues may also include billings to
customers based on the number of individuals dedicated to
processing transactions.
Set-up fees
for transactional service arrangements are deferred and
recognized on a straight-line basis over the life of the
contract since these amounts would not have been paid by the
customer without the related transactional service arrangement.
Revenues are presented net of discounts, which are volume level
driven, or credits, which are performance driven, and are
determined in the period in which the volume thresholds are met
or the services are provided. Deferred revenues represent
principally setup fees with revenues recognized over the life of
the contract.
Professional Service
Arrangements: Professional service revenues
represented approximately 14% and 13% of our revenues for the
years ended December 31, 2007 and 2006, respectively.
Professional services, when sold with transactional service
arrangements, are accounted for separately when these services
have value to the customer on a standalone basis and there is
objective and reliable evidence of the fair value of the
professional services. When accounted for separately,
professional service revenues are recognized on a monthly basis,
as services are performed and all other elements of revenue
recognition have been satisfied.
In determining whether professional services can be accounted
for separately from transaction service revenues, we consider
the following factors for each professional services agreement:
availability of the consulting services from other vendors,
whether objective and reliable evidence for fair value exists of
the undelivered elements, the nature of the consulting services,
the timing of when the consulting contract was signed in
comparison to the transaction service start date and the
contractual independence of the transactional service from the
professional services.
If a professional service arrangement does not qualify for
separate accounting, we would recognize the professional service
revenues ratably over the remaining term of the transaction
contract. There were no such arrangements for the years ended
December 31, 2007, 2006 and 2005.
Subscription Service
Arrangements: Subscription service arrangements
represented approximately 1% and 2% of our revenues for the
years ended December 31, 2007 and 2006, respectively, and
relate principally to our
ActivationNow®
platform service which the customer accesses through a graphical
user interface. We record revenues on a straight-line basis over
the life of the contract for our subscription service contracts.
Service
Level Standards
Pursuant to certain contracts, we are subject to service level
standards and to corresponding penalties for failure to meet
those standards. All performance-related penalties are reflected
as a corresponding reduction of our revenues. These penalties,
if applicable, are recorded in the month incurred.
29
Allowance
for Doubtful Accounts
We maintain an allowance for doubtful accounts for estimated bad
debts resulting from the inability of our customers to make
required payments. The amount of the allowance account is based
on historical experience and our analysis of the accounts
receivable balance outstanding. While credit losses have
historically been within our expectations and the provisions
established, we cannot guarantee that we will continue to
experience the same credit losses that we have in the past or
that our reserves will be adequate. If the financial condition
of one of our customers were to deteriorate, resulting in its
inability to make payments, additional allowances may be
required which would result in an additional expense in the
period that this determination was made.
Income
Taxes
We account for income taxes in accordance with
SFAS No. 109, Accounting for Income Taxes.
Under SFAS No. 109, the liability method is used
in accounting for income taxes. Under this method, deferred
income tax liabilities and assets are determined based on the
difference between the financial statement carrying amounts and
the tax basis of assets and liabilities using enacted tax rates
in effect in the years in which the differences are expected to
reverse or be utilized. The realization of deferred tax assets
is contingent upon the generation of future taxable income. A
valuation allowance is recorded if it is more likely than
not that a portion or all of a deferred tax asset will not
be realized.
In June 2006, the FASB issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
Interpretation of FASB Statement No. 109
(FIN 48) to create a single model to address
accounting for uncertain tax positions. FIN 48 clarifies
the accounting for income taxes, by prescribing a minimum
recognition threshold a tax position is required to meet before
being recognized in the financial statements. FIN 48 also
provides guidance on derecognition, measurement, classification,
interest and penalties, accounting in interim periods,
disclosure and transition. FIN 48 is effective for fiscal
years beginning after December 15, 2006. We adopted
FIN 48 as of January 1, 2007, as required and
determined that the adoption of FIN 48 did not have a
material impact on our financial position and results of
operations. As of December 31, 2007, we have total
unrecognized tax benefits of $678 which includes $29 for
interest related to uncertain positions during the year ended
December 31, 2007. We did not have any unrecognized tax
benefits as of January 1, 2007. Components of the reserve
are classified as either current or long-term in the
consolidated balance sheet based on when we expect each of the
items to be settled. Accordingly, we recorded a long-term
liability of $649 on our balance sheet at December 31, 2007
that would reduce the effective tax rate if recognized. We
record interest and penalties accrued in relation to uncertain
income tax positions as a component of income tax expense. We
did not accrue for interest or penalties as of December 31,
2006 or any period prior to 2006. Tax returns for all years 2000
and thereafter are subject to future examination by tax
authorities.
While we believe we have identified all reasonably identified
exposures and that the reserve we have established for
identifiable exposures is appropriate under the circumstances,
it is possible that additional exposures exist and that
exposures may be settled at amounts different than the amounts
reserved. It is also possible that changes in facts and
circumstances could cause us to either materially increase or
reduce the carrying amount of its tax reserve.
Stock-Based
Compensation
As of December 31, 2007, we maintain two stock-based
compensation plans. Prior to January 1, 2006, we were
applying the disclosure only provisions of SFAS 123,
Accounting for Stock-Based Compensation
(SFAS 123). Compensation cost is recognized
for all share-based payments granted subsequent to
January 1, 2006 and is based on the grant-date fair value
estimated in accordance with the provisions of SFAS 123(R).
Under SFAS 123(R), an equity instrument is not considered
to be issued until the instrument vests. As a result,
compensation cost is recognized over the requisite service
period with an offsetting credit to additional paid-in capital.
Compensation expense also includes the amortization on a
straight-line basis over the remaining vesting period of the
intrinsic values of the stock options granted prior to 2006
calculated in accordance with Accounting for Stock Issued to
Employees (APB 25). We classify benefits of tax
deductions in excess of the compensation cost recognized (excess
tax benefits) as a financing cash inflow with a corresponding
operating cash outflow.
30
We utilize the Black-Scholes option pricing model for
determining the estimated fair value for stock-based awards. Use
of a valuation model requires management to make certain
assumptions with respect to selected model inputs. Expected
volatility was calculated based on a blended weighted-average of
historical information of similar public entities for which
historical information was available. We will continue to use
this approach using other similar public entity volatility
information until our historical volatility is relevant to
measure expected volatility for future option grants. The
average expected life was determined using the SEC shortcut
approach as described in Staff Accounting Bulletin
(SAB) 107, Disclosure about Fair Value of
Financial Instruments, which is the mid-point between the
vesting date and the end of the contractual term. The risk-free
interest rate is based on U.S. Treasury zero-coupon issues
with a remaining term equal to the expected life assumed at the
date of grant. We have never declared or paid cash dividends on
our common or preferred equity and do not anticipate paying any
cash dividends in the foreseeable future. Forfeitures are
estimated based on voluntary termination behavior, as well as a
historical analysis of actual option forfeitures.
The weighted-average assumptions used in the Black-Scholes
option pricing model are as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Expected stock price volatility
|
|
|
59
|
%
|
|
|
45
|
%
|
Risk-free interest rate
|
|
|
4.63
|
%
|
|
|
4.72
|
%
|
Expected life of options (in years)
|
|
|
5.9
|
|
|
|
6.2
|
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
The weighted-average fair value (as of the date of grant) of the
options granted was $12.52 and $4.71 per share for the year
ended December 31, 2007 and 2006, respectively. The total
stock-based compensation cost related to non-vested equity
awards not yet recognized as an expense as of December 31,
2007 was approximately $13.5 million.
Results
of Operations
Year
ended December 31, 2007, compared to the Year ended
December 31, 2006
The following table presents an overview of our results of
operations for the years ended December 31, 2007 and 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
2007 vs. 2006
|
|
|
|
$
|
|
|
Revenue
|
|
|
$
|
|
|
Revenue
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
(In thousands)
|
|
|
Net revenue
|
|
$
|
123,538
|
|
|
|
100.0
|
%
|
|
$
|
72,406
|
|
|
|
100.0
|
%
|
|
$
|
51,132
|
|
|
|
70.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services ($0 and $3,714 were purchased from a related
party in 2007 and 2006, respectively)*
|
|
|
55,305
|
|
|
|
44.8
|
%
|
|
|
35,643
|
|
|
|
49.2
|
%
|
|
|
19,662
|
|
|
|
55.2
|
%
|
Research and development
|
|
|
10,629
|
|
|
|
8.6
|
%
|
|
|
7,726
|
|
|
|
10.7
|
%
|
|
|
2,903
|
|
|
|
37.6
|
%
|
Selling, general and administrative
|
|
|
18,531
|
|
|
|
15.0
|
%
|
|
|
10,474
|
|
|
|
14.5
|
%
|
|
|
8,057
|
|
|
|
76.9
|
%
|
Depreciation
|
|
|
5,237
|
|
|
|
4.2
|
%
|
|
|
3,267
|
|
|
|
4.5
|
%
|
|
|
1,970
|
|
|
|
60.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89,702
|
|
|
|
72.6
|
%
|
|
|
57,110
|
|
|
|
78.9
|
%
|
|
|
32,592
|
|
|
|
57.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
$
|
33,836
|
|
|
|
27.4
|
%
|
|
$
|
15,296
|
|
|
|
21.1
|
%
|
|
$
|
18,540
|
|
|
|
121.2
|
%
|
|
|
|
* |
|
Cost of services excludes depreciation which is shown separately. |
Net Revenue. Net revenues increased
$51.1 million to $123.5 million for 2007, compared to
2006. Due to increased volumes of transactions processed, net
revenues related to AT&T increased $47.0 million to
$94.5 million for the year ended December 31, 2007,
compared to 2006. Net revenues outside of the AT&T
relationship generated $29.0 million of our revenues during
2007, as compared to $25.0 million last year. Transaction
revenues recognized in 2007 and 2006 represented 85% or
$104.6 million and 85% or $61.7 million of net
revenues, respectively.
31
Professional service revenues increased as a percentage of sales
to 14% or $18.0 million for the year ended
December 31, 2007, compared to 13% for previous year.
Expense
Cost of Services. Cost of services increased
$19.7 million to $55.3 million for 2007, compared to
2006, due primarily to the growth in personnel costs required to
support higher transaction volumes submitted to us by our
customers and increases in telecommunication costs. In
particular, personnel and related costs and third party
consulting service costs increased $17.4 million due to the
management of exception handling. Also, additional
telecommunication and maintenance expense in our data
facilities, contributed approximately $1.6 million to the
increase in cost of services. In addition, stock-based
compensation expense increased $286. Cost of services as a
percentage of revenues decreased to 44.8% for 2007, as compared
to 49.2% for 2006.
Research and Development. Research and
development expense increased $2.9 million to
$10.6 million for 2007, compared to 2006, due to the
continued investment in and further development of our
ActivationNow®
and
ConvergenceNowtm
platforms to enhance our service offerings and increases in
automation that have continued to allow us to gain operational
efficiencies. Research and development expense as a percentage
of revenues decreased to 8.6% for 2007, as compared to 10.7% for
2006.
Selling, General and Administrative. Selling,
general and administrative expense increased $8.1 million
to $18.5 million for 2007, compared to 2006, due in part to
increases in personnel and related costs totaling
$3.4 million, increased expenses of $1.5 million
associated with being a public company for the entire year,
increased stock-based compensation expense of $1.7 million,
and increased marketing expenses of $689. Selling, general and
administrative expense as a percentage of revenues increased to
15.0% for 2007, as compared to 14.5% for 2006.
Depreciation. Depreciation expense increased
$2.0 million to $5.2 million for 2007, compared to
2006, due to increased fixed asset additions. Depreciation
expense as a percentage of revenues decreased to 4.2% for 2007,
as compared to 4.5% for 2006.
Income Tax. Our effective tax rate was
approximately 37.1% and approximately 41.9% during 2007 and
2006, respectively. During 2007 and 2006, we recognized
approximately $14.0 million and $7.3 million in
related tax expense, respectively. The reduction in our
effective tax rate in 2007 was due to the recording of a net
cumulative R&D tax credit of approximately
$1.2 million. Exclusive of this item, the effective tax
rate for 2007 would be 40.2%.
Results
of Operations
Year
ended December 31, 2006, compared to the Year ended
December 31, 2005
The following table presents an overview of our results of
operations for the years ended December 31, 2006 and 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
2006 vs. 2005
|
|
|
|
$
|
|
|
Revenue
|
|
|
$
|
|
|
Revenue
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
(In thousands)
|
|
|
Net revenue
|
|
$
|
72,406
|
|
|
|
100.0
|
%
|
|
$
|
54,218
|
|
|
|
100.0
|
%
|
|
$
|
18,188
|
|
|
|
33.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services ($3,714 and $8,089 were purchased from a
related party in 2006 and 2005, respectively)*
|
|
|
35,643
|
|
|
|
49.2
|
%
|
|
|
30,205
|
|
|
|
55.7
|
%
|
|
|
5,438
|
|
|
|
18.0
|
%
|
Research and development
|
|
|
7,726
|
|
|
|
10.7
|
%
|
|
|
5,689
|
|
|
|
10.5
|
%
|
|
|
2,037
|
|
|
|
35.8
|
%
|
Selling, general and administrative
|
|
|
10,474
|
|
|
|
14.5
|
%
|
|
|
7,544
|
|
|
|
13.9
|
%
|
|
|
2,930
|
|
|
|
38.8
|
%
|
Depreciation
|
|
|
3,267
|
|
|
|
4.5
|
%
|
|
|
2,305
|
|
|
|
4.3
|
%
|
|
|
962
|
|
|
|
41.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,110
|
|
|
|
78.9
|
%
|
|
|
45,743
|
|
|
|
84.4
|
%
|
|
|
11,367
|
|
|
|
24.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
$
|
15,296
|
|
|
|
21.1
|
%
|
|
$
|
8,475
|
|
|
|
15.6
|
%
|
|
$
|
6,821
|
|
|
|
80.5
|
%
|
|
|
|
* |
|
Cost of services excludes depreciation which is shown separately. |
32
Net Revenue. Net revenues increased
$18.2 million to $72.4 million for 2006, compared to
2005. This increase includes $11.5 million of additional
revenues from existing customers and $6.7 million related
to additional revenues generated by CSP customers added since
2005. Net revenues related to AT&T increased to
$47.5 million from $43.4 million for 2005. Revenues
outside of the AT&T relationship generated
$25.0 million of our revenues during 2006, as compared to
$10.8 million for 2005. These additional revenues were
offset by decreases in revenues from wireline customers.
Transaction revenues recognized for the year ended
December 31, 2006 represented 85% or $61.7 million of
net revenues compared to 83% for the same period in 2005.
Professional service revenues increased as a percentage of sales
to 13% or $9.5 million for the year ended December 31,
2006, compared to 11% for previous year.
Expense
Cost of Services. Cost of services increased
$5.4 million to $35.6 million during 2006, compared to
2005, due primarily to the growth in personnel costs and
third-party consulting services costs required to support higher
transaction volumes submitted to us by our customers. In
particular, personnel and related costs increased
$1.4 million and third-party consulting services costs
increased $2.1 to manage exception handling. Telecommunication
expense in our data facilities contributed approximately $838 to
the increase in cost of services. In addition, stock-based
compensation expense increased $320 due to the adoption of
SFAS 123(R). Also, additional repairs and maintenance
expense in our data facilities contributed approximately $340
due to the increase in cost of services. Cost of services as a
percentage of revenues decreased to 49.2% for year ended
December 31, 2006, as compared to 55.7% for the same period
in 2005. The benefits and efficiencies gained by increased
automation rates in both existing and new customers as compared
to the prior year is the primary cause for our lower costs as a
percentage of revenues.
Research and Development. Research and
development expense increased $2.0 million to
$7.7 million for 2006, compared to 2005, due to the
continued investment in and further development of our
ActivationNow®
platform to enhance our service offerings, particularly
regarding VoIP services and increases in automation that have
continued to allow us to gain operational efficiencies. Research
and development expense as a percentage of revenues increased to
10.7% for the year ended December 31, 2006, as compared to
10.5% for the same period in 2005.
Selling, General and Administrative. Selling,
general and administrative expense increased $2.9 million
to $10.5 million for 2006, compared to 2005, due to
increases in personnel and related costs totaling $790 as a
result of the growth of our sales force, and increased expenses
of $893 associated with being a public company. In addition,
stock-based compensation expense increased $399 due to the
adoption of SFAS 123(R). Selling, general and
administrative expense as a percentage of revenues increased to
14.5% for the year ended December 31, 2006, as compared to
13.9% for the same period in 2005.
Depreciation. Depreciation expense increased
$1.0 million to $3.3 million due to fixed asset
additions.
Income Tax. Our effective tax rate was
approximately 41.9% and (45.0)% for 2006 and 2005, respectively.
The change in the effective rate is primarily due to the
reversal of our deferred tax asset valuation allowance, which
occurred during the fourth quarter of 2005. During year ended
December 31, 2006, we recognized approximately
$7.3 million in related tax expense, as compared to a
related tax benefit of approximately $3.8 million for the
same period in 2005.
33
Unaudited
Quarterly Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
|
|
(In thousands, except per share data)
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
21,329
|
|
|
$
|
31,321
|
|
|
$
|
34,477
|
|
|
$
|
36,411
|
|
Gross profit(2)
|
|
|
11,687
|
|
|
|
16,816
|
|
|
|
18,876
|
|
|
|
20,854
|
|
Net income(3)
|
|
|
3,694
|
|
|
|
5,436
|
|
|
|
8,008
|
|
|
|
6,618
|
|
Basic net income per common share(1)(3)
|
|
|
0.12
|
|
|
|
0.17
|
|
|
|
0.25
|
|
|
|
0.20
|
|
Diluted net income per common share(1)(3)
|
|
|
0.11
|
|
|
|
0.16
|
|
|
|
0.24
|
|
|
|
0.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
|
|
(In thousands, except per share data)
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
15,724
|
|
|
$
|
17,442
|
|
|
$
|
18,909
|
|
|
$
|
20,331
|
|
Gross profit(2)
|
|
|
6,961
|
|
|
|
7,799
|
|
|
|
10,224
|
|
|
|
11,779
|
|
Net income
|
|
|
1,529
|
|
|
|
1,428
|
|
|
|
3,136
|
|
|
|
4,049
|
|
Basic net income per common share(1)
|
|
|
0.07
|
|
|
|
0.06
|
|
|
|
0.10
|
|
|
|
0.13
|
|
Diluted net income per common share(1)
|
|
|
0.06
|
|
|
|
0.05
|
|
|
|
0.10
|
|
|
|
0.12
|
|
|
|
|
(1) |
|
Per common share amounts for the quarters and full year have
been calculated separately. Accordingly, quarterly amounts do
not add to the annual amount because of differences in the
weighted-average common shares outstanding during each period
principally due to the effect of the Companys issuing
shares of its common stock and options during the year. |
|
(2) |
|
Gross profit excludes depreciation. |
|
(3) |
|
Net income for the quarter ended September 30, 2007
included a discrete tax credit that increased net income by
$1.1 million and basic and diluted earnings per share by
$0.03. |
Liquidity
and Capital Resources
Our principal source of liquidity has been cash provided by
operations and by cash provided from our initial public offering
(IPO) which was completed on June 20, 2006. The
net proceeds from our offering and the exercise of the
over-allotment option by our IPO underwriters were approximately
$52.8 million, which enabled us to strengthen our balance
sheet. Our cash, cash equivalents and marketable securities
balance was $95.9 million at December 31, 2007, an
increase of $16.9 million as compared to the end of 2006.
We anticipate that our principal uses of cash in the future will
be to fund the expansion of our business and to expand our
customer base internationally. Uses of cash will include
facility expansion, capital expenditures and working capital.
Upon the consummation of our IPO on June 20, 2006, all of
our Series A and Series 1 convertible preferred stock
were converted into shares of common stock on a one-for-one
basis. As a result, no dividends are currently accruing. In
connection with our IPO and the exercise of the over-allotment
option by our IPO underwriters, we paid offering costs,
including underwriting discounts and commissions, and other
related expenses totaling $7.2 million. These offering
costs were offset against the gross proceeds of our IPO and the
exercise of the over-allotment option.
Discussion
of Cash Flows
Cash flows from operations. Net cash provided
by operating activities for the year ended December 31,
2007 was $23.5 million, compared to $14.0 million for
the year ended December 31, 2006. The increase of
$9.5 million is primarily due to income derived from
increased volume from transactions and increased accounts
payable and accrued expenses balances partially offset by an
increase to accounts receivable and prepaid expenses and other
current assets as well as an increase to tax benefit from stock
option exercises. Income and accounts receivable grew primarily
due to increased volume from transactions and timing of
collections of customer accounts. The accounts
34
payable and accrued expenses accounts grew partially due to
increased expenses necessary to support higher revenues as well
as capital expenditures necessary to continue to grow our
business.
Cash flows from investing. Net cash used in
investing activities for the year ended December 31, 2007
was $8.5 million compared to net cash used of
$2.0 million for the year ended December 31, 2006. The
increase of $6.5 million was due to the increased purchase
of fixed assets of $6.1 million and net maturities of
marketable securities.
Cash flows from financing. Net cash provided
by financing activities for the year ended December 31,
2007 was $3.9 million compared to net cash provided of
$53.2 million for the year ended December 31, 2006.
The difference of $49.3 million was primarily due to net
proceeds received from the issuance of common stock sold in our
initial public offering completed last year with no
corresponding equity sale in 2007.
We believe that our existing cash and cash equivalents, the cash
generated from our initial public offering and cash generated
from our operations will be sufficient to fund our operations
for the next twelve months.
Effect of
Inflation
Although inflation generally affects us by increasing our cost
of labor and equipment, we do not believe that inflation has had
any material effect on our results of operations during 2007,
2006 and 2005.
Contractual
Obligations
Our commitments consist of obligations under leases for office
space, automobiles, computer equipment and furniture and
fixtures. The following table summarizes our long-term
contractual obligations as of December 31, 2007 (in
thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
More Than
|
|
|
|
Total
|
|
|
1 Year
|
|
|
1 3 Years
|
|
|
4 5 Years
|
|
|
5 Years
|
|
|
Operating lease obligations
|
|
$
|
4,302
|
|
|
$
|
1,531
|
|
|
$
|
1,917
|
|
|
$
|
854
|
|
|
$
|
|
|
Other long-term liabilities(1)
|
|
|
678
|
|
|
|
|
|
|
|
678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,980
|
|
|
$
|
1,531
|
|
|
$
|
2,595
|
|
|
$
|
854
|
|
|
$
|
|
|
|
|
|
(1) |
|
Amount represents unrecognized tax positions recorded in our
balance sheet. Although the timing of the settlement is
uncertain, we believe this amount will be settled within
3 years. |
Impact of
Recently Issued Accounting Standards
In September 2006, the FASB issued Statement 157, Fair Value
Measurement (Statement 157). Statement 157
defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles and
establishes a hierarchy that categorizes and prioritizes the
sources to be used to estimate fair value. Statement 157 also
expands financial statement disclosures about fair value
measurements. On February 6, 2008, the FASB issued FASB
Staff Position (FSP) 157-b which delays the effective date of
Statement 157 for one year for all nonfinancial assets and
nonfinancial liabilities, except those that are recognized or
disclosed at fair value in the financial statements on a
recurring basis (at least annually). Statement 157 and
FSP 157-b are effective for financial statements issued for
fiscal years beginning after November 15, 2007. We have
elected a partial deferral of Statement 157 under the provisions
of FSP 157-b related to the measurement of fair value used
when evaluating goodwill, other intangible assets and other
long-lived assets for impairment and valuing asset retirement
obligations and liabilities for exit or disposal activities. The
impact of partially adopting Statement 157 effective
January 1, 2008 is not expected to be material to our
consolidated financial statements.
In February 2007, the FASB issued Statement 159, The Fair
Value Option for Financial Assets and Financial
Liabilities Including an Amendment of
SFAS 115 (Statement 159), which permits but
does not require us to measure financial instruments and certain
other items at fair value. Unrealized gains and losses on items
for which the fair value option has been elected are reported in
earnings. This statement is effective for financial statements
issued for fiscal years beginning after November 15, 2007.
As we have not elected to fair value any of our financial
35
instruments under the provisions of Statement 159, the adoption
of this statement will not have any impact to our financial
statements.
Off-Balance
Sheet Arrangements
We had no off-balance sheet arrangements as of December 31,
2007 and December 31, 2006.
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Market
Risk
The following discussion about market risk disclosures involves
forward-looking statements. Actual results could differ
materially from those projected in the forward-looking
statements. We deposit our excess cash in high-quality financial
instruments, primarily money market funds and, we may be exposed
to market risks related to changes in interest rates. We do not
actively manage the risk of interest rate fluctuations on our
short-term investments; however, such risk is mitigated by the
relatively short-term nature of these investments. These
investments are denominated in United States dollars.
The primary objective of our investment activities is to
preserve our capital for the purpose of funding operations,
while at the same time maximizing the income we receive from our
investments without significantly increasing risk. To achieve
these objectives, our investment policy allows us to maintain a
portfolio of cash equivalents and short- and long-term
investments in a variety of securities, which could include
commercial paper, money market funds and corporate debt
securities. Our cash and cash equivalents at December 31,
2007 and 2006 included liquid money market accounts. All
market-risk sensitive instruments were entered into for
non-trading purposes. We do not expect the current rate of
inflation to have a material impact on our business.
The recent decline in the market value of certain securities
backed by residential mortgage loans has led to a large
liquidity crisis effecting the broader U.S. housing market, the
financial services industry and global financial markets.
Investors in many industry sectors have experienced substantial
decreases in asset valuations and uncertain market liquidity.
Furthermore, credit rating authorities have, in many cases, been
slow to respond to the rapid changes in the underlying value of
certain securities and pervasive market illiquidity, regarding
these securities.
As a result, this credit crisis may have a potential
impact on the determination of the fair value of financial
instruments or possibly require impairments in the future should
the value of certain investments suffer a decline in value which
is determined to be other than temporary. We currently do not
believe that any change in the market value of our money market
funds to be material or warrant a determination of an other than
temporary write down.
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
INDEX TO
FINANCIAL STATEMENTS
36
SYNCHRONOSS
TECHNOLOGIES, INC.
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Synchronoss Technologies, Inc.
We have audited the accompanying balance sheets of Synchronoss
Technologies, Inc. as of December 31, 2007 and 2006, and
the related statements of operations, stockholders equity
(deficiency), and cash flows for each of the three years in the
period ended December 31, 2007. Our audits also included
the financial statement schedule included in Item 15(a)(2).
These financial statements and schedule are the responsibility
of the Companys management. Our responsibility is to
express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Synchronoss Technologies, Inc. at December 31, 2007 and
2006, and the results of its operations and its cash flows for
each of the three years in the period ended December 31,
2007, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
As discussed in Note 2 to the financial statements,
effective January 1, 2006, the Company adopted
SFAS No. 123(R), Share-Based
Payments using the prospective method of adoption, and
FIN 48, Accounting for Uncertainty in Income
Taxes an Interpretation of FASB Statement
No. 109 effective January 1, 2007.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Synchronoss Technologies, Inc.s internal control over
financial reporting as of December 31, 2007, based on
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated
February 22, 2008 expressed an unqualified opinion thereon.
MetroPark, New Jersey
February 22, 2008
37
SYNCHRONOSS
TECHNOLOGIES, INC.
BALANCE
SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except per share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
92,756
|
|
|
$
|
73,905
|
|
Marketable securities
|
|
|
1,891
|
|
|
|
3,780
|
|
Accounts receivable, net of allowance for doubtful accounts of
$448 and $171 at December 31, 2007 and 2006, respectively
|
|
|
26,710
|
|
|
|
16,917
|
|
Prepaid expenses and other assets
|
|
|
2,949
|
|
|
|
1,653
|
|
Deferred tax assets
|
|
|
247
|
|
|
|
312
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
124,553
|
|
|
|
96,567
|
|
Marketable securities
|
|
|
1,210
|
|
|
|
1,267
|
|
Property and equipment, net
|
|
|
10,467
|
|
|
|
5,262
|
|
Deferred tax assets
|
|
|
2,498
|
|
|
|
1,643
|
|
Other assets
|
|
|
290
|
|
|
|
186
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
139,018
|
|
|
$
|
104,925
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,681
|
|
|
$
|
728
|
|
Accrued expenses
|
|
|
9,495
|
|
|
|
7,807
|
|
Short-term portion of equipment loan payable
|
|
|
|
|
|
|
666
|
|
Deferred revenues
|
|
|
373
|
|
|
|
451
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
11,549
|
|
|
|
9,652
|
|
Other liabilities
|
|
|
678
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value; 10,000 shares
authorized, 0 shares issued and outstanding at
December 31, 2007 and 2006
|
|
|
|
|
|
|
|
|
Common stock, $0.0001 par value; 100,000 shares
authorized, 32,726 and 32,250 shares issued; 32,630 and
32,154 outstanding at December 31, 2007 and 2006,
respectively
|
|
|
3
|
|
|
|
3
|
|
Treasury stock, at cost (96 shares at December 31,
2007 and 2006)
|
|
|
(19
|
)
|
|
|
(19
|
)
|
Additional paid-in capital
|
|
|
98,596
|
|
|
|
90,844
|
|
Accumulated other comprehensive income (loss)
|
|
|
4
|
|
|
|
(6
|
)
|
Retained earnings
|
|
|
28,207
|
|
|
|
4,451
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
126,791
|
|
|
|
95,273
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
139,018
|
|
|
$
|
104,925
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
38
SYNCHRONOSS
TECHNOLOGIES, INC.
STATEMENTS
OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands, except per share data)
|
|
|
Net revenues
|
|
$
|
123,538
|
|
|
$
|
72,406
|
|
|
$
|
54,218
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services ($0, $3,714, and $8,089 were purchased from a
related party during 2007, 2006 and 2005, respectively)*
|
|
|
55,305
|
|
|
|
35,643
|
|
|
|
30,205
|
|
Research and development
|
|
|
10,629
|
|
|
|
7,726
|
|
|
|
5,689
|
|
Selling, general and administrative
|
|
|
18,531
|
|
|
|
10,474
|
|
|
|
7,544
|
|
Depreciation
|
|
|
5,237
|
|
|
|
3,267
|
|
|
|
2,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
89,702
|
|
|
|
57,110
|
|
|
|
45,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
33,836
|
|
|
|
15,296
|
|
|
|
8,475
|
|
Interest and other income
|
|
|
3,974
|
|
|
|
2,256
|
|
|
|
258
|
|
Interest expense
|
|
|
(66
|
)
|
|
|
(100
|
)
|
|
|
(133
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
37,744
|
|
|
|
17,452
|
|
|
|
8,600
|
|
Income tax (expense) benefit
|
|
|
(13,988
|
)
|
|
|
(7,310
|
)
|
|
|
3,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
23,756
|
|
|
|
10,142
|
|
|
|
12,429
|
|
Preferred stock accretion
|
|
|
|
|
|
|
|
|
|
|
(34
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders
|
|
$
|
23,756
|
|
|
$
|
10,142
|
|
|
$
|
12,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders per Common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.74
|
|
|
$
|
0.37
|
|
|
$
|
0.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.71
|
|
|
$
|
0.35
|
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
32,215
|
|
|
|
27,248
|
|
|
|
21,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
33,375
|
|
|
|
29,196
|
|
|
|
24,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Cost of services excludes depreciation which is shown separately. |
See accompanying notes.
39
SYNCHRONOSS
TECHNOLOGIES, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Retained
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Subscription
|
|
|
Deferred
|
|
|
Other
|
|
|
Earnings
|
|
|
Stockholders
|
|
|
|
Common Stock
|
|
|
Treasury Stock
|
|
|
Paid-In
|
|
|
Notes from
|
|
|
Stock-Based
|
|
|
Comprehensive
|
|
|
(Accumulated
|
|
|
Equity
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stockholders
|
|
|
Compensation
|
|
|
Income (Loss)
|
|
|
Deficit)
|
|
|
(Deficiency)
|
|
|
|
(In thousands)
|
|
|
Balance December 31, 2004
|
|
|
10,503
|
|
|
|
1
|
|
|
|
(96
|
)
|
|
|
(19
|
)
|
|
|
869
|
|
|
|
(536
|
)
|
|
|
|
|
|
|
(111
|
)
|
|
|
(18,120
|
)
|
|
|
(17,916
|
)
|
Interest on notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
Deferred stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
847
|
|
|
|
|
|
|
|
(847
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
|
120
|
|
Reversal of deferred compensation due to employee termination
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of Series A redeemable convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34
|
)
|
Employees repayment of notes and interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
545
|
|
Issuance of common stock on exercise of employee options
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,429
|
|
|
|
12,429
|
|
Unrealized loss on investments in marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2005
|
|
|
10,518
|
|
|
|
1
|
|
|
|
(96
|
)
|
|
|
(19
|
)
|
|
|
1,661
|
|
|
|
|
|
|
|
(702
|
)
|
|
|
(114
|
)
|
|
|
(5,691
|
)
|
|
|
(4,864
|
)
|
Stock-based compensation
|
|
|
256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,075
|
|
Reversal of deferred compensation in accordance with
SFAS 123(R)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(702
|
)
|
|
|
|
|
|
|
702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Series A redeemable convertible preferred
stock
|
|
|
11,549
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
33,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,493
|
|
Conversion of Series 1 convertible preferred stock
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,444
|
|
Issuance of common stock
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000
|
|
Issuance of common stock from IPO and exercise of over-
allotment exercise, net of offering costs
|
|
|
7,492
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
52,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,765
|
|
Issuance of common stock on exercise of options
|
|
|
324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,142
|
|
|
|
10,142
|
|
Unrealized gain on investments in marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108
|
|
|
|
|
|
|
|
108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2006
|
|
|
32,250
|
|
|
$
|
3
|
|
|
|
(96
|
)
|
|
$
|
(19
|
)
|
|
$
|
90,844
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(6
|
)
|
|
|
4,451
|
|
|
$
|
95,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,608
|
|
Issuance of restricted stock
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
619
|
|
Issuance of common stock on exercise of options and warrants
|
|
|
416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,565
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,756
|
|
|
|
23,756
|
|
Unrealized gain on investments in marketable securities net of
tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,766
|
|
Tax benefit from stock option exercise
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2007
|
|
|
32,726
|
|
|
$
|
3
|
|
|
|
(96
|
)
|
|
$
|
(19
|
)
|
|
$
|
98,596
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4
|
|
|
|
28,207
|
|
|
$
|
126,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
SYNCHRONOSS
TECHNOLOGIES, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
23,756
|
|
|
$
|
10,142
|
|
|
$
|
12,429
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
|
5,237
|
|
|
|
3,267
|
|
|
|
2,305
|
|
Deferred income taxes
|
|
|
(790
|
)
|
|
|
2,689
|
|
|
|
(4,644
|
)
|
Stock-based compensation
|
|
|
3,227
|
|
|
|
1,075
|
|
|
|
120
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net of allowance for doubtful accounts
|
|
|
(9.793
|
)
|
|
|
(3,825
|
)
|
|
|
(5,847
|
)
|
Prepaid expenses and other current assets
|
|
|
(1,296
|
)
|
|
|
(464
|
)
|
|
|
(490
|
)
|
Other assets
|
|
|
(104
|
)
|
|
|
888
|
|
|
|
(853
|
)
|
Accounts payable and accrued expenses
|
|
|
5,601
|
|
|
|
1,103
|
|
|
|
4,665
|
|
Tax benefit from stock option exercise
|
|
|
(2,960
|
)
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
678
|
|
|
|
|
|
|
|
|
|
Due to a related party
|
|
|
|
|
|
|
(577
|
)
|
|
|
178
|
|
Deferred revenues
|
|
|
(78
|
)
|
|
|
(342
|
)
|
|
|
162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
23,478
|
|
|
|
13,956
|
|
|
|
8,025
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of fixed assets
|
|
|
(10,442
|
)
|
|
|
(4,322
|
)
|
|
|
(2,414
|
)
|
Employees repayment of notes
|
|
|
|
|
|
|
|
|
|
|
545
|
|
Purchases of marketable securities available for sale
|
|
|
(3,645
|
)
|
|
|
(1,537
|
)
|
|
|
(2,959
|
)
|
Sale of marketable securities available for sale
|
|
|
5,601
|
|
|
|
3,814
|
|
|
|
2,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(8,486
|
)
|
|
|
(2,045
|
)
|
|
|
(1,980
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock related party
|
|
|
|
|
|
|
1,000
|
|
|
|
|
|
Proceeds from the exercise of stock options
|
|
|
1,565
|
|
|
|
110
|
|
|
|
4
|
|
Proceeds from initial public offering, net of offering costs
|
|
|
|
|
|
|
45,663
|
|
|
|
|
|
Proceeds from the exercise of over-allotment option, net of
offering costs
|
|
|
|
|
|
|
7,102
|
|
|
|
|
|
Excess tax benefits from stock option exercises
|
|
|
2,960
|
|
|
|
|
|
|
|
|
|
Repayments of equipment loan
|
|
|
(666
|
)
|
|
|
(667
|
)
|
|
|
(667
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
3,859
|
|
|
|
53,208
|
|
|
|
(663
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
18,851
|
|
|
|
65,119
|
|
|
|
5,382
|
|
Cash and cash equivalents at beginning of year
|
|
|
73,905
|
|
|
|
8,786
|
|
|
|
3,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
92,756
|
|
|
$
|
73,905
|
|
|
$
|
8,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
37
|
|
|
$
|
100
|
|
|
$
|
133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
|
13,439
|
|
|
|
3,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of redeemable convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of redeemable convertible preferred stock
|
|
$
|
|
|
|
$
|
34,937
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
41
SYNCHRONOSS
TECHNOLOGIES, INC.
NOTES TO
FINANCIAL STATEMENTS
(in thousands, except per share data)
|
|
1.
|
Description
of Business
|
Synchronoss Technologies, Inc. (the Company or
Synchronoss) is a leading provider of on-demand
multi-channel transaction management platforms that enable CSPs
to automate new subscriber activation, order management and
service provisioning. The Company conducts its business
operations primarily in the United States of America, with some
aspects of its operations being outsourced to entities located
in India and Canada. Our
ActivationNow®
and
ConvergenceNow®
platforms provide seamless integration between customer-facing
applications and back-office or
infrastructure-related systems and processes. The Companys
CSP customers rely on our internet based technology to automate
the process of activating customers and to deliver additional
communications services including new service offerings and
ongoing customer care. Synchronoss has designed its platforms to
be flexible to enable multiple communication services including
wireless, VoIP, wireline and cable to be managed through
multiple distribution channels including
e-commerce,
CSP stores and other retail outlets, etc., allowing the Company
to meet the rapidly changing and converging services offered by
CSPs. By simplifying the processes associated with managing the
customer experience for ordering and activating services through
the automation and integration of disparate systems, Synchronoss
enables CSPs to acquire, retain and service customers quickly,
reliably and cost-effectively. The Company enables service
providers to drive growth in new and existing markets while
delivering an improved customer experience at lower costs.
On June 20, 2006, the Company completed its initial public
offering (IPO) pursuant to which it sold
6,532 shares of common stock at a price to the public of
$8.00 per share. Upon completion of the IPO, all 13,549
outstanding shares of the Companys Series A and
Series 1 convertible preferred stock automatically
converted into common stock on a one-for-one basis. On
July 3, 2006, the Companys IPO underwriters exercised
their option to purchase an additional 960 shares of common
stock at the IPO price of $8.00 per share before underwriting
discounts and commissions.
|
|
2.
|
Basis of
Presentation and Summary of Significant Accounting
Policies
|
Use of
Estimates
The preparation of financial statements in conformity with
U.S. generally accepted accounting principles
(GAAP) requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting periods. Actual
results could differ from those estimates.
Revenue
Recognition and Deferred Revenue
The Company provides services principally on a transaction fee
basis or, at times, on a fixed fee basis and recognizes the
revenues as the services are performed or delivered as described
below:
Transaction Service Arrangements: Transaction
revenues consist of revenues derived from the processing of
transactions through the Companys service platforms and
represent approximately 85%, 85% and 83% of net revenues during
the years ended December 31, 2007, 2006 and 2005,
respectively. Transaction service arrangements include services
such as processing equipment orders, new account
set-up,
number port requests, credit checks and inventory management.
Transaction revenues are principally based on a contractual
price per transaction and are recognized based on the number of
transactions processed during each reporting period. Revenues
are recorded based on the total number of transactions processed
at the applicable price established in the relevant contract.
The total amount of revenues recognized is based primarily on
the volume of transactions. Many of our contracts guarantee
minimum volume transactions from the customer. In these
instances, if the customers total transaction volume for
the period is less than the contractual amount, we record
revenues at the minimum guaranteed amount. At times, transaction
revenues may also include billings to customers that reimburse
the Company based on the number of individuals
42
SYNCHRONOSS
TECHNOLOGIES, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
dedicated to processing transactions.
Set-up fees
for transactional service arrangements are deferred and
recognized on a straight-line basis over the life of the
contract since these amounts would not have been paid by the
customer without the related transactional service arrangement.
Revenues are presented net of discounts, which are volume level
driven, or credits, which are performance driven, and are
determined in the period in which the volume thresholds are met
or the services are provided. Deferred revenues represent
billings to customers for services in advance of the performance
of services, with revenues recognized as the services are
rendered.
Professional Service
Arrangements: Professional services represented
approximately 14%, 13% and 11% of net revenues for the years
ended December 31, 2007, 2006 and 2005, respectively.
Professional services include process and workflow consulting
services and development services. Professional services, when
sold with transactional service arrangements, are accounted for
separately when the professional services have value to the
customer on a standalone basis and there is objective and
reliable evidence of fair value of the professional services.
When accounted for separately, professional service revenues are
recognized on a monthly basis, as services are performed and all
other elements of revenue recognition have been satisfied.
In addition, in determining whether professional service
revenues can be accounted for separately from transaction
service revenues, the Company considers the following factors
for each professional services agreement: availability of the
consulting services from other vendors, whether objective and
reliable evidence of fair value exists for these services and
the undelivered transaction revenues, the nature of the
consulting services, the timing of when the consulting contract
was signed in comparison to the transaction service start date
and the contractual independence of the transactional service
from the professional services.
If a professional service arrangement does not qualify for
separate accounting, the Company would recognize the
professional service revenues ratably over the remaining term of
the transaction contract. For the years ended December 31,
2007, 2006 and 2005, all professional services have been
accounted for separately.
Subscription Service
Arrangements: Subscription service arrangements
which are generally based upon fixed fees represent
approximately 1%, 2% and 6% of net revenues for the years ended
December 31, 2007, 2006 and 2005, respectively, and relate
principally to the Companys enterprise portal management
services. The Company records revenues on a straight-line basis
over the life of the contract for its subscription service
contracts.
Service
Level Standards
Pursuant to certain contracts, the Company is subject to service
level standards and to corresponding penalties for failure to
meet those standards. All performance-related penalties are
reflected as a corresponding reduction of our revenues. These
penalties, if applicable, are recorded in the month incurred and
were insignificant for the years ended December 31, 2007,
2006 and 2005, respectively.
Concentration
of Credit Risk
The Companys financial instruments that are exposed to
concentration of credit risk consist primarily of cash and cash
equivalents, marketable securities and accounts receivable. The
Company maintains its cash and cash equivalents in bank
accounts, which, at times, exceed federally insured limits. The
Company deposits its excess cash in high-quality financial
instruments, primarily money market funds. The Company has not
recognized any losses in such accounts. The Company believes it
is not exposed to significant credit risk on cash, cash
equivalents and marketable securities. Concentration of credit
risk with respect to accounts receivable is limited because of
the creditworthiness of the Companys major customers.
The Companys top five customers accounted for 95%, 95% and
99% of net revenues for 2007, 2006 and 2005, respectively. The
Companys top five customers accounted for 95% and 90% of
accounts receivable at December 31, 2007 and 2006,
respectively. We are the primary provider of
e-commerce
transaction management solutions to AT&T Mobility LLC
(formerly Cingular Wireless), the Companys largest
customer, under an agreement which runs through January of 2009
that automatically will be renewed for an additional twelve
months unless either party
43
SYNCHRONOSS
TECHNOLOGIES, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
terminates prior to November 1, 2008. Under the terms of
this agreement, AT&T Mobility LLC may terminate its
relationship with us for convenience, although we believe
AT&T Mobility LLC would encounter substantial costs in
replacing our transaction management solution.
Fair
Value of Financial Instruments
Statement of Financial Accounting Standards (SFAS)
No. 107, Disclosures about Fair Value of Financial
Instruments, requires disclosures of fair value information
about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate that
value. Due to their short-term nature, the carrying amounts
reported in the financial statements approximate the fair value
for cash and cash equivalents, accounts receivable and accounts
payable.
Cash
and Cash Equivalents
The Company considers all highly liquid investments purchased
with a maturity of three months or less at the date of
acquisition to be cash equivalents.
Marketable
Securities
Marketable securities consist of fixed income investments with a
maturity of greater than three months and other highly liquid
investments that can be readily purchased or sold using
established markets. In accordance with SFAS No. 115,
Accounting for Certain Investments in Debt and Equity
Securities, these investments are classified as
available-for-sale and are reported at fair value on the
Companys balance sheet. The Company classifies its
securities with maturity dates of 12 months or more as long
term. Unrealized holding gains and losses are reported within
accumulated other comprehensive loss as a separate component of
stockholders equity. If a decline in the fair value of a
marketable security below the Companys cost basis is
determined to be other than temporary, such marketable security
is written down to its estimated fair value as a new cost basis
and the amount of the write-down is included in earnings as an
impairment charge. No other than temporary impairment charges
have been recorded in any of the periods presented herein.
Accounts
Receivable and Allowance for Doubtful Accounts
Accounts receivable consist of amounts due to the Company from
normal business activities. The Company maintains an allowance
for estimated losses resulting from the inability of its
customers to make required payments. The Company estimates
uncollectible amounts based upon historical bad debts, current
customer receivable balances, the age of customer receivable
balances, the customers financial condition and current
economic trends.
Property
and Equipment
Property and equipment and leasehold improvements are stated at
cost, net of accumulated depreciation. Depreciation is computed
using the straight-line method over the estimated useful lives
of the assets, which range from 3 to 5 years, or the lesser
of the related initial term of the lease or useful life for
leasehold improvements.
Expenditures for routine maintenance and repairs are charged
against operations. Major replacements, improvements and
additions are capitalized.
Impairment
of Long-Lived Assets
In accordance with SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, a review of
long-lived assets for impairment is performed when events or
changes in circumstances indicate that the carrying value of
such assets may not be recoverable. If an indication of
impairment is present, the Company compares the estimated
undiscounted future cash flows to be generated by the asset to
the assets carrying amount. If the undiscounted future
cash flows are less than the carrying amount of the asset, the
Company records an impairment
44
SYNCHRONOSS
TECHNOLOGIES, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
loss equal to the amount by which the assets carrying
amount exceeds its fair value. The fair value is determined
based on valuation techniques such as a comparison to fair
values of similar assets or using a discounted cash flow
analysis. There were no impairment charges recognized during the
years ended December 31, 2007, 2006 and 2005.
Cost
of Services
Cost of services includes all direct materials, direct labor and
those indirect costs related to revenues such as indirect labor,
materials and supplies and facilities cost, exclusive of
depreciation expense.
Research
and Development
Research and development costs are expensed as incurred, unless
they meet GAAP criteria for deferral and amortization. Software
development costs incurred prior to the establishment of
technological feasibility do not meet these criteria, and are
expensed as incurred. No costs were deferred during the years
ended December 31, 2007 and 2006. Research and development
expense consists primarily of costs related to personnel,
including salaries and other personnel-related expenses,
consulting fees and the cost of facilities, computer and support
services used in service technology development. The Company
also expenses costs relating to developing modifications and
minor enhancements of its existing technology and services.
Advertising
The Company expenses advertising as incurred. Advertising
expenses were insignificant for the years ended
December 31, 2007, 2006 and 2005, respectively.
Income
Taxes
The Company accounts for income taxes in accordance with
SFAS No. 109, Accounting for Income Taxes.
Under SFAS No. 109, the liability method is used
in accounting for income taxes. Under this method deferred
income tax liabilities and assets are determined based on the
difference between the financial statement carrying amounts and
the tax basis of assets and liabilities using enacted tax rates
in effect in the years in which the differences are expected to
reverse. A valuation allowance is recorded if it is more
likely than not that a portion or all of a deferred tax
asset will not be realized.
In June 2006, the FASB issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
Interpretation of FASB Statement No. 109
(FIN 48) to create a single model to address
accounting for uncertain tax positions. FIN 48 clarifies
the accounting for income taxes, by prescribing a minimum
recognition threshold a tax position is required to meet before
being recognized in the financial statements. FIN 48 also
provides guidance on derecognition, measurement, classification,
interest and penalties, accounting in interim periods,
disclosure and transition. FIN 48 is effective for fiscal
years beginning after December 15, 2006. The Company
adopted FIN 48 as of January 1, 2007, as required and
determined that the adoption of FIN 48 did not have a
material impact on our financial position and results of
operations. As of December 31, 2007, the Company has total
unrecognized tax benefits of $678 which includes $29 for
interest related to uncertain tax positions during the year
ended December 31, 2007. The Company did not have any
unrecognized tax benefits as of January 1, 2007. Components
of the reserve are classified as either current or long-term in
the consolidated balance sheet based on when we expect each of
the items to be settled. Accordingly, the Company has recorded a
long-term liability of $649 that would reduce the effective tax
rate if recognized. The Company records interest and penalties
accrued in relation to uncertain income tax positions as a
component of income tax expense. The Company did not accrue for
interest or penalties as of December 31, 2006 or any period
prior to 2006. Tax returns for all years 2000 and thereafter are
subject to future examination by tax authorities.
While Synchronoss believes it has identified all reasonably
identified exposures and that the reserve it has established for
identifiable exposures is appropriate under the circumstances,
it is possible that additional exposures
45
SYNCHRONOSS
TECHNOLOGIES, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
exist and that exposures may be settled at amounts different
than the amounts reserved. It is also possible that changes in
facts and circumstances could cause the Company to either
materially increase or reduce the carrying amount of its tax
reserve.
Comprehensive
Income
SFAS No. 130, Reporting Comprehensive Income,
requires components of other comprehensive income, including
unrealized gains and losses on available-for-sale securities, to
be included as part of total comprehensive income. Comprehensive
income is comprised of net income and other comprehensive
income. The components of comprehensive income are included in
the statements of stockholders equity (deficiency).
Basic
and Diluted Net Income Attributable to Common Stockholders per
Common Share
The Company calculates net income per share in accordance with
SFAS No. 128, Earnings Per Share. The Company
determined that its Series A redeemable convertible
preferred stock represented a participating security prior to
the IPO. Because the Series A redeemable preferred
convertible stock participated equally with common stock in
dividends and unallocated income, the Company calculated basic
earnings per share when the Company reports net income using the
if-converted method, which in the Companys circumstances,
is equivalent to the two class approach required by
EITF 03-6,
Participating Securities and the Two
Class Method under FASB Statement No. 128.
In connection with the Companys IPO, all of the
Companys Series A and Series 1 redeemable
convertible preferred stock was automatically converted into
common stock. Since the Series A redeemable convertible
preferred stock participated in dividend rights on a one-for-one
basis with common stockholders, the security was included in the
denominator of basic earnings per share for the period such
preferred stock was outstanding. The Companys
Series 1 redeemable convertible preferred stock was
included in the denominator of diluted earnings per share for
the period it was outstanding.
The following table provides a reconciliation of the numerator
and denominator used in computing basic and diluted net income
attributable to common stockholders per common share. Stock
options that are anti-dilutive and excluded from the following
table totaled 509, 280, and 120 for the years ended
December 31, 2007, 2006 and 2005 respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
23,756
|
|
|
$
|
10,142
|
|
|
$
|
12,429
|
|
Accretion of convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
(34
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders
|
|
$
|
23,756
|
|
|
$
|
10,142
|
|
|
$
|
12,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
32,215
|
|
|
|
21,869
|
|
|
|
10.367
|
|
Conversion of Series A redeemable convertible preferred
stock
|
|
|
|
|
|
|
5,379
|
|
|
|
11,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding basic
|
|
|
32,215
|
|
|
|
27,248
|
|
|
|
21,916
|
|
Dilutive effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Options, restricted shares and warrants
|
|
|
1,160
|
|
|
|
1,016
|
|
|
|
1,005
|
|
Conversion of Series 1 convertible preferred stock into
common stock
|
|
|
|
|
|
|
932
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding diluted
|
|
|
33,375
|
|
|
|
29,196
|
|
|
|
24,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
SYNCHRONOSS
TECHNOLOGIES, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
Stock-Based
Compensation
As of December 31, 2007, the Company maintains two
stock-based compensation plans. Prior to January 1, 2006,
the Company was applying the disclosure only provisions of
SFAS No. 123, Accounting for Stock-Based
Compensation (SFAS 123). Compensation cost
is recognized for all share-based payments granted subsequent to
January 1, 2006 and is based on the grant-date fair value
estimated in accordance with the provisions of SFAS 123(R).
Under SFAS 123(R), an equity instrument is not considered
to be issued until the instrument vests. As a result,
compensation cost is recognized over the requisite service
period with an offsetting credit to additional paid-in capital.
Compensation expense also includes the amortization on a
straight-line basis over the remaining vesting period of the
intrinsic values of the stock options granted prior to 2006
calculated in accordance with Accounting for Stock Issued to
Employees (APB 25).
Prior to the adoption of SFAS 123(R), the Company presented
its unamortized portion of deferred compensation cost for
non-vested stock options in the statement of changes in
shareholders deficiency with a corresponding credit to
additional paid-in capital. The Company classifies benefits of
tax deductions in excess of the compensation cost recognized
(excess tax benefits) as a financing cash inflow with a
corresponding operating cash outflow. For the year ended
December 31, 2007, the Company included $2,960 of excess
tax benefits as a financing cash inflow.
Impact
of Recently Issued Accounting Standards
In September 2006, the FASB issued Statement 157, Fair Value
Measurement (Statement 157). Statement 157
defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles and
establishes a hierarchy that categorizes and prioritizes the
sources to be used to estimate fair value. Statement 157 also
expands financial statement disclosures about fair value
measurements. On February 6, 2008, the FASB issued FASB
Staff Position (FSP) 157-b which delays the effective date of
Statement 157 for one year for all nonfinancial assets and
nonfinancial liabilities, except those that are recognized or
disclosed at fair value in the financial statements on a
recurring basis (at least annually). Statement 157 and
FSP 157-b are effective for financial statements issued for
fiscal years beginning after November 15, 2007. The Company
has elected a partial deferral of Statement 157 under the
provisions of FSP 157-b related to the measurement of fair
value used when evaluating goodwill, other intangible assets and
other long-lived assets for impairment and valuing asset
retirement obligations and liabilities for exit or disposal
activities. The impact of partially adopting Statement 157
effective January 1, 2008 is not expected to be material to
the Companys financial statements.
In February 2007, the FASB issued Statement 159, The Fair
Value Option for Financial Assets and Financial
Liabilities Including an Amendment of
SFAS 115 (Statement 159), which permits but
does not require the Company to measure financial instruments
and certain other items at fair value. Unrealized gains and
losses on items for which the fair value option has been elected
are reported in earnings. This statement is effective for
financial statements issued for fiscal years beginning after
November 15, 2007. As the Company has not elected to fair
value any of our financial instruments under the provisions of
Statement 159, the adoption of this statement will not have any
impact to the Companys financial statements.
Segment
Information
The Company currently operates in one business segment providing
critical technology services to the communications industry. The
Company is not organized by market and is managed and operated
as one business. A single management team reports to the chief
operating decision maker who comprehensively manages the entire
business. The Company does not operate any material separate
lines of business or separate business entities with respect to
its services. Accordingly, the Company does not accumulate
discrete financial information with respect to separate service
lines and does not have separately reportable segments as
defined by SFAS No. 131, Disclosure About Segments
of an Enterprise and Related Information.
47
SYNCHRONOSS
TECHNOLOGIES, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
The following is a summary of available-for-sale securities held
by the Company at December 31, 2007 and 2006. All
securities held by the company are domestic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
$
|
1,871
|
|
|
$
|
2
|
|
|
$
|
(2
|
)
|
|
$
|
1,871
|
|
Government bonds
|
|
|
1,224
|
|
|
|
6
|
|
|
|
|
|
|
|
1,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,095
|
|
|
$
|
8
|
|
|
$
|
(2
|
)
|
|
$
|
3,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
$
|
1,937
|
|
|
$
|
1
|
|
|
$
|
(6
|
)
|
|
$
|
1,932
|
|
Government bonds
|
|
|
3,120
|
|
|
|
2
|
|
|
|
(7
|
)
|
|
|
3,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,057
|
|
|
$
|
3
|
|
|
$
|
(13
|
)
|
|
$
|
5,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The net unrealized gain/(loss) net of tax was $4 and $(6) on
December 31, 2007 and 2006, respectively.
The Companys available-for-sale securities have the
following maturities:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Due in one year or less
|
|
$
|
1,891
|
|
|
$
|
3,780
|
|
Due after one year, less than five years
|
|
|
1,210
|
|
|
|
1,267
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,101
|
|
|
$
|
5,047
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains and losses are reported as a component of
accumulated other comprehensive income (loss) in
stockholders equity. For the years ended December 31,
2007, 2006 and 2005, realized gains and losses were
insignificant. The cost of securities sold is based on specific
identification method.
Unrealized losses in the Companys portfolio relate
primarily to certificates of deposit. For these securities, the
net unrealized losses are due to changes in interest rates and
not changes in credit risk.
|
|
4.
|
Property
and Equipment
|
Property and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Computer hardware
|
|
$
|
15,821
|
|
|
$
|
9,459
|
|
Computer software
|
|
|
8,542
|
|
|
|
5,853
|
|
Furniture and fixtures
|
|
|
608
|
|
|
|
507
|
|
Leasehold improvements
|
|
|
2,106
|
|
|
|
1,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,077
|
|
|
|
17,115
|
|
Less: Accumulated depreciation
|
|
|
(16,610
|
)
|
|
|
(11,853
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,467
|
|
|
$
|
5,262
|
|
|
|
|
|
|
|
|
|
|
48
SYNCHRONOSS
TECHNOLOGIES, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
Accrued expenses consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Accrued compensation and benefits
|
|
$
|
4,632
|
|
|
$
|
3,113
|
|
Accrued third party processing fees
|
|
|
3,255
|
|
|
|
1,508
|
|
Accrued other
|
|
|
1,608
|
|
|
|
1,645
|
|
Income tax payable
|
|
|
|
|
|
|
1,541
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,495
|
|
|
$
|
7,807
|
|
|
|
|
|
|
|
|
|
|
|
|
6.
|
Financing
Arrangements
|
On October 6, 2004, the Company entered into a Loan and
Security Agreement (the Agreement) with a bank which
expired on December 1, 2007. As of December 31, 2007,
2006 and 2005, the Company had outstanding borrowings of $0,
$666 and $1,333, respectively, against the Equipment Term Note
to fund purchases of eligible equipment. Borrowings on the
equipment line bore interest at the prime rate plus 1.75% (10%
and 9% at December 31, 2006 and 2005, respectively) and
principal and interest were payable monthly. The Agreement
included a Revolving Promissory Note for up to $2,000 and an
Equipment Term Note for up to $3,000.
The Company paid a facility fee and certain other bank fees in
connection with the financing arrangement. The agreement
required the Company to meet certain financial covenants. The
Company was in compliance with the financial covenants at
December 31, 2006 and 2005. Borrowings were collateralized
by all of the assets of the Company.
As of December 31, 2007, the Companys authorized
capital stock was 110,000 shares of stock with a par value
of $0.0001, of which 100,000 shares were designated common
stock and 10,000 shares were designated preferred stock.
Common
Stock
Each holder of common stock is entitled to vote on all matters
and is entitled to one vote for each share held. Dividends on
common stock will be paid when, as and if declared by the
Companys board of directors. No dividends have ever been
declared or paid by the Company. On June 20, 2006, all
13,549 outstanding shares of the Companys Series 1
and Series A convertible preferred stock were converted
into shares of common stock on a one-for-one basis. As of
December 31, 2007, there were 32,726 shares of common
stock issued, 5,097 shares of common stock reserved for
issuance under the Companys 2000 Stock Plan (the
2000 Plan) and 2,000 shares of common stock
reserved for issuance under the Companys 2006 Equity
Incentive Plan (the 2006 Plan).
Preferred
Stock
All of the Companys Series 1 and Series A
convertible preferred stock converted into common stock on a
one-for-one basis as a result of the IPO. There are no shares of
preferred stock outstanding as of December 31, 2007 or
2006. The board of directors is authorized to issue preferred
shares and has the discretion to determine the rights,
preferences, privileges and restrictions, including voting
rights, dividend rights, conversion rights, redemption
privileges and liquidation preferences of preferred stock.
49
SYNCHRONOSS
TECHNOLOGIES, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
Warrants
Prior to 2003, the Company issued warrants to a bank as part of
a loan and security agreement. In January 2007, the warrants
were fully exercised to purchase 75 shares of the
Companys common stock. The warrants had an exercise price
of $2.90 per share (adjusted for stock splits, stock dividends,
etc.). The value of the warrants were capitalized as debt
issuance cost and amortized to interest expense over the term of
the loan. No warrants were issued or exercised during the years
ended December 31, 2007 and 2006 and none were outstanding
as of December 31, 2007.
Registration
Rights
Holders of shares of common stock which were issued upon
conversion of the Companys Series A preferred stock
are entitled to have their shares registered under the
Securities Act of 1933, as amended (the Securities
Act). Under the terms of an agreement between the Company
and the holders of these registrable securities, if the Company
proposes to register any of its securities under the Securities
Act, either for its own account or for the account of others,
these stockholders are entitled to notice of such registration
and are entitled to include their shares in such registration.
As of December 31, 2007, the Company maintains two stock
incentive plans, the 2000 Plan and the 2006 Plan. Under the 2000
Plan, the Company has the ability to provide employees, outside
directors and consultants an opportunity to acquire a
proprietary interest in the success of the Company or to
increase such interest by receiving options or purchasing shares
of the Companys stock at a price not less than the fair
market value at the date of grant for incentive stock options
and a price not less than 30% of the fair market value at the
date of grant for non-qualified options. In April 2006, the
Companys board of directors adopted the 2006 Plan. The
2006 Plan became effective upon the IPO.
Under the 2006 Plan, the Company may grant to its employees,
outside directors and consultants awards in the form of
incentive stock options, non-qualified stock options, shares of
restricted stock and stock units or stock appreciation rights.
The aggregate number of shares of common stock with respect to
which all awards may be granted under the 2006 Plan is 2,000
plus any shares that remain available for issuance under the
2000 Plan. As of December 31, 2007, there were
754 shares available for grant or award under the
Companys Plans. During the year ended December 31,
2007, options to purchase 1,059 shares of common stock were
granted under the 2006 Plan.
Under the 2000 Plan, options may be exercised in whole or in
part for 100% of the shares subject to vesting at any time after
the date of grant. Options under the 2000 Plan generally vest
25% on the first year anniversary of the date of grant plus an
additional 1/48 for each month thereafter. If an option is
exercised prior to vesting, the underlying shares are subject to
a right of repurchase at the exercise price paid by the option
holder. The right of repurchase generally lapses with respect to
the first 25% of the purchased shares when the purchaser
completes 12 months of continuous service and lapses with
respect to an additional 1/48 of the purchased shares when the
purchaser completes each month of continuous service thereafter.
Under the 2006 Plan, options may be exercised once they become
vested. Options under the 2006 Plan generally vest 25% on the
first anniversary of the date of grant plus an additional 1/48
for each month thereafter. There were no options exercised prior
to vesting during 2007, 2006 or 2005.
The Companys board of directors administers the 2000 Plan
and the 2006 Plan and is responsible for determining the
individuals to be granted options or shares, the number of
options or shares each individual will receive, the price per
share and the exercise period of each option. In establishing
its estimates of fair value of the Companys common stock
prior to the completion of the IPO, the Company considered the
guidance set forth in the American Institute of Certified Public
Accountants Practice Aid, Valuation prior to being a public
company of Privately-Held-Company Equity Securities Issued as
Compensation, and performed a retrospective determination
50
SYNCHRONOSS
TECHNOLOGIES, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
of the fair value of its common stock for the year ended
December 31, 2005, utilizing a combination of valuation
methods described elsewhere in our prospectus dated
June 15, 2006.
The Company utilizes the Black-Scholes option pricing model for
determining the estimated fair value for stock-based awards. Use
of a valuation model requires management to make certain
assumptions with respect to selected model inputs. Expected
volatility was calculated based on a blended weighted-average of
historical information of similar public entities for which
historical information was available. The Company will continue
to use this approach using other similar public entity
volatility information until our historical volatility is
relevant to measure expected volatility for future option
grants. The average expected life was determined using the SEC
shortcut approach as described in Staff Accounting Bulletin
(SAB) 107, Disclosure about Fair Value of
Financial Instruments, which is the mid-point between the
vesting date and the end of the contractual term. The risk-free
interest rate is based on U.S. Treasury zero-coupon issues
with a remaining term equal to the expected life assumed at the
date of grant. The Company has never declared or paid cash
dividends on our common or preferred equity and does not
anticipate paying any cash dividends in the foreseeable future.
Forfeitures are estimated based on voluntary termination
behavior, as well as a historical analysis of actual option
forfeitures. The weighted-average assumptions used in the
Black-Scholes option pricing model are as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Expected stock price volatility
|
|
|
59
|
%
|
|
|
45
|
%
|
Risk-free interest rate
|
|
|
4.63
|
%
|
|
|
4.72
|
%
|
Expected life of options (in years)
|
|
|
5.9
|
|
|
|
6.2
|
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
The weighted-average fair value (as of the date of grant) of the
options granted during the year ended December 31, 2007 and
2006 was $12.52 and $4.71, respectively, and the minimum value
was $5.11 during the year ended December 31, 2005. During
the year ended December 31, 2007, the Company recorded
total pre-tax stock-based compensation expense of
$3.2 million ($2.4 million after tax or $0.07 per
diluted share), which includes both intrinsic value for equity
awards issued prior to 2006 and fair value for equity awards
issued after January 1, 2006. The total stock-based
compensation cost related to non-vested equity awards not yet
recognized as an expense as of December 31, 2007 was
approximately $13.5 million. That cost is expected to be
recognized over a weighted-average period of approximately
3.4 years.
51
SYNCHRONOSS
TECHNOLOGIES, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
Stock
Options
The following table summarizes information about stock options
outstanding.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
|
|
|
|
|
|
|
Option
|
|
|
|
|
|
|
Shares
|
|
|
Number
|
|
|
Exercise Price
|
|
|
Weighted-
|
|
|
|
Available
|
|
|
of
|
|
|
per Share
|
|
|
Average
|
|
|
|
for Grant
|
|
|
Shares
|
|
|
Range
|
|
|
Exercise Price
|
|
|
Balance at December 31, 2004
|
|
|
1,286
|
|
|
|
790
|
|
|
$
|
0.29
|
|
|
|
|
|
Options granted
|
|
|
(425
|
)
|
|
|
425
|
|
|
$
|
0.45 - 10.00
|
|
|
$
|
3.15
|
|
Options exercised
|
|
|
|
|
|
|
(16
|
)
|
|
$
|
0.29
|
|
|
$
|
0.29
|
|
Options forfeited
|
|
|
120
|
|
|
|
(120
|
)
|
|
$
|
0.29 - 10.00
|
|
|
$
|
0.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
|
981
|
|
|
|
1,079
|
|
|
$
|
0.29 - 10.00
|
|
|
$
|
1.40
|
|
Increase in options available for grant
|
|
|
2,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
(1,791
|
)
|
|
|
1,791
|
|
|
$
|
6.95 - 12.68
|
|
|
$
|
9.27
|
|
Options exercised
|
|
|
|
|
|
|
(324
|
)
|
|
$
|
0.29 - 6.19
|
|
|
$
|
0.34
|
|
Options and restricted stock forfeited
|
|
|
359
|
|
|
|
(359
|
)
|
|
$
|
0.29 - 10.00
|
|
|
$
|
5.89
|
|
Net restricted stock purchased, granted and forfeited
|
|
|
(367
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
1,796
|
|
|
|
2,187
|
|
|
$
|
0.29 - 12.68
|
|
|
$
|
7.62
|
|
Options granted
|
|
|
(1,059
|
)
|
|
|
1,059
|
|
|
$
|
14.00 - 42.77
|
|
|
$
|
28.06
|
|
Options exercised
|
|
|
|
|
|
|
(342
|
)
|
|
$
|
0.29 - 14.00
|
|
|
$
|
4.60
|
|
Options forfeited
|
|
|
73
|
|
|
|
(73
|
)
|
|
$
|
0.29 - 38.62
|
|
|
$
|
12.40
|
|
Net Restricted stock granted and forfeited
|
|
|
(56
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
754
|
|
|
|
2,831
|
|
|
$
|
0.29 - 42.77
|
|
|
$
|
15.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected to vest at December 31, 2007
|
|
|
|
|
|
|
1,691
|
|
|
$
|
0.29 - 42.77
|
|
|
$
|
16.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and exercisable at December 31, 2007
|
|
|
|
|
|
|
744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of the Companys non-vested restricted stock at
December 31, 2007, and changes during the year ended
December 31, 2007, is presented below:
|
|
|
|
|
|
|
Number of
|
|
Non-Vested Restricted Stock
|
|
Awards
|
|
|
Non-vested at January 1, 2007
|
|
|
213
|
|
Granted
|
|
|
60
|
|
Vested
|
|
|
(89
|
)
|
Forfeited
|
|
|
(4
|
)
|
|
|
|
|
|
Non-vested at December 31, 2007
|
|
|
180
|
|
|
|
|
|
|
As of December 31, 2007 and 2006, the weighted average
remaining contractual life of outstanding options was
approximately 8.3 and 7.5 years, respectively. Options
vested as of December 31, 2007 have an aggregate intrinsic
value of approximately $20.8 million. Options outstanding
as of December 31, 2007 have an aggregate intrinsic value
of approximately $56.8 million The total intrinsic value
(the excess of the market price over the exercise price) for
stock options exercised in 2007 was approximately
$8.9 million, and insignificant for 2006 and 2005. The
amount of cash received from the exercise of stock options was
approximately $1.6 million in 2007. For
52
SYNCHRONOSS
TECHNOLOGIES, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
the years ended December 31, 2007 and 2006, the total fair
value of vested options was approximately $2.5 million and
$326, respectively, and the minimum value was $62 for the year
ended December 31, 2005.
The following table summarizes information about vested stock
options at December 31, 2007:
|
|
|
|
|
Vested Stock Options
|
|
|
744
|
|
Weighted Average Exercise Price
|
|
$
|
7.46
|
|
Weighted Average Remaining Contractual Life (in years)
|
|
|
7.9
|
|
The following table summarizes stock options outstanding and
exercisable at December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
|
Number of
|
|
|
Weighted-Average
|
|
|
Weighted-Average Remaining
|
|
|
Number of
|
|
|
Weighted Average
|
|
Range of Exercise Price
|
|
Options
|
|
|
Exercise Price
|
|
|
Contractual Life (in years)
|
|
|
Options
|
|
|
Exercise Price
|
|
|
$ 0.29 - $ 1.84
|
|
|
251
|
|
|
$
|
1.05
|
|
|
|
6.6
|
|
|
|
181
|
|
|
|
0.91
|
|
6.19 - 7.35
|
|
|
283
|
|
|
|
6.93
|
|
|
|
8.4
|
|
|
|
73
|
|
|
|
6.97
|
|
8.92 - 10.00
|
|
|
982
|
|
|
|
9.09
|
|
|
|
8.1
|
|
|
|
384
|
|
|
|
9.06
|
|
12.68 - 16.19
|
|
|
417
|
|
|
|
13.44
|
|
|
|
9.0
|
|
|
|
106
|
|
|
|
13.13
|
|
17.90 - 24.46
|
|
|
345
|
|
|
|
23.53
|
|
|
|
9.3
|
|
|
|
|
|
|
|
|
|
27.84 - 35.85
|
|
|
233
|
|
|
|
31.59
|
|
|
|
8.1
|
|
|
|
|
|
|
|
|
|
36.08 - 42.77
|
|
|
320
|
|
|
|
36.53
|
|
|
|
7.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,831
|
|
|
|
|
|
|
|
|
|
|
|
744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
Stock Purchases and Grants
Under the 2000 Plan and 2006 Plan, certain eligible individuals
may be granted or given the opportunity to purchase the
Companys common stock at a price not less than the par
value of the shares. The Companys board of directors
determines the purchase price at its sole discretion. Shares
awarded or sold under the 2000 Plan and 2006 Plan are subject to
certain special forfeiture conditions, rights of repurchase,
rights of first refusal and other transfer restrictions as the
Companys board of directors may determine. Under most
circumstances, the right of repurchase shall lapse with respect
to the first 25% of the purchased shares when the purchaser
completes 12 months of continuous service and shall lapse
as to an additional 1/48 of the purchased shares when the
purchaser completes each month of continuous service thereafter.
In March 2006, 111 shares of restricted stock were
purchased by a board member. The purchase price of these shares
was $8.98 per share. The shares are not subject to any vesting
schedule. In April 2006, the Companys board of directors
awarded 191 shares of restricted stock at a fair value of
$8.98 per share to certain employees of the Company. In October
2006, the Companys board of directors awarded
33 shares of restricted stock at a fair value of $8.98 per
share to certain management employees of the Company. In
December 2006, the Companys board of directors awarded
35 shares of restricted stock at a fair value of $12.68 per
share to certain management employees of the Company. In January
2007, the Companys board of directors was awarded
19 shares of restricted stock at a fair value of $14 per
share. In December 2007, the Companys board of directors
awarded 29 shares of restricted stock at a fair value of
$36.10 per share to certain management employees of the Company.
Also in December 2007, the Companys board of directors
awarded 12 shares of restricted stock at a fair value of
$33.32 per share to a management employee of the Company.
The Company has a 401(k) plan (the Plan) covering
all eligible employees. The Plan allows for a discretionary
employer match. In 2007, the Company elected to increase its
match as a percentage of employee deferrals. The Company
incurred and expensed $503, $90 and $71 for the years ended
December 31, 2007, 2006 and 2005, respectively, in Plan
match contributions.
53
SYNCHRONOSS
TECHNOLOGIES, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
Deferred income taxes reflect the net effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. Significant components of the
Companys deferred tax assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
|
69
|
|
|
|
71
|
|
Deferred revenue
|
|
|
|
|
|
|
40
|
|
Bad debts reserve
|
|
|
178
|
|
|
|
71
|
|
State net operating loss carryforwards
|
|
|
618
|
|
|
|
812
|
|
Depreciation
|
|
|
801
|
|
|
|
669
|
|
Deferred compensation
|
|
|
1,079
|
|
|
|
292
|
|
|
|
|
|
|
|
|
|
|
Net deferred income taxes
|
|
$
|
2,745
|
|
|
$
|
1,955
|
|
|
|
|
|
|
|
|
|
|
The following table indicates where net deferred income taxes
have been classified in the Balance Sheet:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Current deferred tax assets
|
|
$
|
247
|
|
|
$
|
312
|
|
Non-current deferred tax
|
|
|
2,498
|
|
|
|
1,643
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
2,745
|
|
|
$
|
1,955
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the beginning and ending amount of
unrecognized tax benefits is as follows:
|
|
|
|
|
Unrecognized tax benefits balance at January 1, 2007
|
|
$
|
|
|
Additions for tax positions of current period (excludes accrued
interest)
|
|
|
649
|
|
|
|
|
|
|
Unrecognized tax benefits balance at December 31, 2007
|
|
$
|
649
|
|
|
|
|
|
|
The Company recognizes interest and penalties, if any, related
to unrecognized tax benefits in interest expense. The liability
for unrecognized tax benefits includes accrued interest of $29
and $0 at December 31, 2007 and 2006, respectively.
At December 31, 2007 and 2006, the Company has
approximately $9.5 million and $12.5 million of state
net operating loss carryforwards available to offset future
taxable income, respectively. The state net operating loss
carryforwards will begin expiring in 2021 if not utilized. In
addition, the utilization of the state net operating loss
carryforwards is subject to a $3.0 million annual
limitation. All taxes, expenses and benefits discussed are
domestic.
54
SYNCHRONOSS
TECHNOLOGIES, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
A reconciliation of the statutory tax rates and the effective
tax rates for the years ended December 31, 2007, 2006 and
2005 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Statutory rate
|
|
|
35
|
%
|
|
|
35
|
%
|
|
|
34
|
%
|
State taxes, net of federal benefit
|
|
|
4
|
%
|
|
|
6
|
%
|
|
|
5
|
%
|
Permanent adjustments
|
|
|
1
|
%
|
|
|
1
|
%
|
|
|
0
|
%
|
Research and development credit
|
|
|
(3
|
)%
|
|
|
0
|
%
|
|
|
0
|
%
|
Valuation allowance
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
(84
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
37
|
%
|
|
|
42
|
%
|
|
|
(45
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (expense) benefit consisted of the following
components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(12,431
|
)
|
|
$
|
(2,957
|
)
|
|
$
|
(164
|
)
|
State
|
|
|
(2,347
|
)
|
|
|
(1,664
|
)
|
|
|
(651
|
)
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
901
|
|
|
|
(2,624
|
)
|
|
|
3,579
|
|
State
|
|
|
(111
|
)
|
|
|
(65
|
)
|
|
|
1,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (expense) benefit
|
|
$
|
(13,988
|
)
|
|
$
|
(7,310
|
)
|
|
$
|
3,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.
|
Commitments
and Contingencies
|
Leases
The Company leases office space, automobiles and office
equipment under non-cancellable operating lease agreements,
which expire through March 2012. Aggregate annual future minimum
lease payments under these non-cancellable leases are as follows
at December 31, 2007:
|
|
|
|
|
Period ended December 31:
|
|
|
|
|
2008
|
|
|
1,531
|
|
2009
|
|
|
1,191
|
|
2010
|
|
|
726
|
|
2011
|
|
|
690
|
|
2012 and thereafter
|
|
|
164
|
|
|
|
|
|
|
|
|
$
|
4,302
|
|
|
|
|
|
|
Rent expense for the years ended December 31, 2007, 2006
and 2005 was $1,945, $1,522 and $1,353, respectively.
55
SYNCHRONOSS
TECHNOLOGIES, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
Omniglobe
International, L.L.C.
Omniglobe International, L.L.C., (Omniglobe) a
Delaware limited liability company with operations in India,
provides data entry services relating to the Companys
exception handling management. The Company pays Omniglobe an
hourly rate for each hour worked by each of its data entry
agents. As of December 31, 2007 and 2006, the Company has a
service agreement with Omniglobe. Services provided include data
entry and related services as well as development and testing
services. The current agreement may be terminated by either
party without cause with 30 or 60 days written notice prior
to the end of the term. Unless terminated, the agreement will
automatically renew in nine month increments. As of
December 31, 2007, the Company fulfilled the overall
minimum contractual commitment. The Company does not intend to
terminate its arrangement with Omniglobe.
On March 12, 2004, certain of the Companys executive
officers and their family members acquired indirect equity
interests in Omniglobe by purchasing an ownership interest in
Rumson Hitters, L.L.C., a Delaware limited liability company, as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds Received
|
|
|
|
|
|
Equity
|
|
|
Purchase Price of
|
|
|
from Interest in
|
|
|
|
|
|
Interest in
|
|
|
Interest in Rumson
|
|
|
Rumson Hitters,
|
|
Name
|
|
Position with Synchronoss
|
|
Omniglobe
|
|
|
Hitters, L.L.C.
|
|
|
L.L.C.
|
|
|
Stephen G. Waldis
|
|
Chairman of the Board of Directors, President and Chief
Executive Officer
|
|
|
12.23
|
%
|
|
$
|
95,000
|
|
|
$
|
95,000
|
|
Lawrence R. Irving
|
|
Chief Financial Officer and Treasurer
|
|
|
2.58
|
%
|
|
$
|
20,000
|
|
|
$
|
20,000
|
|
David E. Berry
|
|
Former Vice President and Chief Technology Officer
|
|
|
2.58
|
%
|
|
$
|
20,000
|
|
|
$
|
20,000
|
|
Robert Garcia
|
|
Executive Vice President of Product Management and Service
Delivery
|
|
|
1.29
|
%
|
|
$
|
10,000
|
|
|
$
|
10,000
|
|
On June 20, 2006, members of Rumson Hitters repurchased, at
the original purchase price, the equity interests in Rumson
Hitters held by each of the Companys employees and their
family members, such that no employee of the Company or family
member of such employee had any interest in Rumson Hitters or
Omniglobe after June 20, 2006. Neither the Company nor any
of its employees provided any of the funds to be used by members
of Rumson Hitters in repurchasing such equity interests. Since
June 20, 2006, Omniglobe is no longer a related party.
From March 12, 2004 through June 12, 2006, Omniglobe
has paid an aggregate of $1,300 in distributions to all of its
interest holders, including Rumson Hitters. In turn, during this
period, Rumson Hitters has paid an aggregate of $700 in
distributions to its interest holders, including approximately
$154 in distributions to Stephen G. Waldis and his family
members, approximately $32 in distributions to Lawrence R.
Irving, approximately $32 in distributions to David E. Berry and
his family members and approximately $16 in distributions to
Robert Garcia.
During the period in which the Companys employees and
their family members owned equity interests in Rumson Hitters,
fees paid for services rendered related to these agreements for
2006 were $3.7 million through June 20, 2006 when
Omniglobe was no longer a related party, and $8.0 million
for the year ended December 31, 2005. Since June 20,
2006, Omniglobe is no longer a related party.
56
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
Not applicable.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
Evaluation
of Disclosure Controls and Procedures.
Under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief
Financial Officer, we evaluated the effectiveness of our
disclosure controls and procedures as of December 31, 2007.
Based upon that evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that, as of December 31,
2007, our disclosure controls and procedures were effective, in
that they provide reasonable assurance that information required
to be disclosed by us in the reports that we file or submit
under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the Securities and
Exchange Commissions rules and forms.
Managements
Annual Report on Internal Control over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting. Internal
control over financial reporting is defined in
Rules 13a-15(f)
or 15d-15(f)
promulgated under the Securities Exchange Act of 1934 as a
process designed by, or under the supervision of, our principal
executive and principal financial officers and effected by the
companys board of directors, management and other
personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles and includes those
policies and procedures that:
|
|
|
|
|
Pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions
of the assets of the company;
|
|
|
|
Provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made
only in accordance with authorizations of management and
directors of the company; and
|
|
|
|
Provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the
companys assets that could have a material effect on the
financial statements.
|
To assist management, we established procedures to verify and
monitor our internal controls. Because of its inherent
limitations, however, internal control over financial reporting
may not prevent or detect misstatements. Projections of any
evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies
or procedures may deteriorate.
Our management assessed the effectiveness of the Companys
internal control over financial reporting as of
December 31, 2007. In making this assessment, our
management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control Integrated Framework.
Based on our assessment, management concluded that, as of
December 31, 2007, our internal control over financial
reporting was effective based on those criteria at the
reasonable assurance level.
The effectiveness of the Companys internal control over
financial reporting as of December 31, 2007 has been
audited by Ernst & Young LLP, our independent
registered public accounting firm, as stated in their report
which is included in Item 9 of this Annual Report on
Form 10-K.
Changes
in Internal Control over Financial Reporting
There were no changes in our internal control over financial
reporting identified in connection with the evaluation required
by paragraph (d) of Exchange Act
Rule 13a-15
that was conducted during the last fiscal quarter
57
that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
Inherent
Limitations on Effectiveness of Controls
The Companys management, including our Chief Executive
Officer and Chief Financial Officer, do not expect that our
disclosure controls or our internal control over financial
reporting will prevent all errors and all fraud. A control
system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of
the control system are met. Further, the design of a control
system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in
all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of
fraud, if any, within the company have been detected. These
inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur
because of a simple error or mistake Additionally, controls can
be circumvented by the individual acts of some persons, by
collusion of two or more people or by management override of the
controls. The design of any system of controls also is based in
part upon certain assumptions about the likelihood of future
events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future
conditions; over time, controls may become inadequate because of
changes in conditions, or the degree of compliance with policies
or procedures may deteriorate. Because of the inherent
limitations in a cost-effective control system, misstatements
due to error or fraud may occur and not be detected.
58
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Synchronoss
Technologies, Inc.
We have audited Synchronoss Technologies Inc.s internal
control over financial reporting as of December 31, 2007,
based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria).
Synchronoss Technologies Inc.s management is responsible
for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of
internal control over financial reporting included in the
accompanying Managements Annual Report on Internal
Control over Financial Reporting. Our responsibility is to
express an opinion on the companys internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Synchronoss Technologies, Inc. maintained, in
all material respects, effective internal control over financial
reporting as of December 31, 2007, based on the COSO
criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Synchronoss Technologies, Inc. as
of December 31, 2007 and 2006, and the related consolidated
statements of operations, stockholders equity
(deficiency), and cash flows for each of the three years in the
period ended December 31, 2007 of Synchronoss Technologies,
Inc. and our report dated February 22, 2008 expressed an
unqualified opinion thereon.
/s/ Ernst & Young LLP
MetroPark, New Jersey
February 22, 2008
59
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
None.
PART III
|
|
ITEM 10.
|
DIRECTORS
AND EXECUTIVE OFFICERS OF THE REGISTRANT
|
(a) Identification of Directors. Information concerning the
directors of Synchronoss is set forth under the heading
Election of Directors in the Synchronoss Proxy
Statement for the 2008 Annual Meeting of Stockholders and is
incorporated herein by reference.
(b) Audit Committee Financial Expert. Information
concerning Synchronoss audit committee financial expert is
set forth under the heading Audit Committee in the
Synchronoss Proxy Statement for the 2008 Annual Meeting of
Stockholders and is incorporated herein by reference.
(c) Identification of the Audit Committee. Information
concerning the audit committee of Synchronoss is set forth under
the heading Audit Committee in the Synchronoss Proxy
Statement for the 2008 Annual Meeting of Stockholders and is
incorporated herein by reference.
(d) Section 16(a) Beneficial Ownership Reporting
Compliance. Information concerning compliance with beneficial
ownership reporting requirements is set forth under the caption
Section 16(a) Beneficial Ownership Reporting
Compliance in the Synchronoss Proxy Statement for the 2008
Annual Meeting of Stockholders and is incorporated herein by
reference.
(e) Code of Ethics. Information concerning the Synchronoss
Code of Business Conduct is set forth under the caption
Code of Business Conduct in the Synchronoss Proxy
Statement for the 2008 Annual Meeting of Stockholders and is
incorporated herein by reference. The Code of Business Conduct
can also be found on our website, www.synchronoss.com.
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
Information concerning executive compensation is set forth under
the headings Compensation of Executive Officers in
the Synchronoss Proxy Statement for the 2008 Annual Meeting of
Stockholders and is incorporated herein by reference.
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
Information concerning shares of Synchronoss equity securities
beneficially owned by certain beneficial owners and by
management is set forth under the heading Equity Security
Ownership of Certain Beneficial Owners and Management in
the Synchronoss Proxy Statement for the 2008 Annual Meeting of
Stockholders and is incorporated herein by reference.
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
|
Information concerning certain relationships and related
transactions is set forth under the heading Certain
Related Party Transactions in the Synchronoss Proxy
Statement for the 2008 Annual Meeting of Stockholders and is
incorporated herein by reference.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
Information concerning fees and services of the Companys
principal accountants is set forth under the heading
Report of the Audit Committee and Independent
Registered Public Accounting Firms Fees in the
Synchronoss Proxy Statement for the 2008 Annual Meeting of
Stockholders and is incorporated herein by reference.
60
PART IV
ITEM 15. EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements:
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
37
|
|
Balance Sheets
|
|
|
38
|
|
Statements of Operations
|
|
|
39
|
|
Statements of Stockholders Equity (Deficiency)
|
|
|
40
|
|
Statements of Cash Flows
|
|
|
41
|
|
Notes to Financial Statements
|
|
|
42
|
|
(a)(2) Schedule for the years ended December 31, 2007,
2006, 2005:
II Valuation and Qualifying Accounts
All other Schedules have been omitted because they are not
applicable or the required information is shown in the financial
statements or notes thereto.
(a)(3) Exhibits:
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
3
|
.1*
|
|
Amended and Restated Certificate of Incorporation of the
Registrant.
|
|
3
|
.2*
|
|
Amended and Restated Bylaws of the Registrant
|
|
4
|
.1
|
|
Reference is made to Exhibits 3.1 and 3.2
|
|
4
|
.2*
|
|
Amended and Restated Investors Rights Agreement, dated
December 22, 2000, by and among the Registrant, certain
stockholders and the investors listed on the signature pages
thereto.
|
|
4
|
.3*
|
|
Amendment No. 1 to Synchronoss Technologies, Inc. Amended
and Restated Investors Rights Agreement, dated April 27,
2001, by and among the Registrant, certain stockholders and the
investors listed on the signature pages thereto.
|
|
4
|
.4*
|
|
Registration Rights Agreement, dated November 13, 2000, by
and among the Registrant and the investors listed on the
signature pages thereto.
|
|
4
|
.5*
|
|
Amendment No. 1 to Synchronoss Technologies, Inc.
Registration Rights Agreement, dated May 21, 2001, by and
among the Registrant, certain stockholders listed on the
signature pages thereto and Silicon Valley Bank.
|
|
10
|
.1*
|
|
Form of Indemnification Agreement between the Registrant and
each of its directors and executive officers.
|
|
10
|
.2*
|
|
Synchronoss Technologies, Inc. 2000 Stock Plan and forms of
agreements thereunder.
|
|
10
|
.3*
|
|
Amendment No. 1 to Synchronoss Technologies, Inc. 2000
Stock Plan.
|
|
10
|
.4*
|
|
2006 Equity Incentive Plan and forms of agreements thereunder.
|
|
10
|
.5*
|
|
Lease Agreement between the Registrant and BTCT Associates,
L.L.C. for the premises located at 750 Route 202 South,
Bridgewater, New Jersey, dated as of May 11, 2004.
|
|
10
|
.6*
|
|
First Amendment dated December 23, 2003 to the Lease
Agreement between the Registrant and BTCT Associates, L.L.C. for
the premises located at 750 Route 202 South, Bridgewater, New
Jersey, dated as of May 11, 2004.
|
|
10
|
.7**
|
|
Second Amendment dated August 21, 2006 to the Lease
Agreement between the Registrant and BTCT Associates, L.L.C. for
the premises located at 750 Route 202 South, Bridgewater, New
Jersey, dated as of May 11, 2004.
|
|
10
|
.8*
|
|
Lease Agreement between the Registrant and Liberty Property
Limited Partnership for the premises located at 1525 Valley
Center Parkway, Bethlehem, Pennsylvania, dated as of
February 14, 2002.
|
|
10
|
.10*
|
|
Loan & Security Agreement between the Registrant and
Silicon Valley Bank, dated as of May 21, 2001.
|
61
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
10
|
.11*
|
|
Cingular Master Services Agreement, effective September 1,
2005 by and between the Registrant and Cingular Wireless LLC.
|
|
10
|
.12*
|
|
Employment Agreement between the Registrant and Stephen G.
Waldis.
|
|
10
|
.13*
|
|
Employment Agreement between the Registrant and Lawrence R.
Irving.
|
|
10
|
.14*
|
|
Employment Agreement between the Registrant and Robert Garcia.
|
|
10
|
.15**
|
|
Employment Agreement between the Registrant and Chris Putnam.
|
|
10
|
.16**
|
|
Employment Agreement between the Registrant and Omar Tellez.
|
|
23
|
.1
|
|
Consent of Ernst & Young, LLP, Independent Registered
Public Accounting Firm.
|
|
24
|
|
|
Power of Attorney (see page 63)
|
|
31
|
.1
|
|
Certification of Chief Executive Officer pursuant to
Rule 13a-14(a)
of the Exchange Act, as adopted pursuant to section 302 of
the Sarbanes-Oxley Act of 2002
|
|
31
|
.2
|
|
Certification of Chief Financial Officer pursuant to
Rule 13a-14(a)
of the Exchange Act, as adopted pursuant to section 302 of
the Sarbanes-Oxley Act of 2002
|
|
32
|
.1
|
|
Certification of Chief Executive Officer pursuant to
Rule 13a-14(b)
of the Exchange Act and section 18 U.S.C.
Section 1350, as adopted pursuant to section 906 of
the Sarbanes-Oxley Act of 2002
|
|
32
|
.2
|
|
Certification of Chief Financial Officer pursuant to
Rule 13a-14(b)
of the Exchange Act and section 18 U.S.C.
Section 1350, as adopted pursuant to section 906 of
the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
Compensation Arrangement. |
|
* |
|
Incorporated by reference to Registrants Registration
Statement on
Form S-1
(Commission File
No. 333-132080). |
|
** |
|
Incorporated by reference to Registrants Annual Report on
Form 10-K
for the year ended December 31, 2006. |
|
|
|
Confidential treatment has been requested for portions of this
document. The omitted portions of this document have been filed
with the Securities and Exchange Commission. |
(10)
(b) Exhibits.
See (a)(3) above.
(c) Financial Statement Schedule.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
December 31, 2007, December 31, 2006, and
December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
|
|
|
|
|
|
Ending
|
|
|
|
Balance
|
|
|
Additions
|
|
|
Reductions
|
|
|
Balance
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Allowance for doubtful receivables(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
$
|
171
|
|
|
$
|
277
|
|
|
$
|
|
|
|
$
|
448
|
|
2006
|
|
$
|
221
|
|
|
$
|
40
|
|
|
$
|
(90
|
)
|
|
$
|
171
|
|
2005
|
|
$
|
200
|
|
|
$
|
21
|
|
|
$
|
|
|
|
$
|
221
|
|
|
|
|
(1) |
|
Reductions include the reinstatement and subsequent collections
of accounts receivable that were previously written-off |
62
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has caused this
Report to be signed on its behalf by the undersigned, thereunto
duly authorized.
SYNCHRONOSS TECHNOLOGIES, INC.
(Registrant)
Stephen G. Waldis
Chairman of the Board, Chief Executive Officer
and President
February 29, 2008
POWER OF
ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Ronald J.
Prague or Lawrence R. Irving, or either of them, each with the
power of substitution, their attorney-in-fact, to sign any
amendments to this
Form 10-K
(including post-effective amendments), and to file the same,
with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said
attorneys-in-fact, or their substitute or substitutes, may do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Stephen
G. Waldis
Stephen
G. Waldis
|
|
Chief Executive Officer and Director (Principal Executive
Officer)
|
|
February 29, 2008
|
|
|
|
|
|
/s/ Lawrence
R. Irving
Lawrence
R. Irving
|
|
Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|
February 29, 2008
|
|
|
|
|
|
/s/ William
J. Cadogan
William
J. Cadogan
|
|
Director
|
|
February 29, 2008
|
|
|
|
|
|
/s/ Charles
E. Hoffman
Charles
E. Hoffman
|
|
Director
|
|
February 29, 2008
|
|
|
|
|
|
/s/ Thomas
J. Hopkins
Thomas
J. Hopkins
|
|
Director
|
|
February 29, 2008
|
|
|
|
|
|
/s/ James
M. McCormick
James
M. McCormick
|
|
Director
|
|
February 29, 2008
|
|
|
|
|
|
/s/ Donnie
M. Moore
Donnie
M. Moore
|
|
Director
|
|
February 29, 2008
|
63
|
|
Item 16.
|
Exhibits
and Financial Statement Schedules
|
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
3
|
.1*
|
|
Amended and Restated Certificate of Incorporation of the
Registrant.
|
|
3
|
.2*
|
|
Amended and Restated Bylaws of the Registrant
|
|
4
|
.1
|
|
Reference is made to Exhibits 3.1 and 3.2
|
|
4
|
.2*
|
|
Amended and Restated Investors Rights Agreement, dated
December 22, 2000, by and among the Registrant, certain
stockholders and the investors listed on the signature pages
thereto.
|
|
4
|
.3*
|
|
Amendment No. 1 to Synchronoss Technologies, Inc. Amended
and Restated Investors Rights Agreement, dated April 27,
2001, by and among the Registrant, certain stockholders and the
investors listed on the signature pages thereto.
|
|
4
|
.4*
|
|
Registration Rights Agreement, dated November 13, 2000, by
and among the Registrant and the investors listed on the
signature pages thereto.
|
|
4
|
.5*
|
|
Amendment No. 1 to Synchronoss Technologies, Inc.
Registration Rights Agreement, dated May 21, 2001, by and
among the Registrant, certain stockholders listed on the
signature pages thereto and Silicon Valley Bank.
|
|
10
|
.1*
|
|
Form of Indemnification Agreement between the Registrant and
each of its directors and executive officers.
|
|
10
|
.2*
|
|
Synchronoss Technologies, Inc. 2000 Stock Plan and forms of
agreements thereunder.
|
|
10
|
.3*
|
|
Amendment No. 1 to Synchronoss Technologies, Inc. 2000
Stock Plan.
|
|
10
|
.4*
|
|
2006 Equity Incentive Plan and forms of agreements thereunder.
|
|
10
|
.5*
|
|
Lease Agreement between the Registrant and BTCT Associates,
L.L.C. for the premises located at 750 Route 202 South,
Bridgewater, New Jersey, dated as of May 11, 2004.
|
|
10
|
.6*
|
|
First Amendment dated December 23, 2003 to the Lease
Agreement between the Registrant and BTCT Associates, L.L.C. for
the premises located at 750 Route 202 South, Bridgewater, New
Jersey, dated as of May 11, 2004.
|
|
10
|
.7**
|
|
Second Amendment dated August 21, 2006 to the Lease
Agreement between the Registrant and BTCT Associates, L.L.C. for
the premises located at 750 Route 202 South, Bridgewater, New
Jersey, dated as of May 11, 2004.
|
|
10
|
.8*
|
|
Lease Agreement between the Registrant and Liberty Property
Limited Partnership for the premises located at 1525 Valley
Center Parkway, Bethlehem, Pennsylvania, dated as of
February 14, 2002.
|
|
10
|
.10*
|
|
Loan & Security Agreement between the Registrant and
Silicon Valley Bank, dated as of May 21, 2001.
|
|
10
|
.11*
|
|
Cingular Master Services Agreement, effective September 1,
2005 by and between the Registrant and Cingular Wireless LLC.
|
|
10
|
.12*
|
|
Employment Agreement between the Registrant and Stephen G.
Waldis.
|
|
10
|
.13*
|
|
Employment Agreement between the Registrant and Lawrence R.
Irving.
|
|
10
|
.14*
|
|
Employment Agreement between the Registrant and Robert Garcia.
|
|
10
|
.15**
|
|
Employment Agreement between the Registrant and Chris Putnam.
|
|
10
|
.16**
|
|
Employment Agreement between the Registrant and Omar Tellez
|
|
23
|
.1
|
|
Consent of Ernst & Young, LLP, Independent Registered
Public Accounting Firm.
|
|
24
|
|
|
Power of Attorney (see page 63)
|
|
31
|
.1
|
|
Certification of Chief Executive Officer pursuant to
Rule 13a-14(a)
of the Exchange Act, as adopted pursuant to section 302 of
the Sarbanes-Oxley Act of 2002
|
|
31
|
.2
|
|
Certification of Chief Financial Officer pursuant to
Rule 13a-14(a)
of the Exchange Act, as adopted pursuant to section 302 of
the Sarbanes-Oxley Act of 2002
|
64
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
32
|
.1
|
|
Certification of Chief Executive Officer pursuant to
Rule 13a-14(b)
of the Exchange Act and section 18 U.S.C.
Section 1350, as adopted pursuant to section 906 of
the Sarbanes-Oxley Act of 2002
|
|
32
|
.2
|
|
Certification of Chief Financial Officer pursuant to
Rule 13a-14(b)
of the Exchange Act and section 18 U.S.C.
Section 1350, as adopted pursuant to section 906 of
the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
Compensation Arrangement. |
|
* |
|
Incorporated by reference to Registrants Registration
Statement on
Form S-1
(Commission File
No. 333-132080). |
|
** |
|
Incorporated by reference to Registrants Annual Report on
Form 10-K
for the year ended December 31, 2006. |
|
|
|
Confidential treatment has been requested for portions of this
document. The omitted portions of this document have been filed
with the Securities and Exchange Commission. |
65